A New Kind of No-Doc Loan: The Direct Verification Mortgage
You know the drill: supply two months of bank statements, your last two pay stubs, and two years of W-2s when applying for a mortgage.
But what if the next time you get a home loan, you supply almost no documentation? As in no hard-copy or PDF proof of income or assets.
We’re not talking about the no-income-no-asset loans of the 2000s, but fully-verified mortgage applications.
That could be the new mortgage approval reality, thanks to emerging tech taking hold in the mortgage industry.
Why Documentation Could Become a Dinosaur
It would be welcome news for homebuyers and refinancing homeowners. You apply for a mortgage. The lender says they are all set. Nothing is needed on your part except for ID and a few authorizations.
More and more mortgage applicants today are experiencing the start of this movement.
Many lenders are investing heavily in a fully digital, automated process to attract and retain customers – and to reduce the stratospheric costs of manual verification.
Instead of requesting that you upload or physically bring them proof of employment, income, and assets, they access it directly.
How Do Lenders Directly Access Your Accounts?
How lenders access your information varies by lender. Often, they work with third-party companies to tap into employment and bank account history directly.
While this may sound intrusive – or worse, dangerous – you have probably already experienced something similar.
For example, popular payment app Venmo uses the third-party service Plaid to connect to your bank account and verify adequate funds for each transaction.
Bank Account Information
Speaking of Plaid, it’s a major player for mortgage companies, used by SoFi, Rocket Mortgage, and others.
Thirty-nine out of the top 100 U.S. banks and 24 of the top 100 non-bank mortgage lenders use Blend, another account verification service, to streamline asset verification.
Income and Employment
Blend also plays a key role for lenders accessing employment history and income specifics.
Another up-and-coming service is Truv. It has access to employment information for 92% of the U.S. workforce via payroll providers, HR services, and direct employer connections. Freddie Mac recently integrated the service with its platform to streamline the approval process for its partner lenders.
Is It Safe?
Safety should be top-of-mind for consumers, especially when the tech involves your mortgage lender, a third party, and your financial institution. Most if not all lenders should give you the choice of supplying documentation the old-fashioned way or via a direct connection.
Some consumers feel safer printing out and hand-delivering personal information to their lenders.
That being said, financial institutions must protect consumer information and implement internal practices per the Gramm-Leach-Bliley Act. While no method is foolproof, lenders take customer security seriously no matter which transmission method you choose.
Lenders Pushing to Reduce Documentation Needs
Rocket Mortgage famously launched its “Push Button, Get Mortgage” on December 31, 2015, touting a digital, streamlined process. It remains a leader in the space today.
Less well-known lenders are getting into the action, though.
LoanDepot’s mello smartloan(tm) lets you “skip the paper-chase” by directly connecting to your employer and bank, according to its website. It also analyzes your situation and suggests loan options.
KeyBank may be nearly 200 years old, but it’s not afraid to adopt new tech. It boasts a 17-day improvement in loan closing speed thanks to its focus on a digital mortgage process powered by Blend.
With adoption by some of the nation's biggest lenders, borrowers could soon expect the lender to pull at least some of their documentation directly.
Are Low-Paperwork Mortgages Available to Everyone?
Lenders often rely on third-party servies to reduce your paperwork burden. Much depends on whether your employer and bank work with services like Plaid, Blend, and Truv.
For example, someone who works at Microsoft and banks with Bank of America may not have to supply much at all.
But an employee of a single-location restaurant who keeps their money at a local credit union may need to provide pay stubs, W-2s, and bank statements. Third-party services likely have not forged relationships with all small companies.
Likewise, self-employed applicants will still have to supply tax returns and potentially a license, CPA letter, and other proof of business.
Someone with a special circumstance – a recent divorce, debts not on their credit report, or needing alternative credit, will probably have to supply documentation for the foreseeable future.
Still, a majority of Americans will likely soon be able to skip some or most traditional mortgage paperwork.
E-Closings: Icing On the Cake
Lenders are furthering the digital mortgage push with “e-closing” – a fully digital signing appointment for final loan documents.
Many lenders have been offering document signature for initial disclosures for years. This is the set of paperwork you receive within three days of application.
But allowing customers to digitally sign final loan documents has been a bigger challenge. Many states only recently allowed digital closings for mortgages.
According to Stavvy, a real estate eClosing solution provider, 44 states now allow Remote Online Notarization (RON) where a notary can witness a signing remotely via video.
Homebuyers and refinancing homeowners in a majority of states don’t have to travel to an escrow closer’s office or even pick up a physical pen.
Have a vacation planned at the same time as loan closing? This used to be a major problem. But not as much anymore.
One lender embracing e-closings is Guild Mortgage. “Customers can review their loan documents from anywhere,” says its website. It partnered with DocuSign for data encryption and two-factor authentication to ensure a secure process.
The Mortgage of the Future is Here
Choose the right lender, and you might experience many of the features described in this article without having to wait.
If convenience is a priority when getting a mortgage, ask about your lender’s direct verification and e-closing abilities.
You could save yourself calling your HR department for W-2s, downloading bank statements, and hunting for pay stubs.
Tim Lucas is the editor and Lead Analyst for MortgageResearch.com. Tim spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. He has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
