If there was a chance to give buyers more efficient origination, processing, and closing of their home loans, most lenders and realtors would take it in a heartbeat. Not just a pipe dream, that’s exactly what Fannie Mae is offering to borrowers by allowing lenders to utilize Day 1 Certainty.
What is Day 1 Certainty?
Traditional home loan processes are paper-based and known for slowing things down. For years, lenders and other industry professionals have been asking for help. Is there way to speed up the process and make it easier on the borrower, not to mention the lender?
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In response to this market demand from lenders, Fannie Mae (also known as The Federal National Mortgage Association) announced in November 2016 that they would allow lender partners to offer Day 1 Certainty to their borrowers. And while it’s a big help to the average homebuyer, Day 1 Certainty is still a term many industry professionals seem unfamiliar with.
“Right now, we’re working with the approved third-party vendors from Fannie Mae to validate our borrower’s income, employment, and assets up front through Fannie Mae’s automated decisioning engine,” Julie Piepho, Head of Operations at Cornerstone Home Lending, NMLS ID: 207274, 1177 West Loop South, Ste. 200, Houston, Texas, 77027, Branch NMLS: 2258, says. This process includes receiving accurate information from the borrower upfront at loan application to enter into an analytic data engine.
This verification reflects Fannie Mae’s purpose in providing Day 1 Certainty to the borrower. It offers:
- The potential to leverage borrower and property data.
- The ability to make key quality control processes more transparent.
- The opportunity to apply more advanced analytics to loan prequalification.
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What can Day 1 Certainty do for the borrower?
If a borrower’s information validates against third-party vendors, no further validation or information is required. This makes the process more seamless for the borrower. Piepho explains. “Additionally, the appraisal process, with Fannie Mae, is looking at appraisal data validation upfront. Both of these processes will help the lender in the future with post-closing quality control. And the borrower with faster processing and documentation of their file,” Piepho says.
Compare this to what many see to be a “typical” borrowing experience. “It helps to remember that the three legs of the qualifying stool are income, assets, and credit,” Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage, says. “Common loan prequalification setbacks regarding income are when some of your income is not from W2 salary. For instance, self-employment income, bonuses, stock options, restricted stock units, and profit sharing are all treated differently than salary income.” To count as income, a borrower must generally show a two-year history of receiving it and a likelihood that it will continue for at least another three years. Fleming says, “So, a common setback is that the underwriter may calculate your income differently than you do.”
Fleming estimates delays in the majority of home loan approvals. He says, “Very few borrowers are actually ‘squeaky clean.’”
To make the loan process faster and easier, Fannie Mae lending partners can opt-in to use the Desktop Underwriter Validation Service, as Piepho described above. The Desktop Underwriter, or DU, will provide mortgage lenders with more power by allowing for the optional validation of borrower data based on income, assets, and employment.
For example, tax transcripts obtained through the DU Validation Service verify income gained from Social Security, pension or retirement, self-employment, and commission. DU verification reports may also validate assets that include checking and savings accounts, CDs, money market accounts, mutual funds, and retirement accounts.
Day 1 Certainty benefits the borrower by providing speed, accuracy, and efficiency. And it can benefit the homeowner too. Day 1 Certainty offers freedom from appraisal requirements on eligible home loan refinances. Fannie Mae estimates that 20 percent of limited cash-out mortgage refinances may receive an offer to waive the property appraisal. Once a lender accepts this appraisal waiver offer, it’s a done deal. A home loan refinance can then be delivered to Fannie Mae, backed by Day 1 Certainty for property value, condition, and marketability.
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What borrowers can expect from Day 1 Certainty: Step by step
It’s convenient. It’s straightforward. And it removes many of the roadblocks between lender and borrower on the race to closing day.
This is how a home loan can progress using Day 1 Certainty:
- A borrower will consent to have their electronic data and credit report pulled.
- A lender will order report from vendors.
- A lender will submit a borrower’s casefile to DU.
- DU will validate a borrower’s income, assets, and employment.
- With this verification, a lender will close a loan and deliver it to Fannie Mae. At this time, a lender receives Day 1 Certainty for a borrower’s income, assets, and employment.
- A lender completes the loan with a more efficient post-closing process.
It’s the automated pre-verification of Day 1 Certainty that prevents time waste and provides several key advantages. Along with benefits for the borrower and the refinancing homeowner, Day 1 Certainty undoubtedly benefits the lender. It’s a program that improves efficiency and reduces risk in lending. Mortgage lenders that want to remain competitive by cutting costs and increasing output, says Fannie Mae, can use the Day 1 Certainty program to offer their borrowers a better experience.
Lenders using this program finally have the freedom to give their borrowers what they’ve been asking for all along. Less paperwork and more movement to get a loan to closing day.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources deemed reliable but not guaranteed.