Blog Layout

Freddie Mac rolls out direct deposit income verification 94% of 35,000 workers surveyed in 2020 by the American Payroll Association are paid by direct deposit

Didier Malagies • Feb 17, 2022


Potential homebuyers seeking Freddie Mac-backed mortgages will no longer have to hunt for paper pay stubs to verify their income.


Freddie Mac announced on Wednesday that it will roll out an automated process that allows mortgage lenders to assess a prospective homebuyer’s direct deposit income. Freddie Mac claims this would reduce the paper documentation burden on borrowers, speed loan closing and simplify the lending process.


“Our direct deposit solution is an innovative, data-driven approach that takes minutes, not days to assess income so our clients can serve more borrowers more efficiently,” said Matt Vincent, Freddie Mac Single-Family vice president of credit and capacity. “Sourcing data directly from the mortgage applicant’s bank account increases accuracy, removes subjectivity, reduces manual underwriting errors and delivers a better experience for borrowers and lenders.”


Freddie Mac said that additional requirements and specifics — including the effective date for the new offering — will be in its March guide bulletin. The option will be available in Freddie Mac’s asset and income modeler (AIM), which functions within the GSE’s underwriting system, Loan Product Advisor, and automates parts of the manual process of assessing a borrower’s assets and income.


Requiring paper pay stubs is still often the go-to method for mortgage underwriters, and a Freddie Mac spokesperson said the majority of the mortgage market still relies on paper stubs for income verification.

But direct deposit is favored by the overwhelming majority of American workers. Out of about 35,000 individual workers surveyed in 2020, the American Payroll Association found that 94% received their checks via direct deposit. Freddie Mac hopes it can speed up the lending process by allowing lenders to tap into that data.


But to do so, they must separately establish an account with one of the third-party service providers that offer Freddie Mac’s direct deposit verification.


For the specific capability of verifying direct-deposit income, Freddie Mac said the initial service providers include Finicity, a financial data aggregator owned by MastercardFormFree, which provides data to lenders to assess borrowers’ ability to pay, and PointServ, which offers verification services for lenders.

Freddie Mac introduced its asset and income modeler in 2016, and in 2019 it started using tax return data to automate the income calculation process. At the time, Freddie Mac said the capability would free underwriters from doing busy work and allowed them to “focus on the big-picture credit profile of a borrower.”


AIM also extracted pertinent tax data, automating at least part of the arduous process of assessing self-employed borrowers’ income.


Freddie Mac claims that top performing lenders are more likely to automate the underwriting process, and doing so helps them close loans more effectively. A 2020 study by the GSE found that the top quartile of lenders, based on their closing cycle time, are more likely to build their processes around automated offerings.


Across the board, lenders who originate mortgages with “digital offerings” were able to shave nine to 10 days off their time to close, on average, the study found.



Fannie Mae has also taken steps to expand automatic verification of income and asset information. In June 2021, Fannie Mae told mortgage servicers they could start using third-party vendors to verify the information that borrowers provide in their Covid mortgage assistance application.



Start Your Loan with DDA today
Your local Mortgage Broker

Mortgage Broker Largo
See our Reviews

Looking for more details? Listen to our extended podcast! 

Check out our other helpful videos to learn more about credit and residential mortgages.

By Didier Malagies 04 Nov, 2024
 ender's 1% Down Payment program is designed to make homeownership more accessible for eligible first-time buyers by lowering the upfront costs typically required for a mortgage. Here's a breakdown of how the program generally works: How It Works 1% Down from the Borrower: The borrower contributes just 1% of the home purchase price as a down payment. 2% Contribution from Lender: Lender covers an additional 2% of the down payment, allowing the borrower to start with a total of 3% equity in the home. Eligibility: Borrowers must meet certain income and credit score requirements. The program often targets lower-income buyers or those who qualify for special financial assistance. Key Features and Benefits Low Entry Barrier: The reduced down payment can make homeownership achievable sooner for first-time buyers or those with limited savings. Conventional Loan: The loan is structured as a conventional mortgage, which may help borrowers avoid some of the restrictions associated with government-backed loans like FHA loans. Potential Mortgage Insurance: Depending on the loan details, borrowers may need to pay private mortgage insurance (PMI) until they reach 20% equity. Other Considerations Interest Rates: Rates and terms are subject to typical mortgage rate changes, so it's advisable to check the current rate before applying. Credit Requirements: There may be a minimum credit score requirement, though this is typically more flexible than for standard conventional loans. The 1% Down program can be an excellent option for buyers looking to make homeownership more affordable. tune in and learn at https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
By Didier Malagies 29 Oct, 2024
Roughly 16% of women workers are “very confident” that their retirement prospects will lead them to have a satisfactory lifestyle, illustrating that women remain at greater risk than men for achieving a sustainable retirement. This is according to a new survey-based report from the Transamerica Center for Retirement Studies. “Women have made great strides in educational attainment and access to career opportunities in recent decades,” Catherine Collinson, president and CEO of the Transamerica Institute, said in a statement. “Yet, despite this progress, women are still at greater risk than men of not achieving a financially secure retirement.” Longstanding challenges including a pay gap between men and women, as well as more time needed away from the workforce to adequately pa
By Didier Malagies 28 Oct, 2024
 The FHA 203(h) program is a Federal Housing Administration (FHA) loan specifically designed to help people affected by natural disasters, like hurricanes, purchase or rebuild a home. It provides an accessible way for victims of federally declared disaster areas to find stable housing quickly by offering favorable terms compared to traditional mortgages. Here’s a breakdown of how it works and its benefits: Key Features of the FHA 203(h) Loan Eligibility Requirements: You must be a homeowner or renter whose home was destroyed or severely damaged in a disaster within a federally declared disaster area. Typically, you need to apply within one year of the disaster declaration. Loan Coverage: You can use the FHA 203(h) to purchase a new primary residence or rebuild an existing one if your previous home was destroyed. It’s available for both single-family homes and approved condominiums. Benefits of the FHA 203(h) Program: No Down Payment Required: Unlike traditional FHA loans that require a 3.5% down payment, the 203(h) program allows qualified borrowers to finance 100% of the home’s cost, which can be helpful during times of financial stress. Lower Credit Score Flexibility: FHA loans generally have flexible credit requirements, and the 203(h) is no exception. The credit standards might be more accommodating due to the circumstances, though some lenders may impose their own minimum scores. Potential Waiver of Mortgage Insurance Premiums (MIP): Some lenders may waive upfront MIP payments under this program. However, it’s common for standard FHA loans to have monthly premiums. Refinance Option: If your damaged home needs repairs and you want to keep it, you can combine the FHA 203(h) with a 203(k) loan to finance both the purchase and repair costs. Loan Limits: The FHA 203(h) is subject to standard FHA loan limits, which vary by county and property type. Documentation: Lenders will require proof that you lived in the disaster area, typically through utility bills, lease agreements, or similar documents. You’ll also need proof of disaster loss, such as insurance claims, FEMA assistance documentation, or other relevant records. Steps to Apply Contact Lenders Familiar with FHA 203(h) Loans: Not all lenders offer this program, so find one experienced with disaster recovery loans. Gather Required Documentation: Make sure to have your identification, proof of residency in the disaster area, proof of loss, and any FEMA assistance documents. Consider FHA 203(k) Combination: If you want to buy a damaged home and repair it, discuss combining with an FHA 203(k) for renovation financing. Potential Drawbacks While the program is beneficial, keep in mind that: The loan amount is capped by FHA limits, which may not be enough in higher-cost areas. Mortgage insurance premiums can increase monthly payments, even if the upfront premium is waived. The FHA 203(h) can be a strong tool for those affected by natural disasters, providing quick access to housing and flexible financing terms at a time when resources might be limited. tune in and learn at https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
Show More
Share by: