Optimizing income and employment verification
Accessing data provided directly by employers can increase the level of certainty throughout the decisioning process and reduce risk of future defaults.
Few parts of the loan origination process are as notoriously clunky as income and employment verification. Lenders traditionally verify income by contacting the loan applicant’s employer or asking them to provide paystubs or W-2s.
Lenders that are still relying on the “old school” practice of collecting documents should consider a more efficient option. This sort of manual process of employment and income verification can create friction for both the customer and the lender. It also has the potential to place the burden on consumers to access, find and then upload documents – or worse yet, print and mail them. This adds risks and vulnerabilities for lenders, including misrepresented or even falsified documents.
A simple web search for “fake paystub” returns a number of websites where a false paystub can be created in a matter of minutes. To counter this, some lenders may consider consumer-permissioned (also called consumer-credentialed) options that ask consumers to authorize use of their payroll provider login credentials as a way for lenders to gain access to payroll records.
Consumer-permissioned verification seems like a viable option until you consider that, once again, the verification burden is placed on consumers. Borrowers must find out who manages their employer’s payroll, know the credentials to access their records with the provider and then be willing to share this sensitive login information with the lender.
The consumer-permissioned model is an offline or asynchronous data retrieval approach that can introduce a great deal of friction between the consumer and the banker. It can also add risk to the employee, employer, and the payroll provider by introducing a consumer’s payroll login credentials to another party.
Automating the verification process
The income and employment verification environment is constantly evolving. As we entered the global pandemic, loan providers across almost every industry were affected by the accelerated turn to digitizing as much of the origination process as possible, including the verification process.
Lenders have the ability to streamline and optimize this critical activity for themselves and customers. Getting access to data instantly to verify income and employment ensures that lenders have the data they need to approve an applicant faster, remotely and safely. This digital journey results in less overwhelming paper-based transactions and reduces the need for multiple requests for documents from applicants.
Improving the process of verifying a potential customer’s income or employment can shorten the loan cycle and enables bankers to close loans quickly. In addition, automated income verification reduces reprocessing costs by increasing efficiency at every step, which stands to allow internal resources that are no longer required to manually pull documentation to focus on more complex deals that can generating additional revenue for their organization.
Data provided directly by employers can increase the level of certainty throughout the decisioning process, reducing the risk of future defaults resulting from over-inflated customer-provided income, ultimately strengthening their portfolios and increasing investor value.
Some legacy and manual methods for income and employment verification may not be optimal for today’s dynamic lending landscape. As more lenders adopt and implement instant income and employment verification, this more efficient and cost-saving technology could become an industry standard.
Chad Whittenberg is vice president of marketing and product strategy at Equifax Workforce Solutions.