With housing values on the rise again, the home equity loan is back. Homeowners now have equity in their homes, and many are looking to tap into it. As a lender, you will want to employ best practices to ensure you are properly vetting prospective borrowers.
Data supplied by home equity loan applicants can be unreliable due to inaccuracy, from either honest mistakes or intentional misrepresentation, inconsistency or latency. Using current technology, you can use reliable third-party records to verify information used to evaluate income and assets, employment status, and debt obligations, alimony and child support. Executing these best practices will mitigate the risk of unreliable data during the home equity loan application process.
"Making full use of the technology that is available today is a best practice for home equity lenders," says Brad Jones, Banking Vertical Marketing Leader, Equifax U.S. Consumer Information Solutions. "The investment in this technology pales in comparison to the benefit of identifying well-qualified borrowers and matching them with the right loan products."
Verifying wages and salary
You should verify a borrower's wages or salary directly with the employer. Having a consistent process in place will reduce the time and costs involved.
Use common tools like Google Maps to research the sources provided by the borrower. Other resources, such as an internal database of human resources contacts, can be used to validate information and identify what is needed to complete the verification process.
The call phase should include scheduled automated callbacks if the contact cannot be reached on the first try. The verification questions asked should be consistent, and the answers should be logged.
The audit review stage includes inspecting each order for accuracy and completeness and following up on any missing data, and to perform the final audit based on the results that have been gathered. Having consistent standards in place for this step will help you ensure that all information is complete and that the loan is closed in a timely manner.
Verifying income through the IRS
Personal tax, business tax and wage statements are available through the Internal Revenue Service. A borrower must complete IRS form 4506-T to allow a third party to access tax records or transcripts. Using these records ensures that the information is accurate, as it is obtained directly from the IRS. The electronic delivery process of this information minimizes signature fraud, reduces lost paperwork, streamlines the process and lowers costs.
Use of emerging technologies
New technology continues to emerge that further enhances the process and improves outcomes in the home equity loan application process. The tri-merge credit report, a single report aggregating data from all three major credit reporting agencies, allows you to see a full view of the borrower's credit risk profile. Automated valuation tools, which are now accepted in lieu of full appraisals for home equity loans less than $250,000, have lower costs and produce faster results.
Best practices for implementation
Using a single vendor who can provide necessary technology services and solutions in a single platform will help you simplify implementation and provide a better user experience. Solutions need to keep pace with the ever-changing trends and regulations in the industry. In any technology-based solution, quality control and security of data is critical. Any vendor selected must demonstrate a deep commitment to continually developing new products and enhancing existing products.
"The increase in home prices and resulting increase in equity is good news for borrowers and lenders," concludes Jones. "Taking advantage of the available technologies to identify the very best borrowers will ensure that everybody wins."