© Fannie Mae Single Family Selling Guide
General
Q1. What is the benefit of the DU validation service?
Fannie Mae recognizes the challenges lenders and borrowers encounter when originating loans – frustration with the length of time it takes to close a loan and the paper-intensive nature of gathering and processing borrower information. Fannie Mae also recognizes that lenders would like to retain their competitive advantage by reducing costs, increasing their processing efficiency, and enabling a superior borrower experience.
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Lenders can access both Day 1 Certainty Pre-Delivery and Post-Delivery reports in Fannie Mae Connect™. The reports show loans that are eligible for representations and warranties enforcement relief on validated loan components and provide a lender-level and responsible party dashboard of Day 1 Certainty activity, as well as loan-level details for the DU validation service. The reports can be found in the Management section of the Report Center in Fannie Mae Connect.
Q21. NEW In October, the Consumer Financial Protection Bureau (CFPB) issued data sharing and aggregation principles (Principles) for protecting consumers when they authorize third-parties to access their
financial data. What impact might these Principles have on Day 1 Certainty and the DU validation service?
The Principles reflect a data sharing and aggregation framework that aspires to enhance already-existing consumer protections. The CFPB expressly notes that the Principles are non-binding, and do not establish requirements or obligations for stakeholders. While Fannie Mae continues to monitor emerging guidance and may take additional actions in the future, at this time we are making no changes to Day 1 Certainty or to the DU validation service in response to the Principles. Each stakeholder should review the Principles with their own legal counsel and take whatever steps they believe appropriate for them.
Q22. NEW Can lenders use the DU validation service for qualified mortgages?
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DU does not use any income reported as “other” on the verification report due to the inability to determine what type of income “other” represents. Lenders can continue to use this income for qualifying purposes if additional documentation is obtained to meet standard Selling Guide requirements, even though it is not eligible for validation.
Q35. NEW Do lenders need to order a tax transcript on every loan in order to receive income validation?
No. Lenders should refer to the table in the DU Validation Service Reference Guide under Report Suppliers and Verification Reports, Income Types, and DU Input to determine which income types and circumstances require a tax transcript in order to receive income validation.
Employment Validation
Q36. NEW. What employment types can be validated through the DU validation service?
Employment associated with base, bonus, overtime, and commission income (non-military) is eligible for validation. Borrowers with self-employment will not have employment validated, even if they also have a non self-employment source of income.
Q37. Can borrowers on temporary leave be validated for employment status?
No. Certain employee status codes that may indicate temporary leave (e.g., sabbatical), will not be considered active employment, and therefore will not be validated.
If the lender confirms the borrower is currently on temporary leave, the lender must consider the borrower to be ‘employed,’ however, additional documentation requirements apply that are not supported by the DU validation service. Refer to the Selling Guide for details.
Q38. If income is validated by DU, does the lender is the impact to income validation when an updated verification of employment report indicates the borrower is no longer actively employed?
Income validation is contingent upon employment validation. If DU is not able to validate employment at the time an updated verification of employment report is submitted to DU, then DU will no longer validate income from this employer. In that case, the lender should follow standard income and employment documentation requirements.
Employment Validation
Q37. What employment types can be validated through the DU validation service?
Employment associated with base, bonus, overtime, and commission income (non-military) is eligible for validation. Borrowers with self-employment will not have employment validated, even if they also have a non self-employment source of income.
Q38. NEW. How can I obtain employment validation, for non-self-employed borrowers, through the DU validation service?
- Order a Verification of Income and Employment, or a Verification of Employment report from an Approved Vendor, then
- Submit the casefile to DU
- If DU issues the message stating that employment has been validated, then close the loan by the ‘close by’ date reflected in the DU message.
Q39. Can borrowers on temporary leave be validated for employment status?
No. Certain employee status codes that may indicate temporary leave (e.g., sabbatical), will not be considered active employment, and therefore will not be validated.
If the lender confirms the borrower is currently on temporary leave, the lender must consider the borrower to be ‘employed,’ however, additional documentation requirements apply that are not supported by the DU validation service. Refer to the Selling Guide for details.
Q40. If income is validated by DU, does the lender still need to obtain a Verbal Verification of Employment (VVOE) per Selling Guide B3-3.1-07, Verbal Verification of Employment?
The lender is still required to obtain a verification of employment within ten calendar days before loan closing in accordance with the Selling Guide. Employment validation through DU can fulfill the requirement to obtain a VVOE if obtained within ten calendar days of closing. An income verification report that includes verification of employment can only fulfill the VVOE requirement if the loan closes within ten calendar days. The lender must comply with all DU messages, including ensuring the loan closes by the “Close by date” stated in the DU employment validation message.
Q39Q41. UPDATED Can verification of income also include verification of employment?
Yes. A lender that is signed up for income validation will automatically see the employment validation messaging in DU. DU can use either a verification of income (VOI) or verification of employment (VOE) to validate employment through the DU validation service. When employment is validated, the loan must close within ten calendar days of the report date. If a VOI was used for income validation early in the process and the lender also received employment validation but is not able to meet the initial ten-day timeframe, the lender will also have to order a VOE (or an updated VOI) ten calendar days prior to closing and resubmit the casefile to DU in order to obtain the updated employment validation.
Q40. NEW In the event that the lender’s DU Messages indicate that they have received income validation and employment validation, but closing does not occur within 10 days of the employment verification Report Order Date, the loan will not receive employment validation (see DU Validation Service Reference Guide under Verbal Verification of Employment). Does the loan still retain income validation?
Yes, the loan will still retain income validation if the lender closes the loan within 120 days of the Income Report Order Date.
Q41. If a lender received employment validation in DU and closed the loan within the “close by” date in the DU employment validation message, does the lender receive enforcement relief of representations and
warranties even if it is later discovered that the borrower was no longer employed at the time of closing?
If employment has been validated and the lender closed the loan within the date outlined in the DU message (ten calendar days from the date that the report is obtained), the lender will receive enforcement relief of the representation and warranty that the borrower is employed as of the closing date, provided the lender had no knowledge of the change in the borrower’s employment status. If the borrower disclosed (or the lender became aware) prior to closing that the borrower was no longer employed, this represents conflicting information that would have required additional investigation by the lender, and the enforcement relief would no longer apply to the prior employment (which may have an impact on any income validation associated with that employment).
Q42. NEW If a lender orders a VOE and receives a message in their DU Findings report confirming employment validation but does not meet the 10 day Close By Date reflected in the message, how can they ensure that the loan retains rep and warrant relief?
In order to retain rep and warrant relief on a loan that has passed the 10 day Close By Date reflected in the employment validation message, the lender must:
- Reorder an employment verification report from an approved vendor
- Resubmit to DU
- Close by the updated Close By Date in the new employment validation message
Q43VOE) to validate employment through the DU validation service. When employment is validated, the loan must close within ten calendar days of the report date. If a VOI was used for income validation early in the process and the lender also received employment validation but is not able to meet the initial ten-day timeframe, the lender will also have to order a VOE (or an updated VOI) ten calendar days prior to closing and resubmit the casefile to DU in order to obtain the updated employment validation.
Q42. If a lender received employment validation in DU and closed the loan within the “close by” date in the DU employment validation message, does the lender receive enforcement relief of representations and
warranties even if it is later discovered that the borrower was no longer employed at the time of closing?
If employment has been validated and the lender closed the loan within the date outlined in the DU message (ten calendar days from the date that the report is obtained), the lender will receive enforcement relief of the representation and warranty that the borrower is employed as of the closing date, provided the lender had no knowledge of the change in the borrower’s employment status. If the borrower disclosed (or the lender became aware) prior to closing that the borrower was no longer employed, this represents conflicting information that would have required additional investigation by the lender, and the enforcement relief would no longer apply to the prior employment (which may have an impact on any income validation associated with that employment).
Q43. NEW. If the employment validation expires because the loan did not close by the required close date, what options are available to revalidate employment?
- To re-validate employment and obtain updated income validation: The lender can choose to reorder a Verification of Income and Employment, or a Verification of Employment (VOE) report and resubmit the casefile to DU. If DU is able to validate employment, DU will re-issue income and employment validation messages, including updated close by dates, which apply as a result of the updated report.
- To re-verify employment and retain income validation: If the lender does not obtain an updated Verification of Income and Employment, or a Verification of Employment (VOE) report and/or does not resubmit the casefile to DU in order to update employment and income validation through the DU validation service, the lender must follow the standard Selling Guide requirements for verifying employment prior to delivering the loan to Fannie Mae.
Q44. NEW. If the lender chooses to re-verify employment (vs. re-validate employment through the DU validation service) will the loan retain income validation?
Income validation is retained provided (1) the lender follows the standard Selling Guide requirements for verifying employment (2) the borrower remains employed with the same employer for which income is
validated (3) the loan file does not contain conflicting and contradictory information related to the borrower’s employment status or income from this employer and (4) the loan closes by the income
validation close by date identified by DU.
Q45. Does DU’s assessment of the vendor report, including any Employer Disclaimer information reflected on the report, relieve the lender of the responsibility to assess the verification report for inconsistencies?
No. Similar to credit report information, the lender remains responsible for reviewing the information in the loan file, including the information on all vendor reports, for inconsistencies or discrepancies. The lender must lender
must investigate any inconsistent information and resolve any conflicts. In some cases, this may mean obtaining additional documentation to fulfil the Verification of Employment requirement.
Q44Q46. NEW In the DU Validation Service Reference Guide, it states if DU does not validate employment, the associated income will also not be validated. How does this impact validation for self-employment
income?
Self-employment income validation does not require associated employment validation, as selfemployment is not one of the employment types eligible for validation. See the DU Validation Service Reference Guide for more information on how self-employment income is validated.
Asset Validation
Q45Q47. Does the DU validation service evaluate large deposits?
The assessment of large deposits is automated through the DU validation service for asset validation. A message will be issued in DU when the source of a large deposit must be documented. See the DU Validation Service Reference Guide (requires DU, DO, or Fannie Mae Connect credentials) for additional information.
Q46Q48. Which types of assets can be validated?
Q47Q49. Are there any restrictions on the transactions eligible for asset validation?
Yes. When the borrower is receiving funds from a gift, the loan is not eligible for asset validation. In addition, if any borrower on the loan is using employment-related assets as income, the loan is not eligible for asset validation.
Q48Q50. Are business asset accounts an acceptable asset type?
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The current logic used for asset validation in DU will aggregate asset information from both personal and business accounts (provided the borrower selected to provide those accounts).
Q49Q51. Is earnest money included in the amount of assets validated by DU?
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If the funds have not cleared the borrower’s bank account, the amount can be included in the depository account, such as a checking or savings account. In these cases, it will be included in the amount of assets validated by DU.
Q50Q52. What happens if the amount of assets required to complete the transaction at time of closing is different than the amount of assets validated by DU?
In some cases, the amount of assets needed at time of closing is different than originally input into DU and validated by the DU validation service. Lenders must ensure that there is documentation in the loan file to support the full amount of assets required at time of closing. Refer to the Selling Guide to determine whether the loan is required to be resubmitted to DU. The DU validation service will include a message reminding lenders of this requirement.
Q51Q53. NEW What is the tolerance for comparing the amount on an asset verification report to the asset amount input in DU by the lender?
In order to receive validation for assets, the borrower assets that DU calculates based on information from the asset verification report must be greater than or equal to the Total Funds to be Verified amount in DU. Refer to the DU Validation Service Reference Guide for more information.
Q52Q54. NEW If a borrower is relying on anticipated sales proceeds or net proceeds from the sale of another property in order to close, how can the lender document those funds in order to receive asset validation?
Unfortunately, the DU validation service does not have the capability to validate assets not yet received and therefore not shown in the borrower’s asset verification report. For now, lenders should continue to seek verification of net proceeds in accordance with the Selling Guide.
Q53Q55. NEW How does the DU validation service handle large deposits when validating assets for refinance transactions?
The DU validation service will identify large deposits in accordance with the definition provided in the Selling Guide, and will determine when large deposits need to be verified by the lender. (Refer to the Selling Guide, B3-4.2-02, Evaluating Large Deposits, for more information.) Since large deposits do not need to be documented on refinance transactions, no DU validation service messaging will be issued for large deposits on refinance transactions.
Q54Q56. NEW Should the lender attempt asset validation for every loan?
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Representations and Warranties
Q55Q57. What is Day 1 Certainty?
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- Income calculation – the calculation of the income amount used to qualify the borrower when that income is able to be validated by the DU validation service (per borrower, per income-type)
- Employment status at closing – the borrower’s employment, through the time of closing, that the employer attested to on the loan application (per borrower, per employer)
- Asset calculation – the accuracy of the amount of assets relied upon to satisfy the total amount of assets required to be verified by DU (loan-level)
- The integrity of the data provided on the eligible report obtained from the report vendor
Q56Q58. What are the lender’s additional responsibilities when a component has been validated?
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- Confirm that the verification report matches the borrower, including the employer name and that the borrower is the account holder (for asset reports);
- Investigate any inconsistent or contradictory information, resolve, and then update DU if necessary;
- Ensure that the documentation meets the age of credit document requirements as contained in the specific DU messages issued; and
- Comply with all DU messages and document the file accordingly.
Q57Q59. How does Day 1 Certainty apply to a loan selected by Fannie Mae for quality control (QC) review?
If a loan is selected by Fannie Mae for post-purchase QC review and a Significant Defect is identified related to the calculation of the borrower’s income or assets, the integrity of the data in a vendor’s report, or the borrower’s employment status at time of closing, Fannie Mae will not pursue repurchase (or a repurchase alternative) if that particular component was validated by the DU validation service (assuming the lender met all requirements related to the DU validation service and there was no breach of life-of-loan representations or warranties).
Q58Q60. How does Day 1 Certainty apply to the life-of-loan representations and warranties?
The life-of-loan representations and warranties, as part of the broad representations and warranties framework, apply to all loans delivered to Fannie Mae, for the life of the loan. While Fannie Mae provides lenders with enforcement relief for certain representations and warranties as part of the DU validation service, the life-of-loan representations and warranties continue to apply.
Quality Control
Q59Q61. What impact does the DU validation service have on Fannie Mae’s requirements for lenders’ QC processes?
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- Include a review of the file as a whole and ensure the information it enters in DU is appropriate based on its review and investigation of any inconsistent or contradictory information in the loan file and the vendor report
- Ensure compliance with the DU messages and that the appropriate required documentation is in the file.
- Re-verify in accordance with the Selling Guide any components of the loan that were unable to be validated or were not validated by DU.
Q60Q62. What if the lender outsources post-closing QC processes?
Lenders that use an outsourced third-party vendor for quality control should work closely with the vendor to make sure that any QC efficiencies are only applied on the loans with the appropriate DU messages – and that the vendor still performs reverification where it is required.
Troubleshooting
Q61efficiencies are only applied on the loans with the appropriate DU messages – and that the vendor still performs reverification where it is required.
Q63. What action should a lender take if they discover data discrepancies or find data within a vendor report that just doesn’t make sense?
Lenders should report data issues to the Day 1 Certainty Data Discrepancy mailbox. The mailbox is used to gather data discrepancies that lenders may identify as part of their due diligence of loans validated through the DU validation service. This information will be used by Fannie Mae to identify gaps with data quality and to improve our models.
Troubleshooting
Q64. Why would a lender not see DU validation messages?
A lender must opt in to use the DU validation service with any Equifax report, including The Work Number. Once activated, the lender should see messages for casefiles submitted for validation.
For all other vendors, or if you have activated for an Equifax report and are still having trouble, please contact your account team or call 1-800-2FANNIE (1-800-232-6643), Option 1 (technology support).
Q62Q65. If a lender ordered and received a verification report from a vendor for the borrower but the DU validation service was not able to validate, what might have happened?
Some information may not qualify for validation. For example, if a borrower has been employed less than 12 months, a vendor may issue a report for that borrower that the lender determines to be acceptable income documentation. However, DU will not validate the income provided because DU requires at least 12 months of income for the validation service to run. The 12-month minimum requirement is specific to the validation service – not a change in overall Selling Guide policy.
See the DU Validation Service Reference Guide (requires DU, DO, or Fannie Mae Connect credentials) for more details.
Q63Q66. What does it mean if employment was not validated for a borrower due to Employer Disclaimer Information?
At times, the Employer Disclaimer section of a verification report contains information indicating that the information on the report may not accurately reflect the borrower’s employment status (employment status may remain ”active” for some period of time after termination, for example). DU looks for combinations of key text in the disclaimer section and will not validate employment if certain text is present.
Q64Q67. Employment was not validated for a borrower because the employer name on the VOE does not match the employer name in DU. The discrepancy is really just a data-entry error – the employer name is
reflected differently on the verification report than on the application (“Federal National Mortgage Association” vs. “Fannie Mae,” for example). Does this mean this employment record cannot be validated?
If, after performing the appropriate due diligence, the lender determines that the reason for the difference in employer name is purely data entry and the employers are, in reality, the same, the lender may update the employer name in DU to match the name as it appears on the verification report and resubmit to DU.Link to Source: https://www.fanniemae.com/content/faq/du-validation-faqs.pdf