B3-2-02: DU Validation Service (03/28/2017)
- Marsha Freeman
- Kacey Olson (Unlicensed)
© Fannie Mae Single Family Selling Guide
General Information
The DU validation service offers lenders an opportunity to deliver loans with more certainty. Certain components of the loan file – income, employment, and assets – are eligible for validation by DU using electronic verification reports obtained from vendors. When a component of the loan is validated by DU, the loan may be eligible for representation and warranty enforcement relief related to that component. Different lender quality control and documentation requirements may also apply. See the following for additional information:
A2-2-01, Contractual Representations and Warranties,
A2-2.1-04, Limited Waiver and Enforcement Relief of Representations and Warranties for Mortgages Submitted to DU,
A3-4-02, Data Quality and Integrity,
B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns,
B3-3.1-01, General Income Information (7/25/2017),
B3-3.1-02, Standards for Employment Documentation,
B3-3.1-06, Requirements and Uses of IRS Request for Transcript of Tax Return Form 4506-T,
B3-3.1-09, Other Sources of Income,
B3-3.1-07, Verbal Verification of Employment,
B3-3.5-01, Income and Employment Documentation for DU,
B3-4.2-01, Verification of Deposits and Assets,
B3-4.2-02, Depository Accounts,
B3-4.4-02, Documentation Requirements,
D1-2-01, Lender Prefunding Quality Control Review Process, and
D1-3-02, Lender Post-Closing Quality Control Review of Approval Conditions, Underwriting Decisions, and Documentation.
The validation service is an optional service available only for conventional loans underwritten through DU. Lenders are not required to participate in the DU validation service in order for a loan to be underwritten through DU.
Authorized Vendors and Verification Reports
A lender may obtain a verification report directly from a “report supplier” or from a “report distributor” as described below:
Report suppliers have entered into an agreement with Fannie Mae to participate in the DU validation service. Report suppliers generate the report and send the report data electronically to the DU validation service. This report reflects the report supplier’s name and/or logo.
Report distributors have not entered into an agreement with Fannie Mae, but have an agreement with an eligible report supplier. The report supplier (not the distributor) sends the report data electronically to the DU validation service. The verification report reflects both the report distributor’s name and the name and/or logo of the applicable report supplier.
The DU Validation Service Verification Report Vendors list provides a listing of authorized report suppliers and report distributors and is available on Fannie Mae’s website.
Lender Requirements
No special approval is required from Fannie Mae to use this service; however, the lender must “opt-in” to participate in each component of the DU validation service (income and employment, and assets). When a lender opts in, all future loans that are submitted to DU will automatically be assessed through the service for that component.
In order to participate in the DU validation service, the lender must
have a relationship with, and have entered into a contract for the services provided by, a vendor(s) –either a report supplier or a report distributor – that is authorized to obtain a verification report;
have an agreement with a vendor(s) that allows for the report supplier to share the information contained within the verification report (obtained by the lender) with Fannie Mae electronically for use by the DU validation service; and
establish controls to manage and monitor the vendors in accordance with its own regulatory requirements.
For loans assessed by the DU validation service, the lender must
obtain borrower authorization to receive the information from the vendor;
confirm that the verification report matches the borrower;
ensure information entered by the lender in DU is properly documented;
investigate and resolve any conflicting or contradictory information;
retain a copy of all verification reports in the loan file, in addition to any other documentation required by DU; and
ensure that the most current version of the verification report is used by the DU validation service. If the lender obtains an updated verification report, the lender must resubmit the loan to DU and receive a message that the component has been validated in order for the representation and warranty enforcement relief to apply.
Validation Results
When a component of the loan file is assessed by the DU validation service, three results are possible: validated, not validated, or unable to be validated. DU will issue a message providing the validation results.
Validated
DU has determined that the information provided on the verification report supports the information entered into DU for the component being validated.
The DU message(s) will indicate that the verification report is acceptable documentation to support the component that has been validated.
Not Validated
DU has determined that the information provided on the verification report does not fully support the information entered into DU for the component of the loan file eligible for validation.
The DU message(s) will indicate what documentation, in addition to the verification report, is required.
Unable to Validate
DU is unable to validate the information entered into DU for the component eligible for validation. This could be due to DU’s inability to access the verification report data, or insufficient data in the report.
The DU message(s) will indicate what documentation is required.
Note: Regardless of the validation result, DU will continue to use the information provided by the lender in determining the DU underwriting recommendation. The results of the validation service do not override, impact, or alter any information submitted by the lender.
Income Validation
The following table lists the income types that can be validated, and the documentation that DU will require, which may be different than the standard documentation required in this Guide.
Note: Military income is not eligible for income validation by DU.
| Eligible Income Types | Eligible Verification Report |
|---|---|
| Base | Employment and Income Verification Report |
| Bonus | |
| Overtime | |
| Commission < 25% of borrower’s total income | |
| Commission ≥ 25% of borrower’s total income | Employment and Income Verification Report and Tax Return Transcript (Taxpayer Tax Return Summary Report) |
| Retirement (annuities and pension) | Tax Return Transcript (Taxpayer Tax Return Summary Report) |
| Social Security (retirement, disability, supplemental, survivor benefits) | Tax Return Transcript (Taxpayer Tax Return Summary Report) Note: Additional documentation may be required depending on the type of Social Security income. |
| Self-employed (IRS Form 1040 Schedules C or C-EZ for sole proprietorships only) | Tax Return Transcript (Taxpayer Tax Return Summary Report) |
Income—Additional Information
The following additional information applies to income validated by DU:
The vendor may offer options for lenders to obtain income information. Both of the following methods are acceptable for use with the DU validation service:
data obtained from the report supplier’s existing database of employer-provided information, and
data developed from a manual request from the lender for the report supplier to contact the employer directly to obtain the information.
When DU validates income, the lender is not required to determine if the borrower is employed by a family member or interested parties to the property sale or purchase.
When DU validates income, the lender must continue to obtain employment verification as described in B3-3.1-07, Verbal Verification of Employment. The verification report may contain sufficient information to satisfy this requirement. See Employment—Additional Information below.
The lender must review the verification report, and investigate and resolve any conflicting or contradictory information.
Age of Income Document Requirements
Employment and Income Verification Reports: The date of the report must comply with Fannie Mae’s standard age of credit document requirements as outlined in B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns.
Tax Return Transcripts: In order to ensure that the income validation is completed using the most recent tax transcripts, the following will be used to determine if the transcript contains the most recent tax return information. Lenders are not required to comply with the age of credit documents as outlined in B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns, when DU issues the message that income has been validated.
For loan casefiles created on or before April 30, the most recent tax transcript must be provided. The most recent tax transcript would be for the prior year (current year minus 1). If the prior year tax return has not yet been filed or the transcript is not yet available, the most recent tax transcript will be the current year minus 2.
For loan casefiles created after April 30, the most recent year tax transcript must be provided for validation to be completed. The most recent tax transcript will be for the prior year (current year minus 1).
Employment Validation
The following table describes the employment that can be validated and the documentation that DU will require, which may be different than the standard documentation required in this Guide.
Note: Military employment is not eligible for employment validation by DU.
| Eligible Employment | Eligible Verification Report |
|---|---|
Employment related to the following income types:
| Employment and Income Verification Report or Employment Verification Report |
Employment—Additional Information
The following additional information applies to employment validated by DU:
The vendor may offer options for lenders to obtain employment information. Both of the following methods are acceptable for use with the DU validation service:
data obtained from the report supplier’s existing database of employer-provided information, and
data developed from a manual request from the lender for the report supplier to contact the employer directly to obtain the information.
Income and employment are assessed independently; however, the results of the employment validation may impact income validation (for example, if employment is not able to be validated, the associated income will not be validated).
When employment is validated by DU, the validation satisfies the requirement for verbal verification of employment described in B3-3.1-07, Verbal Verification of Employment. Lenders must comply with all DU messages, including ensuring the loan closes by the “Close By Date” stated in the DU employment validation message.
The lender must review the verification report, including any Employer Disclaimer information, and investigate and resolve any conflicting or contradictory information.
Asset Validation
The following table lists the asset types that can be validated and the documentation that DU will require, which may be different than the standard documentation required in this Guide.
| Eligible Asset Types | Eligible Verification Report |
|---|---|
| Total funds to be verified as required by DU, based on assets held in the following accounts: Checking Savings Certificates of Deposit Stocks Money Market Mutual funds Retirement | Asset Verification Report Note: Additional documentation may be required depending on the type of asset account and the assessment conducted by DU for validation purposes. |
Asset—Additional Information
The following additional information applies to asset validation.
The account statements obtained from the vendor must cover the most recent:
30 days of account activity for refinance transactions
60 days of account activity for purchase transactions
The most recent quarter, if account information is reported on a quarterly basis
The lender must review the verification report, and investigate and resolve any conflicting or contradictory information. The lender must also confirm that the borrower is listed as an account holder for each asset account.
The DU validation service automates the assessment of large deposits on purchase transactions required in B3-4.2-02, Depository Accounts. When a large deposit needs to be documented, DU will issue a message specifying the amount of the large deposit, as well as the institution name and account number of the account that includes the large deposit. If no message is issued by DU, then no documentation of any large deposit appearing on the asset report is required when assets have been validated.
If the actual amount of funds required to complete the transaction is greater than the Funds Required to Close specified in DU, the lender must document liquid assets to cover the additional amount. See B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report for additional details on whether the loan must be resubmitted to DU.
For self-employed borrowers, if an eligible asset account is reflected as a business account on the verification report, the lender must perform a business cash flow analysis to confirm that the withdrawal of funds for this transaction will not have a negative impact on the business. If the lender determines the withdrawal would have a negative impact on the business, the lender must remove the assets from the online loan application, obtain an updated verification report that excludes the business account, and resubmit the loan to DU.
When retirement assets are entered in DU, DU issues a message requiring the lender to ensure that withdrawals are permitted, and that withdrawals are not limited to those completed in connection with the borrower’s employment termination, retirement, or death. If any of these conditions are present, the lender must remove the retirement account assets from the online loan application, obtain an updated verification report that excludes the retirement account, and resubmit the loan to DU.