Is anyone NOT verifying employment (via verbal or written docs with the employer) when compliance with Appendix Q is not required?

We are originating some non-QM's in-house and had as part of our procedures to obtain verbal or written verifications from the employer to verify employment status. I am now getting push-back wondering why we have to do this if we have current paystubs. Am I overboard or is everyone doing the same that I recommend?

I am now getting push-back wondering why we have to do this if we have current paystubs.

I can name you three people that I personally know that can provide you with a pay-stub as of Friday April 4, 2014. But as of today April 7, 2014 they are unemployed due to layoffs at this specific factory.

That is my concern exactly, Dan. Things were working fine with this approach until we ran into one that wanted us to go through "The Work Number" and a fee of $25.

This wasn't disclosed on our GFE. We could call this a changed circumstance and re-issue the GFE, right? I don't think the hang-up is so much doing the work as it is dealing with the fee when the employer won't verify directly.

If you are unaware of the fee at the time you completed the GFE then it would be a changed circumstance allowing you to revise the GFE, but you are now aware this particular employer requires the "The Work Number" and you would have to disclose its fee going forward.

For non-QM loans, which we would maintain in our own portfolio, we would still complete verbal VOE's. This would assist with our safety and soundness practice.

We do written or verbal voe's as well; even when the loan is non-QM.

Because 1026.43(c)(2)(ii) and 1026.43(c)(3) say you do. Period. The reg says you must verify the employment status with a third-party, not just their pay records. To echo Dan above, the paystub is not a verification of employment status, but of how much they earned for that particular pay period. A paystub from last Friday doesn't equivocate to I have a job today.




1026(c)(2) Basis for determination. Except as provided otherwise in paragraphs (d), (e), and (f) of this section, in making the repayment ability determination required under paragraph (c)(1) of this section, a creditor must consider the following:

(ii) If the creditor relies on income from the consumer's employment in determining repayment ability, the consumer's current employment status;

1026.43(c)(3) Verification using third-party records. A creditor must verify the information that the creditor relies on in determining a consumer's repayment ability under § 1026.43(c)(2) using reasonably reliable third-party records

(ii) For purposes of paragraph (c)(2)(ii) of this section, a creditor may verify a consumer's employment status orally if the creditor prepares a record of the information obtained orally

Thanks for the comments, everyone!

While it may be prudent, I'm not convinced it is mandatory. Repayment Ability has some specifics -- the Reg refers to third party records and defines what the third party records can be (tax returns, transcripts, check cashing records, etc.)

--------------------------------------------------
(3) Verification using third-party records. A creditor must verify the information that the creditor relies on in determining a consumer's repayment ability under § 1026.43(c)(2) using reasonably reliable third-party records, except that:
...
(ii) For purposes of paragraph (c)(2)(ii) of this section, a creditor may verify a consumer's employment status orally if the creditor prepares a record of the information obtained orally; and ...

-------------------------------------------------------
Oral verification is another option (for example if someone does not have a paystub.)

Appendix Q on the other hand lists additional requirements. Appendix Q does not always apply.

Tuma---All those third=party records you listed are income verification records. Someone can have a paystub form last Friday, but not have a job today. That paystub could have been their last paystub from a job they lost, quit, etc. The paystub is not evidence that the borrower is still employed. It is only evidence that they got paid for past work. Third party verification of employment status is required. If they produce a paystub, the bank is more than welcome to call the employer to verify continued employment. Provided that the bank documents that call in writing, that would meet the regulatory requirement to verfiy employment status through a third-party record (ie they called and verified the employment with the employer).

I understand your point, Dani. Perhaps I was not as clear as I could have been in answering the poster's question. I agree that within the 8 Factors to consider in ATR, the employment status must be considered (if it is used for repayment). And it must be verified using reasonably reliable Third-Party Records . . . Or you have an option to verbally verify.

My position is that you are not Required to verbally verify. Nor are you Required to obtain a written employment verification (such as VOE). You can use Third-Party Records --- and that leaves some latitude in this situation (i.e. loans not subject to Appendix Q.)

Defining "reasonably reliable" may be another issue and is something we all wish we had more guidance. The argument that paystubs don't 100% guaranty status at the time of consummation is a given; however the same argument can be made of oral or written verifications as they are obtained prior to consummation. My position for this post is the requirement for underwriting to consider (can't be ignored) and verify (can't be assumed) using reasonable & reliable means.

I'm unclear how you can verify current employment without a VOE or a verbal confirmation from the applicant's employer. I don't know of any other third-party record that would do that for you.

As Dani pointed out, what you're relying on, tuma, is only good for INCOME verification. It is not verification that someone is currently EMPLOYED. We are a FNMA shop that sells everything on secondary. I can't sell a single loan without paystubs AND employment verification in it. My investors are basing their requirements on the Regulatory citations Dani quoted above.

From my post this a.m. I did not state what other documents are acceptable.
Question to all - at what point in time would one stop verifying the status?

"at or before consummation". Since the only directive from Sec. 43 is this, i think a reasonable reading is if you do this at time of underwriting, you have complied.

FNMA requirement is that the VOE must be done within ten business days of closing.

That's good to know TR. We don't sell anymore, but we used to.