4 benefits of digital asset verification in mortgage lending
Mortgage lenders face a challenging asset verification process with long close times, reliance on manual borrower and lender process, and potential for fraud. Here's how technology is improving asset verification for mortgages.
January 12, 2023
The mortgage industry is one of the largest sectors of the United States lending industry, with total mortgage debt reaching $11.67 trillion in 2022. It is also rife with challenges. The asset verification process for mortgages, typically done with manual methods, can be time-consuming for both buyers and lenders, and open lenders to fraud.
Digital asset verification is changing the way banks verify assets and calculate creditworthiness, improving the process for borrowers and lenders alike. This change doesn't just help the lender's bottom line and reduce the time to close—it also improves mortgage access to people without traditional credit scores by incorporating alternative sources of financial data.
Before exploring the benefits of digital asset verification for mortgage lenders, it's important to understand how the process works and how it's changing.
How does digital asset verification for a mortgage work?
Digital asset verification provides mortgage lenders with comprehensive, fast, and real-time access to a borrower's assets. It achieves this by connecting directly with financial institutions to verify income, bank account balance, assets, and other relevant account data like account ownership. This information is used by lenders to verify borrower’s stated income and assets, evaluate risk, and determine if a borrower is creditworthy.
For example, when a mortgage lender like SoFi is considering offering a loan to an applicant, they can use traditional asset verification. This includes asking for physical copies of their bank statements, paychecks, and proof of asset and account ownership. However, these documents may be hard to find and require several steps for borrowers. For lenders, they can be hard to read, outdated, or even doctored.
Instead, SoFi uses Plaid for digital asset verification. This allows borrowers to connect their bank accounts quickly and securely so that SoFi can verify income, savings, investments, and the borrower's identity. Rather than just getting access to pages of bank statements, SoFi gets an assets report that clearly shows the borrower’s assets. This additional information makes it easier for SoFi to make an informed lending decision.
→ Need a more holistic view of your loan applicants' finances? Plaid’s lending APIs connect directly with borrowers’ financial accounts to enable more informed decisions faster.
What are assets for a home loan?
Assets for a home loan are financial account balances and cash holdings that mortgage lenders use to determine if a borrower is eligible for the loan. Assets can also be anything of value that are available to meet a debt, meaning they can be sold to recover the loan if required.
Different lenders consider various assets during the mortgage underwriting process, but most look at:
Cash held in savings or checking accounts
Physical assets, such as a home or boat
Equity assets and retirement accounts
Fixed income, such as bonds
Gaining access to the documentation to prove assets exist and are owned by the borrower can be a long, complex, and tedious process. Borrowers may have to request physical copies of statements from multiple banks and then find ways to share them with their lender, a process that takes multiple steps. In some cases, they may turn in the wrong documents and need time to resubmit the correct documents.
Digital asset verification, however, is faster and easier to navigate—allowing lenders to offer mortgages to a wider range of customers and reducing the time and effort needed to process mortgages. Typically, this can be done in one simple step.
Digital asset verification vs traditional asset verification of mortgages
Digital asset verification is changing the mortgage industry in big ways, as leading mortgage lenders now utilize a seamless digital loan application and onboarding experience. Digital asset verification makes the process faster and easier for customers.
This shift towards digital asset verification is occurring because borrowers have come to expect more streamlined, simplified processes. Traditional verification requires borrowers to obtain specific documents on their own and then share them—an inefficient process.
If the documents are rejected by the lender (for example, if they cover the wrong date ranges, have missing pages, or aren’t signed and dated), the borrower must find the correct documents and resubmit. Even when there aren’t hiccups like this, it’s a long, difficult process for both the lender and the borrower.
With digital asset verification, borrowers simply provide their bank account information to the lender using their bank account login credentials via a secure financial API. This enables the lender to quickly access the information they need. It also provides the lender with access to data directly from the source—allowing them to better assess their risk.
Digital asset and income verification for mortgage loans saves significant time and effort, which can lead to higher loan funding rates while providing a better customer experience.
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What are the benefits of digital asset verification for mortgage lenders?
Digital asset verification is quickly becoming a common method for mortgage lenders to verify assets during pre-approval, underwriting, and the closing process. That is because the process is beneficial to both lenders and borrowers.
Borrowers no longer have to locate multiple documents, verify their accuracy, and submit (and often resubmit) documents to lenders. Instead, they simply connect their bank account to the lender portal during the loan application process. What once took hours or days now takes minutes.
For lenders, digital asset verification offers additional benefits, including:
Digital asset verification provides lenders with a holistic view of a borrower's financial data, including current income, asset ownership, and transaction history. Using Plaid, lenders can see up to two years of financial data and current account balances, allowing them to easily verify if the borrower has the funds to cover the down payment and the income history to make on-time payments.
Digital verification also makes it easier to confirm income from other sources, such as investments, gig work, or self-employment. Verifying these forms of income is often a difficult process, which may prevent those borrowers from obtaining a mortgage.
→ Want to verify transaction history, account balance, and account ownership faster? Plaid’s asset verification APIs instantly provide an up-to-date view of a borrower’s bank accounts and assets.
Faster loan processing
The traditional asset verification process can take days or weeks, especially if documents are denied and must be resubmitted. Digital asset verification happens in seconds, allowing lenders to fund loans faster.
Reduced lender costs
In 2021, the average cost to originate a mortgage loan hit $9,470, an all-time high. Digital verification of assets is faster and requires less oversight from the lender, helping reduce origination costs.
For example, the lender no longer has to invest hours manually reviewing and approving or rejecting documents. Instead, by digitally accessing financial data, lenders can quickly view the data they need in a convenient format, rather than combing through pages of bank statements. Reducing the time and the resources required to process a mortgage also means they can close more loans in less time.
Importantly, many types of digital asset verification are accepted by government-sponsored entities. Plaid Assets is a Day 1 Certainty® asset verification report supplier for Fannie Mae’s Desktop Underwriter® and a third-party service provider for Freddie Mac’s Loan Product Advisor® Asset and Income Modeler (AIM).
Reduced fraud risk
Mortgage fraud is a growing issue for lenders. CoreLogic reported a 37.2% increase in fraud risk between 2020 and 2021, with 1 in 120 mortgage loans containing fraud. Fraud occurs when borrowers lie about their identity, income, or rent assets to obtain more favorable loan terms or larger loan amounts.
Digital asset verification reduces the risk of mortgage fraud by providing lenders with direct access to financial data. This allows lenders to see exactly when and where the money came from and determine if the borrower represented their assets truthfully. As a result, lenders can better analyze their risk and extend credit to truly qualified borrowers. Similarly, digital identity verification can make it easier to ensure borrowers are who they claim to be.
→ Need to fight loan fraud while handling KYC? Plaid Identity Verification meets KYC requirements, reduces fraud, and is the lowest friction ID verification experience available.
Digital asset verification takes mortgage lending into the future
Fintech lenders are changing the way consumers borrow money and how lenders determine creditworthiness. These changes are more than just an easier way to process loans. Using technology to verify assets helps expand access to mortgages, helping consumers with a thin credit file or lower credit score build generational wealth through home equity.
Lenders benefit from digital asset verification as well, through lower costs, reduced risk of fraud, and faster close times. They also gain access to a larger market of creditworthy consumers.