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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 50 May 2025 F E A T U R E The Need to Evolve T he pressure to modernize income verification isn't just an opera- tions issue. Borrowers expect a fast, simple mortgage process, and lenders must meet those expectations without additional risk or cost. That's a tough balance to strike. Speed alone is a huge issue. Bor- rowers shopping for a mortgage are frequently comparing rates and offers, and whether a lender can verify income and issue a preapproval in hours can make or break a deal. The longer it takes to verify a borrower's income, the greater chance they will move on to the next lender. Meeting regulatory requirements is another problem. While the compliance landscape for lenders is shifting, lenders still need to ensure that a borrower's income is real, stable, and accurately reported, no matter the source. Mistakes when calculating income can lead to re- purchase risk, too. Showing that income assessments are based on verified data and consistent logic is hard to do when relying on manual processes, spread- sheets, and emails. Fraud prevention is also a growing concern. Income fraud—one of the factors behind the 2008 housing crisis—is not only growing but becoming more sophisticated with forged paystubs and edited PDFs showing up in loan files. Verifying income directly from the source helps reduce that risk, yet many lenders still rely on documents provided by the borrower. Without a clear chain of cus- tody, it becomes harder to prove that the information used to make a loan decision was accurate at the time of underwriting. Manual processes come with real costs, too. Loan officers, processors, and underwriters can spend hours chasing documents, requesting verifications, and reviewing income data. Each step adds time and labor, while delays and errors can lead to missed closing dates and buybacks, all of which hit a lender's bottom line. Fortunately, lenders now have better options for verifying income than chasing down documents and manually reviewing paystubs. Tools are available to help lenders validate income directly from the source and do it in less time, with fewer steps, and with greater accuracy. New Challenges, New Solutions A game-changing tool many lenders are now using is the online or web enabled IRS-8821/4506-C process, which allows borrowers to grant lenders access to their tax transcripts for multiple years. The data comes straight from the IRS, which eliminates the need for borrowers to upload documents and re- moves the risk of altered or incomplete information. Unlike traditional tran- script requests, such as the form-based 4506-C or 8821 Form, the IRS created an authentication process for the borrow- er to instantly release (or not release) their transcripts to the entity making the request. This keeps the borrower engaged during the application process and reduces costs to a minimum. The same approach can be applied to credit and employment data. More borrowers are giving their lenders permission to access their financial in- formation through trusted connections, whether it is a payroll provider, banking platform, or credit reporting agency. Once verified, this data can be pulled automatically and integrated into the lender's system—which means proces- sors and underwriters no longer need to chase down information themselves or second-guess what the borrower provided. Verification cascades are helping as well. These are automated systems that attempt the fastest, most cost-effective verification methods first, then move to alternatives only if needed. If payroll data is not available, for example, the system may try a permissioned bank statement or initiate a manual outreach to an employer. The goal is to verify income or employment without creating extra work for the borrower or the lender. New innovations like Encompass' Automated Service Ordering (ASO) can The pressure to modernize income verification isn't just an operations issue. Borrowers expect a fast, simple mortgage process, and lenders must meet those expectations without additional risk or cost. That's a tough balance to strike.