Wisniowski, Charles
In a recent interview with MBA NewsLink, Janet Ford, senior vice president at The Work Number, St. Louis, discussed the importance of mortgage lenders and servicers using real-time employment and income verification data and The Work Number’s role in that endeavor.

MBA NEWSLINK: How does The Work Number intersect with the housing/mortgage space?

JANET FORD: The Work Number serves two communities of interest. Employers contribute data to the Work Number to relieve them of the burden of responding to employment and income verification requests and to provide their employees with a better experience in the marketplace.

Entities such as mortgage companies that come to the data base to retrieve information on a prospective or current borrower. We serve industries other than the mortgage industry—pre-employment screeners, for example, government entities—basically anyone who needs to validate a consumer’s employment and income in order to provide them goods or services that that particular consumer wants.

NEWSLINK: How long has The Work Number been doing business in the mortgage space?

FORD: We started about 15 years ago as a result of a client we were doing business with who asked us to outsource business for them and to develop a solution. They were being inundated with requests for employment and income verification and they didn’t want to do that themselves.

So we went from that one client about 15 years ago to about 2,000 employers today who provide data to us. Every time they run payroll, they’ll send us a feed of their payroll data that we load into the database. The current size of that database is roughly 194 million records.

NEWSLINK: Recently you’ve been talking about the importance of using real-time employment and income verification data as a means of reducing mortgage defaults or put another way, greater data transparency for lenders and servicers. Can you elaborate?

FORD: What we have seen over the last 18 months to two years is that lenders are concerned about relying on either borrower-provided sources of information or stated income. They’ve continued to be reluctant to rely on that information.

Some of that reluctance is coming from their own experience, some of that reluctance is coming from the overall economic climate right now; some of it is coming from either current or proposed requirements and regulations that are coming out of the GSEs [government-sponsored enterprises].

So what we are seeing is we’re seeing these lenders saying we need more information on a borrower. We’ve been relying on a credit report which is a wonderful representation of a borrower’s past history so perhaps their willingness to repay an obligation—but what about their ability to repay that obligation?

Being able to provide current and reliable employment and income data helps that lender have a more complete picture of that borrower. So not just their past history of repayment but what is going to be ability to repay in the future?

NEWSLINK: So what’s standing in the way? Is it a technological or legal obstruction or is it reluctance within the industry that’s preventing lenders from accessing or utilizing this information?

FORD: There’s nothing preventing lenders from having access. Our data is readily available. It’s easy to access. We’ve got a web-based accessibility. We’ve got ways for clients to integrate with us and make it part of their work flow but this is a change.

This is a change to the way that they have been doing business. For many of these large lenders and large servicers, they’ve got risk models and risk decisioning tools that they’ve been using for a very long time. Adding a new component or a new information source into those models is not something that they are able to do overnight.

NEWSLINK: So is it a case where the industry is reluctant to buy-in or support the concept? Or is it that the industry likes the concept but they are trying to figure out how to integrate it in how they do business?

FORD: I think it’s definitely the latter. In every case where we have worked with lenders and have had to prove the viability of this data and prove the value of this data, in pretty much every case they’ve come back and said that having this information up front or having this information during the process is definitely of value to us, now we need to figure out how we can incorporate this into our workflow.

NEWSLINK: Has the mortgage industry raised any concerns about accessing and using this data? If so, how have you assuaged those concerns?

FORD: I don’t think it’s necessarily concerns about it. It’s more about how can we change what we’re doing to add this component.

Then the other piece that’s important, unlike a credit report where the credit reporting agencies have essentially 100 percent coverage—we have close to 50 million active records in our database. This represents roughly one-third of the working population.

In that situation, in terms of the data available on our database, we’re not a 100 percent solution. So there’s a little added complexity as to how do they build that into their risk models. What do they use then in the absence?

Last fall we did an acquisition of a company called Discover Source [formerly based in Brentwood, Tenn., now in St. Louis] that’s a provider of [automated IRS 4506-T tax-filing information]. So now, in the absence of being able to deliver a verification of income off of our database, or in addition to delivering the verification of income off of our database, we’re also able to deliver a 4506T, which although not being as fresh as the employer-provided data that fits on our database, it’s still a representation of that borrower’s ability to repay.

It provides a more comprehensive solution for these lenders and it also meets some of the requirements that are coming from some of the loan modification programs to pull that particular form.

NEWSLINK: How do you address security concerns or worries that this kind of sensitive personal info could be compromised—not just by hackers but fall into the hands of the government or law enforcement or lawsuit litigants or just plain nosy people?

FORD: That’s a good question. There are a couple of things that we have to guard against that. First, we have a series of obligations that we have to the employers that provide us this data. We do not own this data, we are the steward of that data.

If we do not meet those obligations and requirements, they are going to be very quick to pull their information from our database. One of those primary obligations is that their particular employee/consumer has given their consent for this information to be released.

That’s sort of our first hurdle, if you will. Then in the process of allowing companies to come and retrieve data from our database, we are FCRA [Fair Credit Reporting Act] compliant. So we go through a rigorous credentialing process with every, what we call verifier who is going to come and retrieve data from the database.

There are certain types of verifiers…you mentioned law enforcement. Based on our agreements with our employer clients, we don’t have law enforcement entities as regular users of our service. So the requester of the data must go through a credentialing process and then with every transaction they do, they need to provide us with a permissible purpose for the retrieval of that information. We audit and validate that that permissible purpose is a viable permissible purpose for their industry.

We also employ the highest standards of security for the data itself, in terms of both the data that is being delivered by the employer and the actual verifications that are being requested from the database by the verifier.

NEWSLINK: How close is the industry to incorporating this real-time data into their business protocols?

FORD: It already is. If you think about the life cycle of lending, we’ve had a very strong footprint from the get-go in terms of client acquisition or in terms of mortgage origination. What’s different is, if you go back three to four years, they would pull our information only if the credit score was below a certain level.

So the credit score is below ‘X’…we want this additional information. If the credit score is above ‘X’ then we’re just going to trust the borrower’s provided documents or stated income.

We’ve seen a shift in that where a lot of companies are saying I don’t care what the credit score is, we’re going to pull employment and income verification on everything.

It’s not a matter of our data not being used and accepted. It’s just a matter of becoming more used and permeating through more areas of that lending lifecycle.

NEWSLINK: Regarding the year’s outlook: Given your company’s informed but detached perspective of the mortgage sector, what is The Work Number’s economic assumptions for the mortgage industry and for the economy at large for the rest of 2009? How are you planning business accordingly?

FORD: In terms of what we’re seeing in the marketplace, we’re continuing to see strong activity in the mortgage sector. In the early part of this year, a lot of that was being driven by loan-modification activity.

We’ve seen a bit of a slowdown in that loan-modification activity but we’re anticipating that we’ll see some of that pick up as programs such as the Making Homes Affordable program become more available and more used in the marketplace.

We’re also seeing activity as a result of some of the requirements that are being enacted by Fannie Mae and Freddie Mac in the marketplace with their additional requests for verification of employment and income.

Then I think there’s just a general reluctance to go back to the way things were with such a reliance on stated income. I think companies are saying that that’s just not a direction we’re going to head into.

So I don’t feel they are waiting for use to get past this and then they are going to go back to the old ways of relying on stated income. The companies that we talk to and the risk managers that we speak with, we don’t get the feeling that’s the direction that companies are going to head.