How To Reduce Lender Risk on FHA Streamline Refinance Loans with Automated VOIE

With more than 82% of FHA loans going to first-time homebuyers, there’s now a great opportunity for lenders to engage with new customers. Since mortgage rates are projected to drop through 2025, lenders can offer FHA refinances that help first-time homeowners even more by getting them better loan terms.

By opting for the FHA Streamline Refinance, lenders can take advantage of increased efficiency and shorter loan cycles. That said, the key to balancing increased loan efficiency and keeping their overall risk profile low lies in partnering with the right automated income verification provider.

What is the FHA Streamline Refinance program?

The FHA Streamline Refinance program is a low-document refinance program for FHA-backed loans, allowing faster closing. There are two types of FHA Streamline loans:

• Non-credit qualifying, which doesn’t require income verification or a credit check.
• Credit qualifying, where the lender verifies income and runs a credit check.

Lenders must use credit-qualifying loans if the refinance involves removing a borrower, but not otherwise. In both cases, home appraisals are not required.

Instead of having income verification and a credit check, FHA Streamlines are subject to the following requirements:

• The loan being refinanced must be FHA-insured.
• The borrower must have made at least six payments.
• A minimum of six months must have passed after the first payment due date.
• A minimum of 210 days must have passed from the closing date of the mortgage.
• All mortgage payments on the property must have been made within six months before opening the refinance case.
• The borrower can have a maximum of one 30-day late payment on all mortgage loans on the property.

While the FHA only requires credit checks and income verifications when removing a borrower from the loan, lenders can impose these requirements for the loans they process.

FHA Streamline Refinance: the advantages and disadvantages for lenders

There are pros and cons unique to FHA Streamlines that lenders should understand.

Advantages of FHA Streamlines for lenders

In general, offering FHA Streamlines enables lenders to provide services for a wider range of customers without taking on lengthy loan cycles. Here are the main advantages of FHA Streamlines for lenders:

• Increased loan volume: Offering FHA Streamline Refinances can help lenders attract new customers looking to refinance FHA loans.
• Higher retention: Lenders can use FHA Streamline Refinances to retain borrowers who currently have FHA-insured mortgages and want to take advantage of lower interest rates. This also prevents turnover by stopping FHA loan borrowers from having to seek out a competitor for a Streamline Refinance.
• Faster closing: The lower documentation requirements make for a more efficient application and closing process, keeping borrowers happy and ensuring teams aren’t bogged down with long loan cycles.

Disadvantages of FHA Streamlines for lenders

While FHA Streamlines are an excellent way to attract and retain newer homebuyers, there are some potential drawbacks:

• Relatively lower profit margins: Compared to traditional mortgages or refinances, the FHA Streamline limits how much lenders can charge for fees and other costs, so these loans may have lower margins.
• Potential for higher default risk: Lenders who choose to refrain from requiring income verification and credit checks can inherently introduce risk. That said, this is somewhat balanced by the fact that FHA loans tend to have a lower risk profile, plus refinances lower monthly payments, which decreases the chances of default.

Should lenders require income verification for FHA Streamline Refinance loans?

While the FHA only requires income verifications and credit checks if a borrower is being removed, the program lets lenders choose if they want to add requirements on top of the ones provided by the FHA.

By requiring income verification, lenders can reduce their overall risk of defaults and loan buybacks. This is especially helpful for borrowers with non-traditional income sources, such as freelancers and independent contractors.

With 72.7 million Americans working as independent contractors at least part-time, lenders must verify income outside of W-2 forms. That said, the potential downside of requiring income verification is that it can make the refinance process take longer, effectively fighting the main benefit of the Streamline program in the first place.

For lenders who want to reduce risk and keep the refinance process efficient, automated income verification provides an excellent balance.

How lenders can use Truework to get the most out of FHA Streamline Refinance loans

Using automated income verification helps lenders keep risks low while taking advantage of the increased volume that FHA Streamlines provide.

With Truework’s intelligent platform, taking the extra precaution of verifying income and employment doesn’t have to detract from the efficiency of the FHA Streamline.

Verify more applicants with intelligent orchestration

Truework lets lenders use multiple income verification methods in one platform, including instant, user-permissioned, document upload, and manual outreach.

As a result, lenders can verify more applicants, including those with more variable income. Truework also uses intelligent orchestration to automatically send each request to the method most likely to return results, so lending teams don’t have to do that work.

Balance quality control with turnaround times

Mortgage quality control (QC) is essential for managing risk effectively and lowering the chances of loan buybacks.

With Truework, lenders don’t have to choose between mortgage quality control and efficiency. The platform prioritizes fast turnaround times, with 80% of requests being fulfilled within 24 hours.

Improved accuracy

If lenders are going to go through the extra step of asking for income verification, they want to make sure the information they get is correct. By using human-supervised machine learning, Truework ensures a 75% completion rate and 99.95% accuracy with Report Quality Assurance (QA).

Report QA refers to Truework’s internal set of 30+ automations and rules spread out over the verification process to ensure lenders only receive good data.

Truework leverages multiple verification methods and has checks in place to ensure the data it receives and reports to lenders is accurate. The checks include making sure that:

• Work dates are sequential
• Total income is a positive amount
• Pay stub sums equal total gross income
• Personal information is consistent across different sources
• Salary data is recent and consistent across different sources
• Work times don’t exceed 7 days per week or 24 hours per day

Truework Report QA also reduces the frequency of duplicate verifications. By ensuring quality the first time around, lenders have access to one-and-done reports.

Cost-effective for FHA Streamline providers

Relying on manual income verification or multiple legacy providers can easily lead to bloated costs, which isn’t ideal when you’re already working with a lower-margin loan like the FHA Streamline.

With Truework, lenders only need one platform to access multiple verification methods and ensure quick turnarounds. Truework also offers reduced rates for FHA refinances, which range from $20 to $25 per verification, depending on overall volume.

User-friendly option for lenders and borrowers

Truework provides several options for verification requests, including a web app, API connection, LOS integration, and direct embedding into front-end workflows. This allows lenders to choose the user experience that’s easiest to insert into existing processes, allowing for seamless adoption.