With the pressure on to close mortgages more quickly, automated methods of instantly verifying applicants' employment information are growing in popularity.
Just two entities provide the type of information required by the secondary market agencies in electronic form. Purchasers of mortgages, agencies that rate mortgage-backed securities, and others want mortgage lenders to base their lending decision partly on the applicant's past two years' employment and income history.
Until recently, however, no service provider collated this. Credit reports detail the applicants' expenditures, but not their incomes. (They rarely even reflect the applicants' mortgage credit history.) At the other extreme, background checking services confirm for prospective employers that job applicants worked where they say they worked, but such services provide no salary information.
Two players, two strategies
TALX Corp., a St. Louis-based provider of interactive technology, started the first database of credit applicants' tenure and salary information in February 1995. Within the past 12 months, the database has roughly doubled to 11 million records. More than 1,100 lenders subscribe to the service. More use it on occasion, including, ironically, Norwest Mortgage Corp., Des Moines.
Norwest, the nation's largest mortgage originator and servicer, has its own employment verification service, a subsidiary called VIE. Only 120 lenders participate in VIE's service but if one judges by the numbers of employees in their databases, then VIE has eclipsed TALX. VIE, a service Norwest started quietly in late 1995, has only lately been publicized.
The two firms tackle data gathering quite differently. VIE signs up entire states--going to the Department of Labor, or its equivalent, in each and obtaining their payroll information for a fee. By contrast, TALX signs up employers one by one. (TALX charges employers to set up their records on its database, with the payoff being that employers are then freed from having to respond to credit grantors' inquiries.)
When VIE signed Texas in February, the state's 18 million residents surpassed the eight million combined population of VIE's two other working states, Iowa and Minnesota.
TALX says it has the only nationwide service of this kind, but VIE already has more records owing to its greater concentration of employers in the states in which it is operational. Manny Siprut, president of VIE, says, "With only three states, I've 10% coverage of the United States' workforce and they have only between 8% and 9%." TALX confirmed this figure.
Siprut notes every state collects payroll information from local employers, in the course of administering taxes and benefits. Allowing for a few exempted categories of workers, the state's records reflect probably 85% of each state's workforce.
One employee category in which TALX is strong is government employees. They are not included in the state databases Norwest accesses, but TALX has hooked up many of the separate government payroll databases where they are recorded. "We probably have three out of five federal workers in our database and we will soon add state employees," says Jackie Engel, manager of marketing at TALX.
Another category of employee proving difficult for verification services and lenders alike is the self-employed. Siprut explains that Norwest participates in an Internal Revenue Service pilot in California, intended to make lenders' jobs easier, but, which, in fact, places them in an awkward position. The two-year-old pilot enables credit applicants to authorize the IRS to release pertinent information from their tax returns to the credit grantor. The catch (and, indeed, the IRS hopes it will be one) is that applicants simultaneously authorize the lender to give the IRS copies of the applicant's loan application if there iS a discrepancy between the income reported on it and that reported on the tax return. …