Written By: Frankie Lacy
The Written Verification of Employment (WVOE) is a tool commonly used to verify income. It provides critical information for borrowers who have multiple sources of income. Overtime, bonus, and commission can be broken out from the base salary to help the underwriter accurately calculate the qualifying monthly income. However, WVOE’s should not be taken at face value. A proper analysis of these forms can help you correctly calculate income and mititgate risk on the loan.
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When an underwriter reviews the WVOE, the first step is to calculate the qualifying base income using the information in box 12A. Once the base salary is calculated, we should go the extra step to compare the year-to-date earnings (YTD) to the base salary calculation.
This is particulary relevant when the borrower is paid an hourly wage. A base salary calculation that is not supported by YTD earnings is a sign that the borrower is not working a straight 40 hour week. Even if box 15 (“If paid hourly - average hours per week”) shows 40 hours, more information is required when the calculation is not supported.
The next step is to compare the past two years income to the base pay calculation. Are the figures stable or increasing? If not you may be faced with a stability of income challenge. Sometimes anomalies within the past years’ earnings can be explained with maternity or medical leave. However, it is our job to reach out to the employer and get that explanation documented.
Boxes 16 - 19 give critial information to support any sudden pay increases from past years to YTD. If you notice your base income calculation is significantly higher than past years income, these boxes should be reviewed prior to requesting any explanations from the customer or employer.
When reviewing overtime, commission, and bonus income, the top priorty is to verify stability and/or increasing income. If any decreases in these income sources are noted, several things are required: 1) An explanation from the borrower and/or employer for the decrease. 2) A more conservative income calculation if it is determined the income is stable despite the decrease.
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In recent years, employers have become reluctant to complete box 14 for legal reasons. They do not want to “promise” ovetime or bonus will continue. Due to the volatility of the economy and the at will nature of most employment, this box is usually left blank. As a result, it has become a high priority for underwriters to rely on their own analysis and calculations to determine if income is supported.
Finally, all income data entered on the WVOE should be reconciled with the borrower’s paystubs and W2’s. If no paystubs or W2’s were provided, compare the past years’ income to the wage income listed on the 4506-T transcripts. Remember; if the WVOE is incomplete or the income is not adding up, it is the underwriters duty to request additional documentation.
About The Author
Frankie Lacy - As an active NAMP® member and a NAMU®-CMMU designee, Ms. Frankie Lacy is a 13-year mortgage industry veteran with extensive conventional mortgage underwriting experience. Frankie is also a mortgage instructor for Mortgage Underwriter University (www.MortgageUnderwriter.org). Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration. If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
