Selecting a new vendor is a major decision, not to be taken lightly, especially when the vendor will impact your company’s workflow and productivity. A savvy buyer needs to consider a wide number of factors, some of which are not intuitive, or immediately obvious.  Sadly, only once you have made your selection do you become aware of factors you should have considered up front.  

To avoid buyers remorse, we have compiled a list of topics you should consider when evaluating vendors and why these topics are important.  Depending on the size of your team and your loan volume, some of these factors may be more or less impactful.

Calculation

At the core of an income analysis product are the calculations.  The following are the key and some of the nuanced aspects you should consider when making a selection.

Does the software support all income types outlined in the guidelines?

• Why? There are 41 total income sources outlined in the guidelines and you will want to ensure your vendor supports all of them. Supporting only a subset of agency incomes isn’t ideal, as this leads to a patchwork solution for your team and creates confusion regarding how and when to use each solution.  

Does the software support all five major agencies?

• Why? FNMA, FHLMC, FHA, VA, and USDA are the five major agencies that lenders utilize.  Having a single tool that handles all income types and the five major agencies will empower your team to use a single tool for income analysis and avoid the lost productivity and consistency in using multiple solutions.

Can you make changes in real-time?

• Why? When you want to analyze income, can you get the results back in real time?  If you need to wait to get results back, that costs your team time and productivity due to task switching.  

Does the software provide conditions, advisories, and warnings in real time?

• Why? Underwriting sometimes requires risk assessments by the underwriter. This is where underwriting advisories come in to ensure you not only get the calculations right, but also are alerted to areas where an underwriter may need to make a risk decision to approve a higher income.

Does the software perform supporting income analysis calculations such as liquidity, trending, cash flow, and residual income?

• Why? The basic income calculation is only part of the story. The guidelines require underwriters to perform a variety of supporting calculations to justify income. Liquidity analysis, cash flow analysis, and residual income are just a few.

Does the software provide a clear, easy to read income analysis report?

• Why? At the end of the day, your investor isn’t going to log into your income analysis software and look at the output.  The investor is going to want to see HOW you determined the income and this is where a clean income analysis report comes in.

Reps and Warrants

A reliable income analysis software vendor should confidently support their product through clear representations and warranties. However, rep and warrant coverage is not uniform, and the specifics of what’s covered can vary significantly. To ensure you’re fully informed, consider using the prompts below to clarify the details.

Does the software provide representation and warranties on calculation accuracy?

• Why? Calculation accuracy is fundamental and should be a given. However, you should specifically understand what happens if there is a calculation error. Does the vendor provide coverage for a buyback, or do they simply credit your invoice and leave you responsible for the bulk of the repurchase demand payout?

Does the software provide representation and warranties on guideline compliance?

• Why? Correctly interpreting agency guidelines and applying them to income calculations is just as important as calculation accuracy. Accurate income analysis means not only getting the calculations correct but also ensuring they are compliant with the applicable agency guidelines. 

Does the software provide representations and warranties on data extraction accuracy?

• Why? If your vendor is scanning income and tax documents you provide, do they offer reps and warrants on the accuracy of the scanned data? If an incorrect number is extracted from the tax return and the income is in error, who will be responsible for the potential repurchase demand?

What income types are represented and warranted?

• Why? Do the reps and warrants cover all of the income types outlined in the agency guidelines? As you will want to seek a single vendor to handle all income calculations, you’ll also want to ensure their reps and warrants have the same coverage and no income types are excluded.

Is the rep and warrant coverage at the income-level, borrower-level, or loan-level?

• Why? In some cases the vendor may only rep and warrant specific incomes for specific borrowers on the loan.  This will leave you with exposure on the other income types or borrowers on the loan file.  Ensure your vendor can provide rep and warrant coverage for all incomes for all borrowers on the loan.

What agencies are covered by the representations and warranties?

• Why? Do the reps and warrants extend to all of the agencies the software supports?  Ensure you have full coverage across all income types and all agencies.

Who is providing the representations and warranties?

• Why? Get your vendor to clarify who is providing the reps and warrants.  Are they provided directly from the vendor, or is there a 3rd party or agency ultimately providing the coverage?  Some income analysis vendors offer reps and warrants from the agency as a pass-through.  While getting coverage directly from the agency is good, often times it has limitations and may only cover calculation accuracy.  If there are data entry errors, the lender is left owning the liability in this situation.

Workflow and Access Control

The integration of income analysis software into your company’s workflow is essential. Who will use the software, and how will these individuals collaborate and transition work to downstream teams?

Does the vendor offer role based access control?

• Why? Income analysis software is likely to be used by loan officers, processors, underwriters, auditors, IT, and management teams. Each of these roles requires specific permissions and capabilities. Role-based permissions ensure that only authorized individuals have the appropriate access. Functions such as managing employee loans, overriding income analysis values, setting up new users, and more should be controlled based on user roles and assigned permissions.

Does the vendor offer workflow based access control?

• Why? Loans follow a specific lifecycle, and the software should accommodate this by adjusting access and permissions accordingly. For instance, locking a loan for underwriting to prevent sales from further modifying the income analysis is an example of effective workflow-based access control.

   

Does the software keep a full change log for audit purposes?

• Why? Having a full audit trail showing who and when all updates to the income analysis were made is key to having a complete audit trail.  Without a change log you will always be wondering if changes were made, and who made those changes.

Is single-sign-on offered?

• Why? Does the software support single sign-on (SSO)? SSO simplifies access management, enabling quick onboarding for new hires and easy access removal for departing employees.

Can the software integrate with your LOS?

• Why? Standalone income analysis software may require manual, duplicate data entry, which can lead to human error and lost productivity. LOS integration allows seamless data transfer, reducing the need for redundant entries and enhancing workflow efficiency.

Automation Capability

Automation is the key feature offered by many income analysis software vendors.  Be sure to dig into the details about what is automated and how accuracy is ensured.

Is it possible to use the software manually to calculate income?

• Why? Some vendors only offer automated solutions, but there are times when manual input is preferred. For quick scenario evaluations or low-complexity loans, a manual option allows faster, cost-effective analysis without the need to upload documents and wait for automation results.

Can I upload income documents for automated scanning?

• Why? This feature is now widely available, so it’s important to verify the types of income and documents supported to ensure comprehensive coverage in your automation workflow.

How does the vendor assure the accuracy of the scanning and extraction process?

• Why? Document scanning and data extraction is not an exact science.  Errors are possible and as a lender you need assurances that these errors will be mitigated.  Ask your vendor how they ensure the accuracy of their extracted data?

Is an API available to support custom automation workflows?

• Why? For enterprise clients, flexibility is essential. An adaptable API enables you to create custom workflows and tailor automations to specific needs. Without this, you may be limited to standard workflows, which could limit operational efficiency.