What Automated Income Assessment Means for You
Fannie Mae's automated income assessment streamlines how lenders verify your employment income. Instead of manually calculating your earnings from paystubs and tax returns, the system can pull your income data electronically and verify it automatically.
This process works through two methods. Your lender can obtain a verification report directly from your employer's payroll database, or they can submit your paystub and W-2 information to Fannie Mae's system for automated verification.
Say you work as an accountant earning $75,000 per year in base salary. Your lender submits your employment data to the system, which confirms your income and employment status electronically. If everything checks out, your lender gets representation and warranty relief — meaning Fannie Mae won't hold them responsible for income calculation errors on eligible income types.
Income Types That Qualify
The automated assessment only works for stable, non-fluctuating employment income. Your base salary qualifies, but variable income does not.
Eligible income includes your regular salary or hourly wages that don't fluctuate. If you're a teacher earning $55,000 annually or a nurse with a set hourly rate working consistent hours, your income likely qualifies.
Several income types are specifically excluded. Commission earnings, bonuses, and overtime pay cannot use automated assessment. Neither can income from family members, property sellers, or real estate brokers involved in your transaction. If you're paid on a 1099 for services performed, that income doesn't qualify either.
Military earnings present a special case. Base pay, entitlements, reserve pay, and National Guard income are excluded from automated assessment and must be verified through traditional methods outlined in [[Section 5303.1(c)(i)]].
Required Documentation
The documentation you need depends on how your lender verifies your income. If they obtain a verification report electronically, you may need fewer documents.
For verification reports, your lender pulls your employment data directly from your employer's payroll system. This automated process accesses current income information without requiring written or verbal confirmation from your employer.
When using paystubs and W-2s, you must provide current paystubs that comply with age requirements in [[Section 5102.4(b)]] and your most recent W-2 forms. These documents must show your name, employer, and income information clearly.
Your lender must confirm the information matches across all sources. If there are discrepancies between your loan application, paystubs, W-2s, and any verification reports, they must investigate and resolve these inconsistencies before proceeding.
Why These Rules Exist
Fannie Mae requires automated assessment only for stable income because fluctuating earnings are harder to predict and verify electronically. Base salary income provides consistent, reliable cash flow that's easier to confirm will continue.
The three-year income continuation requirement protects both you and the lender. Fannie Mae wants assurance that you can make mortgage payments throughout the early years of your loan when you're most likely to face financial stress.
Electronic verification through employer payroll systems reduces fraud risk compared to documents that borrowers can potentially alter. When your lender pulls data directly from your employer's database, it eliminates the possibility of modified paystubs or fabricated employment letters.
The representation and warranty relief incentivizes lenders to use this automated system. When Fannie Mae confirms the income calculation is accurate, lenders face less risk if problems arise later, making them more willing to approve loans quickly.
Common Complications
If you're on temporary leave from work, timing becomes critical. When your lender uses a verification report, it must show you've returned to work as of the report date. If they're using paystubs and W-2s, they need separate documentation proving you're back at work.
Multiple income sources can complicate the process. Say you have a $60,000 base salary plus $15,000 in annual commission. Only your base salary qualifies for automated assessment. Your lender must verify the commission income through traditional methods or remove it from your application entirely.
Employment gaps or recent job changes may disqualify you from automated assessment. The system works best for borrowers with stable, continuous employment at their current job.
Foreign income cannot use automated assessment, even if you're a U.S. citizen working abroad. The system only processes income reported in U.S. dollars from domestic employers.
How the Assessment Process Works
Your lender submits your employment data to Fannie Mae's system, which returns one of four results: Eligible, Partial, Not Eligible, or Unavailable.
"Eligible" means you qualify for full representation and warranty relief. Your lender can rely on the automated income calculation and needs minimal documentation beyond what they submitted.
"Partial" relief applies when some but not all of your income sources qualify. Your lender gets protection for the eligible portions but must verify other income sources traditionally.
"Not Eligible" means the automated assessment didn't work for your situation. Your lender must verify and document your income using standard Fannie Mae guidelines.
"Unavailable" indicates the system couldn't process your information, often due to technical issues or incomplete data. Like "Not Eligible," this requires traditional income verification.
Tax Return Requirements
The automated assessment can reduce or eliminate tax return requirements in specific situations. If all your income comes from eligible sources and appears on a verification report, your lender may not need IRS Form 4506-C or tax returns.
This exception only applies when you receive "Eligible" or "Partial" relief with feedback indicating no additional documentation is required. If any of your income comes from ineligible sources or the system cannot verify everything electronically, traditional tax return requirements apply per [[Section 5302.5]].
For borrowers with income from Puerto Rico, Guam, or the U.S. Virgin Islands that's exempt from federal taxation, similar relief may apply if the automated system can verify the income electronically.
References
For the official guidelines, see 5303.4: Automated income assessment using employed income data in the Fannie Mae Selling Guide.
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Original Freddie Mac Guideline Text
This section contains:
Underwriting requirements
Data submission requirements, representation and warranty relief eligibility and documentation requirements
Closed Loans data submission requirements, representation and warranty relief eligibility and documentation requirements
Internal Revenue Service (IRS) Form 4506-C requirements
(a)
Overview
Representation and warranty relief eligibility is contingent on the Seller’s compliance with all requirements as set forth in this section.
(i)
Automated income assessment
Asset and income modeler (AIM) automated income assessment using employed income data, provides Sellers with the option to use certain Systems (as defined in
Section 2401.1(b)
) to determine whether the Seller is eligible for relief from enforcement of certain representations and warranties related to the Borrower’s income.
The Seller must obtain the Borrower’s employed income data and submit all required data and information to the applicable System. Based on the data submitted, the System will assess for representation and warranty relief eligibility and return the results of the assessment.
(ii)
Automated income assessment of Closed Loans
Sellers with access to Freddie Mac’s application programming interface (API) for automated income assessment with Loan Product Advisor
®
using employed income data may submit data from a Closed Loan (an existing Mortgage in which the Seller/Servicer or a Related Third Party has a beneficial ownership interest as defined in
Section 2402.2(b)(iii)
) for assessment.
If the Seller is eligible for income representation and warranty relief for a Closed Loan, the API response file will return a Portable Document Format (PDF) document indicating eligibility (the “AIM Payroll API R&W Assessment”). The Seller should contact its Freddie Mac representative or Customer Service at
800-FREDDIE
to request Freddie Mac’s approval to submit Closed Loan data to the API.
(b)
Eligible income types
The following tables describes income types that are eligible for an automated income assessment using employed income data:
Eligible income types for an automated income assessment
Eligible income types
Ineligible employment/income characteristics
Base non-fluctuating employment earnings, except military earnings (base, entitlements, reserve, National Guard) as described in
Section 5303.1(c)(i)
.
Earnings with the following employment/income characteristics as described in
Section 5303.1(e)
are not eligible for an automated income assessment using employed income data:
Earnings of a Borrower employed by a family member, the property seller, real estate broker or other interested party to the transaction
Employed income from foreign sources
Income reported on IRS Form 1099 for services performed
Borrowers with business ownership interest(s) less than 25%
The following fluctuating employment earnings as described in
:
Base fluctuating hourly employment earnings
(c)
(i)
General underwriting requirements
The Seller must have no knowledge, information or documentation that contradicts an expectation that the income will continue for at least the next three years.
The Seller must confirm that the information on the third-party verification report ("verification report") or paystub(s) and W-2 form(s) is for the correct Borrower and employer, and all employed income data must be in U.S. dollars.
(ii)
Temporary leave of absence
In the event the Borrower has taken a temporary leave of absence from their employment:
When a verification report is obtained, the verification report must indicate that, as of the date of the verification report, the Borrower has returned to work
When the employed income data is from the Borrower’s paystub(s) and W-2 form(s), the Seller must maintain documentation in the Mortgage file showing the Borrower has returned to work
(iii)
For the age of the documentation:
When a verification report is obtained, the expiration date of the verification report reflected in feedback messaging on the Last Feedback Certificate complies with the requirement in
Section 5102.4
When the employed income data has been obtained from the Borrower’s paystub(s) and W-2 form(s), the paystub and W-2 must comply with the requirements in
(iv)
Verification reports
When a verification report is obtained, the method used to obtain the verification report must be an automated process where the employed income data is accessed directly from an electronic database of employer-provided income information.
The employed income data on the verification report cannot be obtained from a written, verbal or e-mail verification of income performed by the service provider.
(d)
Data submission requirements, representation and warranty relief eligibility and documentation requirements
(i)
Data submission requirements
The Seller must submit the most current employed income data to the applicable System. If after the initial submission, the Seller obtains an updated verification report, paystub(s) or W-2 form(s), the Seller must resubmit the employed income data.
For Loan Product Advisor submissions, the Seller must submit the income amount used to underwrite the Mortgage.
When a verification report is submitted to Loan Product Advisor, the Seller must investigate and resolve any inconsistent or contradictory information between the verification report, information contained in
Form 65, Uniform Residential Loan Application
(including the Borrower’s income and employment representations), and the Mortgage file and, if applicable, resubmit the correct information to Loan Product Advisor
(ii)
Representation and warranty relief results on Feedback Certificate
If multiple Loan Product Advisor submissions are made, Seller’s eligibility for representation and warranty relief will be based on the results on the Last Feedback Certificate.
When income representation and warranty eligibility results are provided on the Last Feedback Certificate, the representation and warranty relief available is described in the following table:
Income representation and warranty relief based on Feedback Certificate result
Eligible
The Seller is relieved from enforcement of the following representations and warranties:
Accuracy of the income calculation related to eligible income types on the verification report or paystub(s) and W-2 form(s), and
Accuracy and integrity of the data on the verification report
Note: The Seller is not relieved from the representations and warranties related to the accuracy and integrity of the data when obtained from the Borrower’s paystub(s) and W-2 form(s).
Partial
When partial income representation and warranty relief is granted for a source(s) as confirmed by the feedback message, the Seller is relieved from enforcement of the following representations and warranties:
Accuracy of the income calculation related to eligible income types on the verification report or paystub(s) and W-2 form(s), and
Accuracy and integrity of the data on the verification report
Note: The Seller is not relieved from the representations and warranties related to the accuracy and integrity of the data when obtained from the Borrower’s paystub(s) and W-2 form(s).
Not eligible
The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower’s income.
Exception:
The Seller is relieved from enforcement of representations and warranties related to the Borrower’s income when a message is returned on the Freddie Mac Income Calculator Certificate indicating such relief. See table below titled “Representation and warranty relief based on Freddie Mac Income Calculator Certificate result”.
Unavailable
The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower’s income.
Exception:
The Seller is relieved from enforcement of representations and warranties related to the Borrower’s income when a message is returned on the Freddie Mac Income Calculator Certificate indicating such relief. See table below titled “Representation and warranty relief based on Freddie Mac Income Calculator Certificate result”.
(iii)
Documentation requirements based on representation and warranty relief result on Feedback Certificate
When income representation and warranty eligibility results are provided on the Last Feedback Certificate, the documentation requirements are described in the following table:
Documentation requirements based on representation and warranty relief result on Feedback Certificate
Eligible
The Seller must maintain in the Mortgage file, as applicable:
Submitted verification report, if obtained
Paystub(s) and W-2 form(s) except when a verification report is obtained
Last Freddie Mac Income Calculator Certificate, if obtained
Paystub and W-2 documentation must meet the requirements of
Section 5302.2
.
When there are multiple income sources and one or more is eligible for income representation and warranty relief, for the income source(s) not eligible for representation and warranty relief, the Seller must either:
Verify and document the income as required by the Guide, or
Remove the income and resubmit the Mortgage to Loan Product Advisor
Partial
The Seller must maintain in the Mortgage file, as applicable:
Submitted verification report, if obtained
Paystub(s) and W-2 form(s), except when a verification report is obtained
Last Freddie Mac Income Calculator Certificate, if obtained
Paystub and W-2 documentation must meet the requirements of
Section 5302.2
.
When there are multiple income sources and one or more income sources are needed to qualify the Borrower, document the income source(s) as required by the feedback messages.
Not eligible
The income must be verified and documented as required by the Guide.
Unavailable
The income must be verified and documented as required by the Guide.
(iv)
Representation and warranty relief results on Freddie Mac Income Calculator Certificate
When income representation and warranty eligibility results are provided on the Freddie Mac Income Calculator Certificate, the representation and warranty relief available is described in the following table:
Income representation and warranty relief based on Freddie Mac Income Calculator Certificate result
Eligible
The Seller is relieved from enforcement of the representation and warranty for the accuracy of the income calculation related to each eligible income type that is on the paystub(s) and W-2 form(s).
Not eligible
The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower’s income.
(v)
Documentation requirements based on representation and warranty relief result on Freddie Mac Income Calculator Certificate
When income representation and warranty eligibility results are provided on the Freddie Mac Income Calculator Certificate, the documentation requirements are described in the following table:
Documentation requirements based on representation and warranty relief result on Freddie Mac Income Calculator Certificate
Eligible
The Seller must maintain in the Mortgage file:
The Freddie Mac Income Calculator Certificate reflecting the calculated income amount for each income source used to underwrite the Mortgage
Paystub(s) and W-2 form(s)
Paystub and W-2 documentation must meet the requirements of
Section 5302.2
.
When there are multiple income sources and one or more is eligible for income representation and warranty relief, for the income source(s) not eligible for representation and warranty relief, the Seller must verify and document the income as required by the Guide.
Not eligible
The income must be verified and documented as required by the Guide.
(e)
Closed Loans data submission requirements, representation and warranty relief eligibility and documentation requirements
(i)
Closed Loans data submission requirements
For Closed Loans with an automated income assessment, the Seller must:
Submit the employed income data used in the last Loan Product Advisor submission to the API for an automated income assessment using employed income data, and
Investigate and resolve any inconsistent or contradictory information between employed income data, information contained in
Form 65
(including the Borrower’s income and employment representations) and the Mortgage file
(ii)
Representation and warranty relief provided on the AIM Payroll API R&W Assessment
The AIM Payroll API R&W Assessment will only be returned when the Closed Loan is eligible for income representation and warranty relief.
When the AIM Payroll API R&W Assessment indicates the Closed Loan is eligible for income representation and warranty relief, the Seller is relived from enforcement of representation and warranty for the accuracy of the income calculation related to eligible income types described in
Section 5303.4(b)
that are on the paystub(s) and W-2 form(s).
(iii)
Documentation requirements based on representation and warranty relief result on AIM Payroll API R&W Assessment
When the AIM Payroll API R&W Assessment indicates the Closed Loan is eligible for income representation and warranty relief, the Seller must maintain in the Mortgage file all of the following:
W-2 form(s)
For income source(s) submitted to Loan Product Advisor that are not eligible for representation and warranty relief, the Seller must verify and document the income as required by the Guide.
(f)
IRS Form 4506-C requirements
For Mortgages using employed income data obtained from paystub(s) and W-2(s), the IRS form 4506-C documentation requirements for
Section 5302.5
apply.
For Mortgages that receive an income representation and warranty result of either “Eligible” or “Partial” with a feedback message indicating that no further documentation is required for the income reflected on the verification report, if all the income of a Borrower is from an eligible income type described in
Section 5303.4(b)
and is on the verification report, the Seller does not need to obtain the following:
A signed IRS Form 4506-C (or an alternate form acceptable to the IRS that authorizes the release of comparable tax information to a third party), or
A signed Commonwealth of Puerto Rico Form 2907 or Form 4506-C (or an alternate form that authorizes the release of comparable tax information to a third party) for income that is derived from sources in Puerto Rico, Guam or the U.S. Virgin Islands and is exempt from federal income taxation under the Internal Revenue Code
