The Gig Economy and How It Is Impacting Mortgage Lending

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In an age where the virtual economy is a reality, the number of gig workers and self-employed is growing larger and larger by the day.

According to a report published by JPMorgan Chase (JPMC), as much as 29% of inflow transactions (i.e., deposits) were the product of freelance (see report).  Workers in this space look for flexible work hours, work-life balance, and greater control over their careers.

How does increased control over career and earnings affect home-ownership?  Is the gig/self-employed economy mortgage-friendly? Not completely.

Current mortgage underwriting for self-employed and gig workers is based heavily on the applicant having a record of steady, long term employment dating back 2 years, validated with income documents, such as tax returns and W-2s.
Self-employed and gig workers, however, often lack these income documents, making it difficult for banks and mortgage lenders to quantify their earnings – which is a key component in the mortgage approval process.

To alleviate some of the challenges, lenders and self-employed borrowers face with the income validation process, government agencies and government secured enterprises (GSE) are partnering with fintech companies to develop solutions.

For example, the proposed “Self-Employed Mortgage Access Act of 2018”,co-sponsored by Sens. Mark R. Warner (D-Va.) and Mike Rounds (R-S.D.), is designed to open the mortgage industry to self-employed, credit-worthy workers with non-traditional forms of income.

The Self-Employed Mortgage Access Act would allow mortgage lenders to use the following documents to quality applicants:

IRS Form 1040 Schedule C for sole proprietorships

IRS Form 1040 Schedule F for farm industry workers

IRS form 1065 Schedule K-1 for partnerships

IRS Form 1120-S for S Corporation employees

While a self-employed borrower can qualify without this act in today’s economy, there are more hoops borrowers need to jump through along the way. The proposed bill’s intent is to simplify the mortgage approval process by helping to alleviate some of those document-related issues by allowing lenders to verify a borrower’s income using additional forms of documentation other than the W-2s.  This will increase mortgage access for self-employed borrowers.

This solution is still on the horizon. To solve the validation gap now, GSEs have partnered with technology companies to automate the cumbersome income validation procedures associated with self-employed borrowers.

For example, Freddie Mac (FHMLC) and Fannie Mae (FNMA) have partnered with LoanBeam to simplify the income validation process for borrowers, while promising Rep & Warrant relief on the income calculations. LoanBeam’s, patented authentication protocols, and API integrations allow lenders and GSEs to simplify and improve the validation process.

This reduces processing times, and helps convert self-employed workers to homeowners more quickly and more effectively.

The Self-Employed Mortgage Access Act bill is expected to gain traction later this year. Until that time, if you would like to get more information on how LoanBeam can simplify your self-employed applications, visit www.loanbeam.com.

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