Does the traditional mortgage application process work for 21th C workers who would like to purchase a home?
Not so much, say some elected officials, some government entities and some tech start-ups.
Why? Because some 34% or 42M workers in today’s workforce in the US work as freelancers AKA gig workers, according to the a June 2018 study released by the Bureau of Labor Statistics (BLS). This means that, on the whole, 34% of our workforce is free-lance without regular salaries and/or paychecks, two years of W-2s and pay stubs that “prove” workers have steady incomes and the ability to afford a home.
(By the way, in this same study, the BLS also predicted that this 34% of freelance/gig workers would increase to 50% by 2020.
So what currently happens when these free lancers/gig workers who don’t have 2 consecutive years of W-2 forms, pay stubs, proof of constant, steady employment, etc. apply for a home mortgage? They usually don’t qualify and usually don’t get to purchase a home.
In August 2018, Senators Mark Warner of Virginia and Mike Rounds of South Dakota introduced legislation to amend the current Federal Qualified Mortgage Regulations with the Self-Employed Mortgage Access Act. This legislation would amend standards for determining monthly debt and income by using
- IRS Form 1040 Schedule C for sole proprietorships
- IRS Form 1040 Schedule F for farming
- IRS Form 1065 Schedule K-1 for partnerships
- IRS Form 1120 – S for S corporations
This legislation is not expected to be acted upon until after the November midterm elections BUT this legislation is already garnering support from constituents, leaders in mortgage and banking lending, housing advocates and organizations such as the National Association of REALTORS®.
NAR’s Associate Commercial Policy Representative Vijay Yadlapati is on record as saying, “This bill goes a long way, and not only will it benefit Realtors personally, but pretty much anybody who has rental income, retirement income or is self-employed.”
Pete Mills, senior vice president of residential policy for the Mortgage Banker’s Association said, “The current rules are… antiquated. Our world doesn’t work the old way anymore. This (proposed legislation) is a step forward.”
On other mortgage lending fronts, both Freddie Mac and Fannie Mae are actively exploring ways to include more self-employed and gig-economy applicants into their systems. Nothing specific yet but these agencies are focusing on automated solutions/platforms that would enable self-employed and gig workers to automatically document their incomes.
Businesses such as Newfi Lending recently launched its Sequoia Portfolio Plus to offer loan amounts up to $2M to “difficult-to-qualify” buyers (including self employed buyers) with credit scores of 680 and up. This program is now available in Arizona, California, Colorado, Oregon, Pennsylvania, New Jersey, Utah and Washington with plans to operate in 25 states by the end of 2018.
Newfi also introduced its “Full Eagle” mortgage program in December 2017. Full Eagle services Freddie and Fannie and FHA loans.
The global private equity firm of Warburg Pincus Brokers have a proprietary loan program that offers flexibility to mortgage brokers who are looking to approve “difficult–to-qualify” borrowers who need exceptions on credit scores, LTVs or DTIs. This outfit is targeting self-employed borrowers, real estate investors with multiple properties, borrowers with “credit event histories” who now have excellent credit since those histories, and non-warrantable condos.
Stay tuned, agents. These efforts to open up mortgage opportunities to currently un- and underserved consumers could open up opportunities for new and existing clients and your business.
