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to approve a mortgage. But this vetting places self-employed gig-economy workers at a disadvantage.
Mortgage underwriters are looking for a steady and
stable source of income — typically two years of
documented income and reasonable proof that
those earnings will continue. The problem is that
earnings generated by many short-term, freelance
jobs — which is the norm for gig-economy workers — often does not qualify as the type of income
that is required for the mortgage-qualification
process. This situation can be made worse when that
income is further offset by tax deductions taken for
qualifying freelance expenses — such as a home
office or transportation mileage.
So, for Steven and the millions of other Americans
who make their money from freelancing, buying a
home has become a dream just beyond their reach,
even if they are making a decent living. This presents
an opportunity for keen mortgage originators,
especially those familiar with alternative-income
Using bank statements to verify income, for example, shows what a gig-economy worker truly makes.
Keep in mind, however, that gig-economy workers have to be self-employed for at least two years
before bank statements can be used.
Many in the industry see non-qualified mortgage
(non-QM) originations as not just a growth opportunity, but the growth opportunity. The rising-rate
environment has dried up refinancing opportunities. With an underserved but deserving client base,
non-QM could very well surpass $100 billion per year
in issuances in the coming years.
It isn’t just time to start pursuing non-QM loans.
Now is the time to find what unique segments
there are within this sector of the mortgage industry. Non-QM loans don’t just go to people with a
checkered credit history or other issues. People who
fall through the regulatory cracks also can obtain
As stated earlier, individuals with freelance jobs,
or gigs — and fluctuating incomes — frequently
find it difficult to obtain a mortgage. But these
The gig economy is real. About 16 percent of Americans work in the gig economy, according to a study
released by Fannie Mae’s Economic and Strategic
Research Group. They drive for Uber. They lease
their homes via Airbnb. They perform any number of
services. But gig-economy workers are not people
who bounce between jobs trying to make ends meet.
The same Fannie Mae report says 44 percent of gig-economy workers are between the ages of 18 and 34.
About half make $50,000 a year or more, and two-thirds have obtained at least some college education.
The study also shows that a majority of gig-economy workers think their financial situations
are improving. Another survey also says that over
three-quarters of gig-economy workers believe that
the best days of freelancing are ahead of them.
And the number of gig-economy workers is growing at an astronomical rate. Some 42 million people
will be self-employed by the year 2020 — nearly triple
the 15 million workers who work in the gig economy
today, according to an estimate from FreshBooks,
an accounting and invoicing company. Other estimates state that, already, one-third of millennials
Gig-economy workers earn good incomes. They
are in the prime age group to start marrying and
having children. They have an optimistic attitude
about the economy — and their future — that many
other Americans do not share. And they are growing
at a rate that is frankly mind-boggling.
The Stevens of the world are no longer an anomaly.
Gig-economy workers are a demographic in perfect
position to seek a home mortgage, but they face a
huge uphill struggle in that effort, if it is possible at all.
Increased underwriting standards have absolutely
strengthened the mortgage industry. Mortgage
originators must now document their borrower’s
ability to repay a loan to comply with Dodd-Frank
Act consumer-protection regulations.
The tightened standards mean many banks and
lenders take a hard look at tax returns and other
income documentation before deciding whether
gig-economy workers are exactly the type of clients
that mortgage originators search long and hard for
and who are ideal for the non-QM lending space.
The rise of the gig economy also allows a chance
for mortgage originators to enhance their value in the
workplace. Younger originators can relate better to
younger clients. They understand the thought processes and motivations of millennials better than
many experienced veterans of the industry. Adding
younger originators to the roster is a great way to enhance and deepen a company’s reach into the market.
Millennials and others love the attraction of working on their own terms without having to go into an
office or report to a boss. It is becoming easier by
the day for this type of lifestyle to become a reality.
The numbers of the self-employed and gig-economy
workers are only going to grow.
Many assume that people who live the gig-economy
lifestyle sacrifice financial stability for personal freedom. This is not true at all. They make great incomes.
The advanced education many in the gig-economy
have bodes well for future earnings growth, too.
They are in the prime age to start a family and buy
Gig-economy workers thrive off of deducting any
and all expenses in order to reduce the bill come tax
time. Tightened lending standards, however, require
banks to rely heavily on tax statements before
issuing a mortgage. It’s a Catch- 22 that unfortunately
shuts out many gig-economy workers from the
ability to buy a house.
These difficulties present wonderful opportunities for mortgage originators. Non-QM financing
has become the best opportunity for growth in the
mortgage world. People in the gig economy represent what non-QM is now about. It can offer a path to
homeownership for high-quality applicants who are
otherwise caught in a loophole that prevents them
from easily getting a home loan. n
Tom Hutchens is executive vice president of production at
Angel Oak Mortgage Solutions, an Atlanta-based wholesale
and correspondent lender leading the non-QM space for
five years and licensed in over 35 states. Hutchens has been
in the real estate lending business for nearly 20 years. Reach
Hutchens at (855) 539-4910 or email@example.com.