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Mortgage Lending in a Gig Economy

An increasing number of self-employed borrowers want to use their gig economy income to qualify for mortgage loans and lenders believe that the number of such borrowers is likely to grow over the next few years according to the latest Lender Sentiment Survey released by Fannie Mae [1] on Wednesday.

For the quarterly survey [2], Fannie Mae asked lenders their views about using gig economy in mortgage underwriting and the answers revealed that it will get more important to include gig worker income for mortgage underwriting in the near future. In fact, 71 percent of the lenders surveyed said that they had borrowers apply for a mortgage with gig economy income over the past year itself.

The gig economy is growing across the country as “on-demand services in transportation, lodging, food/goods delivery, and personal task services are growing and reshaping how Americans think about work and self-employment,” according to the Fannie Mae Economic Research Group that conducts this quarterly survey.

Today, lenders feel that there are many barriers that prevent such people from getting a mortgage. The survey found that 95 percent lenders believed that it was difficult to use gig economy income to approve mortgage applications with today’s lending practices. Top barriers, the survey revealed, included unpredictability and instability of gig economy income, investor requirements, and underwriting criteria standardization.

When it came to lenders’ opinion on today’s self-employment and underwriting guidelines 69 percent said that current underwriting guidelines for self-employment income verification were about right, even though 89 percent expected the share of borrowers earning income from the gig economy to grow in the next three to five years.

Looking at the impact of acceptance of gig economy income to access mortgage credit, the survey revealed that most lenders believed that accepting gig economy income for mortgage applications would help consumers, especially low- and moderate-income borrowers. And what were the top risk concerns around self-employed borrowers? The survey said that 70 percent lenders felt that a high debt-to-income ratio was a risk concern while 49 percent said that high low liquid reserved was a risk while lending to such borrowers.