This spring homebuying season will certainly have a new ring to it. In fact, this year will be the first homebuying season in more than a decade where those buying a home, rather than those refinancing a home, will dominate the market.
With declining refinance activity, a limited supply of single-family home inventory in many markets and high origination production costs, every lender is trying to find new ways to control costs, while at the same time looking for an edge to better serve a changing customer base.
Fortunately, we have come a long way since the last true purchase market more than a decade ago. Major technological improvements have cut costs, improved efficiency and helped produce loans that are safer and sounder. At Freddie Mac, we’re leveraging data analytics so our clients can more fully-digitize application processing, speed up underwriting and bring borrowers to the closing table sooner.
Our latest innovation on this front is Loan Product Advisor® asset and income modeler (AIM) for self-employed borrowers. This first-of-its-kind solution leverages LoanBeam technology to simplify underwriting for self-employed borrowers by automating the income calculation process using tax return data. Our fully integrated data solution allows processors to prepare higher-quality loan files for underwriters, freeing them up to focus on the big-picture credit profile of a borrower rather than the initial “stare and compare” work. In addition, pertinent tax data is systematically extracted from the borrower’s returns to arrive at a reliable income total, which decreases the manual processes involved in dissecting a self-employed borrower’s tax documents.
The importance of this technology solution cannot be overstated. The U.S. Bureau of Labor Statistics (BLS) reported that self-employment makes up over 10 percent of total employment in the United States. In fact, BLS goes on to report that self-employment continues to be an important source of jobs for 15 million people, and is expected to grow at the same, or faster rate than the overall workforce. Simply put, this technology is hitting the market at the right time for the new economic reality.
From a productivity standpoint, the math is simple. With AIM for self-employed, lenders can now save around $400 per loan origination and can close loans three to five days faster, while also receiving immediate representation and warranty relief related to borrower income. And for the borrower, AIM for self-employed helps speed up the lending process.
Similar to Loan Product Advisor® Automated Collateral Evaluation (ACE), which provides the option to underwrite eligible loans without a traditional appraisal, AIM for self-employed borrowers delivers a technology solution that can help give lenders a competitive edge. And as with any new technology, there is an adoption curve. However, Freddie Mac works to increase adoption for lenders (of all sizes) by making these Loan Product Advisor-integrated capabilities broadly available and at no cost, to every mortgage lender. We are focused on leveraging data to deliver value driven solutions.
AIM for self-employed borrowers, means lenders do not have to rely solely on human interpretation, subjectivity or calculations when scouring through pages of tax, income and other mortgage documents when originating a loan. The technology helps to deliver process efficiencies and confidence in the income calculation. It’s about data, not documents.
This greatly reduces the chances of incorrect values being inserted unintentionally, and it takes human judgement out of the income assessment.
Ultimately, the speed, efficiency and accuracy of loan production—from originating to closing a mortgage—can cut lenders’ processing and underwriting costs. This can help make them more competitive, while helping borrowers save money. This also means borrowers and lenders are providing data that allows our tools to return the eligibility determinations that meet our published underwriting guidelines.
If they haven’t already done so, lenders can take the first step now and take advantage of AIM for self-employed to simplify underwriting of the growing self-employed borrower market.
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