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Perspectives
October 12, 2018

A New Solution to an Old Problem: Making it Easier for the Self-Employed to Get a Mortgage

Sam Oliver
By
Sam Oliver, VP Loan Advisor Suite℠

Thanks to smart phones, digital apps and companies like Uber and Airbnb an increasing number of Americans, particularly millennials, earn their living in the sharing or gig economy by providing on-demand services for tech-savvy consumers. These people mostly work for themselves and are expanding the nation's already sizable self-employed workforce. And like salaried employees, on-demand workers want to buy homes.

Unfortunately, many of these self-employed individuals hear from family and friends about how challenging it is to get a mortgage. The reason is that it's complex and time-consuming for lenders to calculate income for a self-employed borrower, a reality that has discouraged many of them from underwriting this customer segment.

Today, some 14 million borrowers are self-employed, but, if current trends continue, they'll steadily grow into a bigger share of overall homebuyers and a growing source of business for lenders.
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At Freddie Mac, we are committed to helping lenders improve the mortgage experience and responsibly accommodate this new breed of borrowers.

In the last couple of years, mortgage-based fintech vendors have emerged to support a data-driven, digital mortgage experience that lenders can offer to all types of borrowers. To this end, we have partnered with fintech vendor LoanBeam to introduce the only fully integrated self-employment income solution available to the market.

LoanBeam uses proprietary algorithms and highly refined optical character recognition technology to extract and digest a borrower's tax returns and other financials from PDF documents, and then calculates a total income figure within a single cash flow analysis that aligns with Freddie Mac's guidelines.

After testing LoanBeam's technology with a couple of lenders over the last year, Freddie Mac recently integrated it with Loan Product Advisor®, our automated underwriting system. This integration gives lenders several advantages, including an automated review of the accuracy of qualifying income, eliminating the need to chase down unnecessary documents that support residual/excess income and certainty that the income calculation is eligible for representation and warranty relief.

Amid the backdrop of rising interest rates and declining origination volume, lenders need a leg up to cast a wider net for borrowers, including the self-employed. Our collaboration with LoanBeam is just one example of a broader effort underway at Freddie Mac to build a better housing finance system and help lenders stay competitive by meeting the unique needs of all borrowers.

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