The Future Is Now: How Lenders Can Turn More Self-Employed Americans Into Homeowners
March 1, 2019 - originally published March 26, 2018
The mortgage industry is riding high as we enter the ninth straight year of economic expansion. But higher interest rates have sharply slowed home sales this year, and the industry is bound to feel the ripple effects of a contracting housing market. As I digest the news, I find myself asking how lenders will adjust. The answer is that they'll have to cast a wider net to secure more borrowers.
Enter the self-employed borrower. Lenders have to work extra hard to underwrite mortgages for nontraditional wage earners because of the time it takes to validate their income. But I keep reading studies about how this group is the fastest-growing component of the U.S. workforce:
- Three in 10 U.S. jobs are held by the self-employed or the workers they hire, according to a report by the Pew Research Center.
- The number of self-employed Americans increased to some 41 million in 2017, up almost 3% from 2016, and they now represent 31% of the private workforce, per a study by MBO Partners.
Today, industry experts estimate that there are some 14 million self-employed borrowers in the U.S., and that this number will grow sharply. As for lenders, they'll have to figure out a way to more efficiently and speedily process mortgage applications for this group of prospective homebuyers.
Preparing for What's Around the Corner
At Freddie Mac, we strive to introduce solutions that lenders can use to grow their business. To this end, we've teamed up with fintech company LoanBeam to help our lenders reduce origination costs and deliver a better borrower experience. LoanBeam's highly refined optical character recognition (OCR) technology extracts and ingests information from a borrower's tax returns and other relevant data, and then calculates an income total based on what it's read. Its software – tested over the last 14 years by having scanned millions of tax documents – has a 99.7% accuracy rate.
We believe technology like this will not only help reduce errors for lenders that stem from computing income manually, but it will also help lenders achieve scale when working with nontraditional wage earners. I think the technology's value will grow exponentially, as the number and complexity of the mortgage files increase. All of this should translate into higher productivity, lower origination costs and a competitive advantage in the growing self-employed borrower market.
AIM for self-employed, featuring LoanBeam's technology, will be broadly available on March 6, 2019. It is integrated with Freddie Mac Loan Product Advisor®, our automated underwriting system. As the origination process evolves, we're committed to working with our lenders to meet the challenges that lie ahead. Contact your Freddie Mac representative to learn more.