One of the most crucial parts of underwriting is making sure a prospective borrower has a reliable source of income that enables them to pay back their mortgage loan, according to Khristi Waters, Senior Director of Single-Family Credit Risk Policy and Li-Ning Huang Principal of Economic and Strategic Research Market Research at Fannie Mae. The industry experts offered their insight on borrower income, homeownership, credit access, and more.
Guaranteeing that a prospective borrower has a reliable source of income so they can pay back their mortgage loan is essential to promoting sustainable homeownership. Leveraging all available income sources could assist a borrower get approved for a mortgage loan and make the move to homeownership, especially given the increase in interest rates and home costs.
The intricacy of examining a borrower’s income to make sure it is steady and likely to stay that way can vary from simpler situations, such when salaried employees make a fixed monthly income, to more complex ones, as when hourly employees make a variable monthly income. It could be more challenging to determine a monthly income level that a borrower can depend on in the future in these variable-income scenarios.
Fannie Mae: Examining Variable Incomes
Two forms of variable income are of particular interest: digital gig economy income, which is earned by performing tasks or services via a digital platform, like a ridesharing company; and variable income, which is earned by being employed through hourly pay with variable hours, commissions, bonuses, and overtime pay.
Fannie Mae polled about 200 senior mortgage executives through our Mortgage Lender Sentiment Survey in early October 2024 to learn about lenders’ perspectives and experiences evaluating variable and digital gig economy income for mortgage lending, given the rise of these income streams following the pandemic.
Key Findings:
- Most lenders (67%) believe that accepting digital gig economy and variable income will improve consumers’ access to credit.
- Nearly half of lenders say the number of borrowers who use digital gig economy income and variable income, separately, to qualify for a mortgage has grown in recent years.
- Most lenders expect this growth to continue over the coming years.
- Lenders’ perspectives on current underwriting guidelines from secondary market investors are mixed.
Many lenders, however, pointed out that these sources of income are challenging to use when approving borrowers’ mortgage applications (83% for income from the digital gig economy and 71% for income from variable sources). This is mainly due to issues with the requirements for income calculation, documentation, and stability and history, as well as the lack of industry standards or investor guidelines.
Nearly half of lenders (46%) say they would prefer more precise (or prescriptive) standards for digital gig economy revenue, while 29% feel the current guidelines are “about right” and 26% want more flexibility. About 44% of lenders thought the criteria were “about right” when it came to variable income, with 32% stating they were not specific enough and 23% stating they needed to be more flexible.
According to these survey results, more borrowers are generating variable and gig economy income, which reflects lenders’ perceptions of the labor market. Although these borrowers might benefit from the present industry recommendations, secondary market investors, in particular, need to adopt more prescriptive policies for evaluating revenue from the digital gig economy.
Leveraging new technologies and data sources will be crucial in developing sustainable underwriting methods that strike a balance between responsible risk management and loan availability as these kinds of occupations continue to expand. More Americans could have access to house financing and homeownership prospects if the potential of flexible and digital gig economy income is fully explored.
To read the full Fannie Mae Mortgage Lender Sentiment Survey, click here.
Variable, Gig Income May Improve Consumer’s Access to Credit
One of the most crucial parts of underwriting is making sure a prospective borrower has a reliable source of income that enables them to pay back their mortgage loan, according to Khristi Waters, Senior Director of Single-Family Credit Risk Policy and Li-Ning Huang Principal of Economic and Strategic Research Market Research at Fannie Mae. The industry experts offered their insight on borrower income, homeownership, credit access, and more.
Guaranteeing that a prospective borrower has a reliable source of income so they can pay back their mortgage loan is essential to promoting sustainable homeownership. Leveraging all available income sources could assist a borrower get approved for a mortgage loan and make the move to homeownership, especially given the increase in interest rates and home costs.
The intricacy of examining a borrower’s income to make sure it is steady and likely to stay that way can vary from simpler situations, such when salaried employees make a fixed monthly income, to more complex ones, as when hourly employees make a variable monthly income. It could be more challenging to determine a monthly income level that a borrower can depend on in the future in these variable-income scenarios.
Fannie Mae: Examining Variable Incomes
Two forms of variable income are of particular interest: digital gig economy income, which is earned by performing tasks or services via a digital platform, like a ridesharing company; and variable income, which is earned by being employed through hourly pay with variable hours, commissions, bonuses, and overtime pay.
Fannie Mae polled about 200 senior mortgage executives through our Mortgage Lender Sentiment Survey in early October 2024 to learn about lenders’ perspectives and experiences evaluating variable and digital gig economy income for mortgage lending, given the rise of these income streams following the pandemic.
Key Findings:
Many lenders, however, pointed out that these sources of income are challenging to use when approving borrowers’ mortgage applications (83% for income from the digital gig economy and 71% for income from variable sources). This is mainly due to issues with the requirements for income calculation, documentation, and stability and history, as well as the lack of industry standards or investor guidelines.
Nearly half of lenders (46%) say they would prefer more precise (or prescriptive) standards for digital gig economy revenue, while 29% feel the current guidelines are “about right” and 26% want more flexibility. About 44% of lenders thought the criteria were “about right” when it came to variable income, with 32% stating they were not specific enough and 23% stating they needed to be more flexible.
According to these survey results, more borrowers are generating variable and gig economy income, which reflects lenders’ perceptions of the labor market. Although these borrowers might benefit from the present industry recommendations, secondary market investors, in particular, need to adopt more prescriptive policies for evaluating revenue from the digital gig economy.
Leveraging new technologies and data sources will be crucial in developing sustainable underwriting methods that strike a balance between responsible risk management and loan availability as these kinds of occupations continue to expand. More Americans could have access to house financing and homeownership prospects if the potential of flexible and digital gig economy income is fully explored.
To read the full Fannie Mae Mortgage Lender Sentiment Survey, click here.
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Demetria C. Lester
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