Late last year Fannie Mae included questions in one of
its National Housing Surveys about working in the "gig" economy. About a fifth of respondents claimed they
earned at least some of their income through such employment. Gig-economy workers tend to have flexible
work arrangements, working on single projects or tasks preforming on-demand services
such as transportation (Uber, Lyft) lodging rental (Airbnb and VRBO) food/goods
delivery, and personal tasks (TaskRabbit).
Because of its "on-demand"
nature, the income stream from gigging can be less stable and its source less
reliable. With the numbers involved
increasing, this is likely to become an issue in mortgage lending, so Fannie
Mae's Economic and Strategic Research (ESR) group included some self-employment
and gig-economy related questions in a recent Mortgage Lender Sentiment Survey®.
One set of questions sought to find
out how lenders view the gig economy trend. Have they seen applications with
such income over the past year? How much do they expect the gig economy to
expand or decline in coming years, and how much will that income help consumers
access mortgage credit?
A
second set asked how lenders view current practices for accepting the income
for mortgage qualification? What are the challenges, if any?
Lastly
how do they view current practices for using self-employment income for
mortgage qualification? What are their top risk factors? What options do they
prefer in improving self-employed workers' access to mortgage credit?
The
responses indicate that the gig economy may be becoming mainstream, but slowly. Seventy-one percent of lenders said they have had borrowers apply for a
mortgage with such income over the last year, however, only 3 percent
categorized the number of applications as "many" or "quite a lot." Eighty-nine
percent expect these numbers to increase over the next few years, but although
only 14 percent said the growth would be significant.
More
than two-thirds (68 percent) say that accepting the income as valid for
mortgage qualification will help low-to-moderate income consumers to access
mortgage credit although 58 percent qualified that as helping "somewhat." Among those who foresee it as helpful, it was
generally because the extra income could push marginal applicants over the minimums. Those who thought it would be unhelpful gave
such reasons as the income being too difficult to track and verify and a lack
of evidence the income would continue.
Some of these same reasons were voiced by the 95 percent of respondents
who said it is difficult to use gig economy income to approve mortgage
applications with today's lending practices. They also named the
unpredictability and instability of the income, the wariness of investors, and
the lack of standardized underwriting criteria regarding it. One respondent, representing a smaller
institution, said, "This
type of income is still relatively new. I am not sure that the agencies have
enough loan performance history for these borrowers to tell us if they present
added risk."
When asked specifically
about self-employment income, 69 percent of lenders say current underwriting
guidelines for income verification are about right, while 24 percent suggest
easing existing standards.
Fannie Mae says the growth of this
new type of employment and the effect on how the self-employed work and earn,
including use of the resulting income in underwriting should not be overlooked.
Those applicants with a sufficient
history of earning such income that fits within investors' guidelines are being
served today, but the instability and unpredictability that is the very nature
of gig economy income makes it difficult to meet investor requirements. Most
lenders do think the current underwriting standards for more traditional
self-employed borrowers are about right.
Fannie Mae concludes that there is a
potential for new tools that could help lenders verify and assess gig economy
income. Emerging technologies could
automate the verification of gig income from tax returns, payroll information,
and bank statements, and help to assess income stability and predictability.
Understanding how workers within the gig economy and others of the self-employed
are paid and how they report their income could lead to streamlining the
verification and risk assessment process and help improve the entirety of loan
origination and minimize tedious manual processes.
Another survey respondent, this one representing a mid-sized
lender said, agreed with Fannie Mae's assessment. "Job stability and income stabilities are significant
components of credit evaluation. Our
industry is based on traditional employment models and does not serve these
consumers well. We need flexibility to
serve this growing employment group."