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<\/figure><\/div>\n\n\n\nBack in April 2020, we noted that mortgage lenders were getting tougher<\/a> on loan applicants. Perversely, the borrowers who stood to benefit most from the low interest rates that led to a refinancing boom were the ones who faced the highest barriers to access. Lenders scrutinized any changes in applicants\u2019 work lives, income and credit profiles, looking for signs of instability. <\/p>\n\n\n\n Banks are traditionally uncomfortable with non-salaried applicants and volatile income streams. Without a continual stream of W2 wage income, applicants are often considered too risky. Some mortgage companies simply stopped working with applicants outside the Qualified Mortgage (QM)<\/a> category in 2020. Even the companies that had, pre-pandemic,\u00a0used their professional discretion to help viable borrowers. Even the ones that specialized<\/em> in out-of-the-box loans.<\/p>\n\n\n\n\n\n\n\n By mid-2020, conventional loan buyers Fannie Mae and Freddie\nMac were telling self-employed borrowers to submit detailed year-to-date data\nto lenders. Freddie directed lenders to \u201creview the YTD profit and loss\nstatement\u2026business account statements, and all other relevant factors and\ndocumentation to determine the extent to which a business has been impacted by\nCOVID-19.\u201d And while the Federal Housing Administration did not change its loan\ncriteria, borrowers got shut out of FHA mortgages anyway. Mortgage companies\nhad raised their own minimum credit scores. And they were taking extra precautions\nto avert risks of fraud<\/a> amidst a disturbing new reality that took\nhold in 2020. <\/p>\n\n\n\n \u261b<\/em><\/strong> <\/em><\/strong>Are you thinking of applying for a mortgage or\nrefinancing your home post-pandemic? Get the Facts\nAbout Your Credit Score<\/a> on Deeds.com.<\/em><\/strong><\/p>\n\n\n\n Today, a year after the lockdowns started, home loan\ninterest rates are climbing out of their pandemic-year lows. Many hopeful home\nbuyers are losing their chances to get a low-interest loan. In this seller\u2019s\nmarket, they can\u2019t afford to buy a home.<\/p>\n\n\n\n On a positive note, the housing market did not come apart as some had feared<\/a> it would. And there are multiple signals that borrowers will see better days ahead. Specifically, rapid advancements in technology, coupled with more flexible borrowing criteria, will make mortgages accessible to more people.<\/p>\n\n\n\n The traditional work week is no longer the broad status quo.\nOur new reality is different. Some home buyers and owners have been out of their\nnormal work patterns for more than a year. Some have changed fields or started\nup internet-focused businesses. <\/p>\n\n\n\n Some took up day trading<\/a> in the stay-at-home months. Still others jumped headlong into the gig economy<\/a>. The Bureau of Labor Statistics shows the populations of gig income earners added up to more than a third of the U.S. workforce by the time the pandemic hit. Now, their numbers are expected to rise much higher.<\/p>\n\n\n\n The dislocations of 2020 resulted in income losses for some people. For many more, they created nonstandard borrower profiles. How serious are all these factors, taken together? Consider this. By late March 2021, according to Redfin data, home sale prices were up a whopping 16% from the year before. Homes now sell at a record-setting $331,590 median<\/a>, with more than a third of going for more than their listing prices. A logical inference? Some potential home buyers must delay their goals. They need the financial strength to obtain increasingly larger mortgages. \u00a0<\/p>\n\n\n\n So, lender flexibility is necessary to accommodate the rising tide of workers, in an expensive market, who will not submit W2s and pay stubs. Don\u2019t forget to add the emerging era of robotics and automation to the mix. In August 2020, Time<\/em> ran a story under the headline Machines and AI Are Taking Over Jobs Lost to Coronaviru<\/a>s<\/a><\/em>. Need we elaborate? <\/p>\n\n\n\n For conventional loans, applicants have long had to produce pay\nstubs, employment verification, tax documents, and bank account data. But many\nof today\u2019s borrowers have a different portfolio of income proof. Lenders will\nneed to recognize new types of data. They will need to know how to verify them,\ntoo. New sources of data could be downloads from gig economy agencies\u2019 platforms,\nPayPal account statements, and 1099s for independent contract work. <\/p>\n\n\n\n Today\u2019s self-employed workers may itemize their business\nexpenses to lower their taxable income. Loan underwriters have generally wanted\nto see as much income as possible, but it\u2019s important for lenders to acknowledge\nrational, tax-focused decisions, and update the way they calculate income. <\/p>\n\n\n\n Especially after a year-long burst of displacement, many working-age people could never buy a home if lenders insist on rigid loan criteria. Sure, a lot of people are buying homes and keeping the demand high. But the playing field needs to be fairer. Underwriters need to look at nonstandard work histories and cash flows in a new light. To start, as Jeff Ostrowski at Bankrate<\/em> observes, we are already seeing the return of non-QM loans for self-employed borrowers<\/a> and others in nontraditional work situations. <\/p>\n\n\n\n Looking ahead, affordable housing policies are express priorities for the Biden administration. \u201cIncreased government spend on affordable housing would be a net win for lenders,\u201d says Sipho Simela for MReport<\/a><\/em>, because it will draw more people to apply for loans.\u00a0If 2021 trends continue, mortgages that were once in the margins will be moving into the mainstream.<\/p>\n\n\n\n After economic dislocations, more people are likely to start\nputting their homes up for sale to tap the value locked in their real estate.\nWe can expect many buyers to enter the market, looking for first or second\nhomes in the condo market and mobile home communities<\/a>. User-friendly loan application\nmethods have never been more needed.<\/p>\n\n\n\n People also want financial experts to understand their circumstances. They want open and transparent dealings. This is especially so with Millennials and Gen Z borrowers. As the Credit Union Times<\/a><\/em> suggests to industry leaders:<\/p>\n\n\n\n Acknowledge the fact that little\nor bad credit is often unavoidable during a crisis like this and talk about the\nalternate ways your credit union determines creditworthiness. This kind of\ntransparency and compassion will likely result in some lifelong members. <\/em><\/p>\n\n\n\n The financial sphere has ramped up its adoption of digital\ntools during the past year, and that will make a positive difference. Digital\nservices can make mortgages more understandable and more accessible. The\nconvenience of the digital\nmortgage<\/a>, for example, is a genie who won\u2019t be rebottled. <\/p>\n\n\n\n For further examples, the Federal Housing Finance Agency has\ngreen-lighted remote\nonline notarization (RON)<\/a> for mortgage paperwork, and the Mortgage\nBankers Association and the American Land Title Association have done the\nsame for deeds. Digital documentation and remote signing techniques simplify\nhome buying. They also help keep everything together in accessible portals \u2014\nnot delayed in the mail or lost in a drawer. Tech innovations also permit home\nbuyers to compare and contrast prices, terms and conditions, and customer\nreviews. The result will be customer empowerment. And we can expect property tech\nto continue its rise, given the leaps taken in offices to communicate and\nexchange goods and services during the pandemic.<\/p>\n\n\n\n All in all, we expect to see the mortgage sphere integrate\nmore technology, come to grips with nontraditional applicants, and offer\nopportunities for more people to reach their home buying goals. In these trying\ntimes, it\u2019s good to find some inspiring trends.<\/p>\n\n\n\n Supporting References <\/strong><\/p>\n\n\n\n Freddie Mac: Selling Guidance Related to COVID-19<\/a> (Bulletin 2020-44; Nov. 13, 2020). <\/p>\n\n\n\n Freddie Mac: COVID-19 Selling-Related Frequently Asked Questions<\/a> (updated Mar. 11, 2021).\u00a0 <\/p>\n\n\n\n Daryl Fairweather (Chief Economist, Redfin): Five Ways the Housing Market Will Change After the Pandemic<\/a> (Mar. 31, 2021).<\/p>\n\n\n\n Sipho Simela for MReport. <\/em>Mortgage Lending Best Practices: How the Goalposts Are Shifting<\/a> (2 Apr. 2021).<\/p>\n\n\n\n Jeff Ostrowski for Bankrate. As Housing Rebounds, Non-QM Mortgages\nfor Business Owners Make a Comeback (Sep. 22, 2020).<\/p>\n\n\n\n Clint Salisbury\u00a0for AmericanBanker.com<\/em>. Opinion: For Mortgage Lenders, Changes Driven by the Pandemic Are Here to Stay<\/a> (Mar. 26, 2021). <\/p>\n\n\n\n Photo credits: Tumisu<\/a> and MayoFi<\/a>, via Pixabay. <\/p>\n","protected":false},"excerpt":{"rendered":" It\u2019s now obvious: the mortgage lending industry is forever changed. Here\u2019s what happened \u2014 and what\u2019s likely to come next. The Year of Minimum-Risk Lending Back in April 2020, we noted that mortgage lenders were getting tougher on loan applicants. Perversely, the borrowers who stood to benefit most from the low interest rates that led […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[71,57],"tags":[],"class_list":["post-1334","post","type-post","status-publish","format-standard","hentry","category-general","category-mortgage"],"yoast_head":"\nThe Rise of the \u201cOutside-the-Box\u201d Mortgage Applicant <\/h2>\n\n\n\n
![\"Person](\"https:\/\/www.deeds.com\/articles\/wp-content\/uploads\/2021\/04\/rise-of-outside-the-box-mortgage-applicants.jpg\")
<\/figure><\/div>\n\n\n\nThe Return of Flexible Loan Criteria<\/h2>\n\n\n\n
Digital Future: A Genie Who Won\u2019t Be Rebottled<\/h2>\n\n\n\n