Hello, LOs!
The past 16 months of variously tightening and slackening of restrictions on business — as well as more time spent away from the office — led many to reassess their careers.
I suppose it's not surprising that there was a substantial increase in entrepreneurial activity, as recorded by the Kauffman Indicators of Entrepreneurship, which tracks entrepreneurial trends in the United States. It certainly presents a complicating narrative to explain why so many are still sitting out of the labor market. The labor shortage has even led some in wealthy enclaves to mow their own lawns and skip manicures.
"I know a lot of restaurant people who took that time to start doing what they originally wanted to do," one Hamptonite told Vanity Fair. "We all slowed down and remembered that those jobs aren't who we are. A lot of people I know started doing stuff from home. Small businesses. Online work. Things that can't be shut down again."
What happens when those people apply for mortgages? Obviously, getting a mortgage when you don't have the typical W-2 and federal income tax returns is trickier. That often means you're not going to be able to get QM financing.
But having your own business, depending on the sector and your clientele, could present some unique complications for the mortgage underwriting process. What if you're an entrepreneur — say you've recently opened a web design firm — and you get paid entirely in Venmo or Cash App?
Would borrowers then furnish pages upon pages of printed-out screenshots of their Venmo transactions to demonstrate fulfilled contracts, emojis and all?
That's exactly what they're doing. Tabitha Mazzara, director of operations at Mortgage Bank of California, said she has seen a lot more potential borrowers who are entrepreneurs since the start of COVID-19. She said it's typical for those who rely on mobile payments to submit screenshots — along with bank statements and a detailed explanation of their business plan.
The process definitely takes longer than typical conforming QM financing. And while technology can certainly automate parts of the process, there's no substitute for taking more time to understand each business.
"Once you identify their business strategy, the story tells itself. An experienced credit analyst can tell in 15 minutes if they're fast-food junkies, if they're shopaholics, if they gamble," Mazzara said. "The opportunity to review and assess someone's cash flow is really powerful."
I'm not sure I'd be excited to turn over my bank statements and Venmo transactions for a trained credit analyst to comb through — would too many streaming services be disqualifying?
LOs – have you worked with clients who primarily use digital payments? What has that been like? Do you believe there should be changes to the agencies' policies to accommodate borrowers who don't fit the traditional mold? Send a note anonymously to gkromrei@housingwire.com
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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