Written By: Joel Palmer, Op-Ed Writer
Freddie Mac’s asset and income modeler (AIM) is now available for self-employed borrowers through Loan Product Advisor, the company’s automated underwriting system (AUS).
Freddie Mac said in a statement that its offering is on the only AUS-integrated solution in the industry that can assess self-employed income.
It is designed to simplify the mortgage underwriting process for self-employed borrowers by automating the lenders’ income calculation process. Freddie said it will speed up the mortgage application process while maintaining strong credit underwriting standards.
“There are millions of self-employed workers in the United States and that number is only expected to grow,” said Andy Higginbotham, senior vice president and chief operating officer, Single-Family, Freddie Mac. “Loan Product Advisor’s AIM for self-employed borrowers provides our lenders with a new way to expand their business efficiently. It gives them a competitive edge to help grow their business in a tightening purchase market and gives them confidence they are delivering loans that align with Freddie Mac’s purchase eligibility requirements as captured in Loan Product Advisor.”
According to U.S. Bureau of Labor Statistics, more than 10 percent of employment in the U.S. is self-employment. About 15 million Americans are self-employed and that number is expected to grow faster than the overall workforce. The U.S. workforce is becoming comprised of more nontraditional income earners, such as contractors, freelancers and on-demand workers.
At the same time, underwriting mortgages for self-employed borrowers is complex and time consuming. It requires lenders to extract income data from tax returns rather than a traditional worker’s W-2.
It becomes more complicated given that business owners often try to reduce their taxable income through deductions and write-offs. Mortgage processors and underwriters must often manually reconcile dozens of pages of tax documents to determine an accurate income total.
Processing self-employed mortgage applications often costs more than traditional ones. Therefore, lenders often hesitate to market mortgage products to this demographic.
The new AIM available through Loan Product Advisor works by automatically extracting income data from the borrower’s tax documents. The data is validated using proprietary authentication. The system also identifies missing tax documents.
An income calculation report is returned with a reference number, which is then sent to Loan Product Advisor. Loan Product Advisor assesses the income data and returns the information and warranty relief results on a feedback certificate.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.