Proposed Legislation Could Change Self-Employed Mortgages

The legislative response to the crash and housing bubble of 2008/2009 added protections for lenders and borrowers alike, putting in place new standards for qualified mortgages (QM) and the "ability to repay" rule, all in an effort to prevent the bundled and sub-prime mortgage practices that lead to the crisis! Unfortunately, the unintended consequences of the Dodd Frank Act made it much more difficult for people with non-traditional income (whether it's from self-employment, investment income, self-employment, etc.) to meet the requirements without standard W2 income.

This consequence has become even more apparent in recent years, as many Americans move toward the "gig economy" of entrepreneurship, side hustles, supplementing income with freelance work, and so on. People in this category number approximately 42 million, representing some 30 percent of the American workforce. With the current QM standards, many of these people struggle to secure mortgages with manageable fees and interest rates - simply because they represent a higher risk in the eyes of the law.

Now that a decade has gone by since the crash, and five years since Dodd-Frank, lawmakers are acknowledging these unintended consequences, and proposing changes that more accurately reflect the state of the American workforce.

In short, the Self-Employed Mortgage Access Act is an effort to reframe (and loosen) the requirements for qualified mortgages for borrowers without standard W2 income. Some of the proposed changes include new income documentation options for entrepreneurs, such as IRS forms for sole proprietorships, partnerships, and S-corporations.

With the changing economic landscape, and a drastically underserved portion of the population struggling to find reliable, affordable home loans, this proposed legislation seeks to extend options to self-employed borrowers without undoing the protections put in place by Dodd-Frank. While the bill is still in process, its adoption could mean great opportunities for the non-traditionally employed, as well as a whole new market for many lenders. While some have criticisms of the bill - mainly because it is additional legislation, as opposed to an amendment of existing policy - the outcomes will be mostly positive. Only time will tell how the Self-Employed Mortgage Access Act is received by lawmakers, how it changes over time, and if it becomes law. Regardless, it's good to know that legislators are aware of the underserved self-employed population, and are taking steps to make it easier for those without W2 income to secure loans and purchase homes. Be sure to keep up on the developments as they happen, and in the meantime, you can learn more about the proposed bill here: https://www.congress.gov/bill/115th-congress/senate-bill/3401/text

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