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Updated over 4 years ago on . Most recent reply

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Kirsten Milliken
  • Rental Property Investor
  • Ridgetop, TN
20
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65
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What's a self employed person to do?

Kirsten Milliken
  • Rental Property Investor
  • Ridgetop, TN
Posted

I just called my mortgage company to inquire about refinancing my mortgage and was told that lenders are not giving loans to anyone who is self-employed due to the pandemic.  This is ridiculous!  My income has remained strong and is even more than last year!  I work in health care.  

Has anyone else found mortgage companies with good rates who will work with self-employed investors?  

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Chris Mason
  • Lender
  • California
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Chris Mason
  • Lender
  • California
ModeratorReplied
Originally posted by @Kirsten Milliken:

I just called my mortgage company to inquire about refinancing my mortgage and was told that lenders are not giving loans to anyone who is self-employed due to the pandemic.  This is ridiculous!  My income has remained strong and is even more than last year!  I work in health care.  

Has anyone else found mortgage companies with good rates who will work with self-employed investors?  

 What @Shaun Weeks said is correct.

To give it more context:

The entire mortgage industry is at capacity right now, has been since March, with the functionally unlimited numbers of fish in a barrel refinances. A loan originator friend of mine and I were having a friendly debate a few months back, and he won: by picking up the phone and randomly dialing 20 random California area code phone numbers, he was in fact able to put >2 more refinances in his pipeline. When in human history has completely random cold-calling ever had a >10% conversion rate (cold calling = ew, gross... but still)? 

One way a bank or mortgage company can open up capacity (to do more loans, to realize more profits, etc) is by cutting off loans to borrowers that are statistically likely to take more time to underwrite/process/etc on some basis, or bases, other than legally protected class(es). 

Self employed folks take longer to process/underwrite (50% to 100% more person-hours), and that's not a protected class. So if you're just focused on quarterly numbers, rather than relationships and "fuzzy" things like that, it's rational to cut self employed people off. 

Here is a real life example of that sort of "capacity management" in action, from the largest lender in the country (by volume, 2019).

Do you see where it "does not impact IRRRLs or FHA Streamlines"? That's b/c those take 50% to 75% less time to process/underwrite than "vanilla" loans. Same exact mechanism and logic. FICO scores also aren't a protected class, so you can lawfully discriminate on that basis as well, in this case having a ridiculous minimum FICO score, but only for self employed people.

Another IRL example. Another lender charges 1 extra discount point to anyone self employed, and another 0.5 if rental income is going to be used. So in that case they will do it, but only if it's going to be an unusually high profit loan.

Thanksgiving just happened. I am thankful that my crystal ball told me to go be a mortgage broker a couple years back, having been a direct lender for the entirety of my career previously. That optionality from working with a bunch of different lenders, right now, is essential. 

  • Chris Mason
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