April Insight Post - LoanBeam.com

The concept of a “shared economy,” or the use of technology to share resources and services, has grown drastically in recent years. Services like Uber, Airbnb, and TaskRabbit have provided additional revenue streams for millions of people. In fact, according to an article by SAGE Business Researcher, on a typical day, an estimated 247,000 items are sold on Etsy, 140,000 people rent accommodations through Airbnb, and 1 million people ride with Uber.

Drawn to the flexibility and convenience of these services, it is now possible for anyone to earn extra income. This speaks particularly to millennials, who have grown up surrounded by technology and find the idea of “being their own boss” appealing. According to a survey by Elance.com, 83% of Millennials state that working independently or freelancing is a cornerstone of their career strategy. We now have a generation of people who earn income much differently than generations in the past. And with millennials projected to have the most spending power of any market segment by 2018, an interesting conversation begins about the impact they will have on the mortgage industry.

Of course, a rise of self-employed individuals will likely lead to a rise in self-employed borrowers as they move away from traditional W2 income to more complex income types. Instead of filing traditional IRS Form W2s as an employee of a company, borrowers will file IRS Form 1040, and, potentially, multiple schedules and business tax filings. In turn, mortgage lenders will see an increase of complex tax returns submitted with consumer mortgage applications.

So what does this mean for mortgage lenders? With an increase in complex incomes, the average mortgage application will require more time to process and require a more knowledgeable underwriter. To accommodate this, the lender must either increase spending on training or automate the lending process with technology. While training can be effective, the issue of employee turnover is a major consideration. According to a recent HousingWire article, “within the next decade, the mortgage industry will need to replace roughly 200,000 loan officers.” Automating the mortgage application process through technology ensures consistency no matter the turnover rate. Automation does not just solve the problem of speed; it also allows lenders to manuever the constantly evolving compliance landscape.

To summarize, the shared economy will be a market disrupter for the consumer mortgage industry. Large, lumbering process flows centered around salaried, or “wage earning,” borrowers will falter as more self-employed borrowers fill the pipeline. To prepare, lenders must immediately develop strategies for handling the increasing number of self-employed applications. Of the two potential solutions that present themselves, only automation provides lenders the opportunity to drive down costs and improve consistency.

 Written by: Clark Maloof

Editted by: Paul Sims

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