U.S. Senators Mark R. Warner (D-VA) and Mike Rounds (R-SD) introduced federal legislation on August 28, 2018, that would expand access to mortgages to the self-employed, gig workers, and other creditworthy individuals with non-traditional forms of income. The Self-Employed Mortgage Access Act allows lenders to verify an applicant’s income using documentation forms other than a W-2. The legislation would expand the types of documentation that self-employed individuals may submit to demonstrate their credit worthiness and that lenders may use to keep a loan in qualifying mortgage status. Acceptable documentation would include IRS Form 1040 Schedule C for sole proprietorships, IRS Form 1040 Schedule F for farming, IRS Form 1065 Schedule K-1 for partnerships, and IRS Form 1120-S for S corporations.

According to the press release, the Bill addresses an unintended consequence of the CFPB’s Ability-to-Pay Rule, which requires lenders to look at a customer’s income, assets, savings, and debt in relation to monthly loan payments to satisfy requirements for a Qualified Mortgage (QM). Warner and Rounds noted that “since the QM standard was finalized, lenders and investors in the mortgage market have shown a clear preference for QM loans due to the potential for liability associated with making non-QM loans.”

Under those rules, unless a loan is eligible for sale to Fannie Mae or Freddie Mac or insurance from one of the government agencies, QM loans require lenders to satisfy the “rigid requirements” of the CFPB’s lending guidelines, Warner’s office explained. These guidelines, referred to as Appendix Q, often lead to a “less precise calculation of income for borrowers with non-W-2 income sources, such as rental income, retirement income, or income from self-employment.” The Senators report that this imprecise calculation leads many creditworthy individuals who rely on nontraditional types of income (as many as 42 million Americans, or 30 percent of the labor force) to be “unduly constrained” in their ability to obtain a mortgage.

Representatives from the Mortgage Bankers Association, the Consumer Federation of America, and the Milken Institute indicated that they support the bill.