
Report: Mortgage Market Not Meeting Needs of Self-Employed Workers
Nearly one-tenth of all U.S. households are headed by self-employed people. In a new blog, the Urban Institute’s Housing Finance Policy Center said the mortgage market is not meeting the needs of these workers.
Authors Karan Kaul and Laurie Goodman said while self-employed households continue to earn more than salaried households, they were hit harder by the housing crisis and have been slower to recover. Their slower recovery, they say, is partly due to a lag in the recovery of their incomes; but the failure of the mortgage market to fully meet their needs is also to blame.
“Self-employed Americans are too large a segment of the economy to be left behind in mortgage access,” the authors said. “Absent major changes to mortgage eligibility rules, the homeownership gap between salaried and self-employed households will likely persist or even widen in the coming years.”
In 2016, 8.5 percent of US households were headed by a self-employed person, according to the American Community Survey, which defines “self-employed” as someone working for his or her own enterprise. Another 3.4 percent were salaried but earned some income from self-employment per the Federal Reserve’s Survey of Household Economics and Decisionmaking.
The authors note self-employed households continue to earn more than salaried households, but self-employed households were hit harder by the housing crisis and have been slower to recover, partly because their incomes have been slower to recover. But at all income levels, both mortgage use and the homeownership rate for self-employed households has declined more than that of salaried households. From 2001 to 2007, the homeownership rate for self-employed and salaried households averaged 79.2 percent and 65.8 percent, respectively, a 13.4 percentage-point gap.
In 2016, the authors said, the gap shrank to 10.2 percentage points, when self-employed households had a 72.9 percent homeownership rate and salaried households had a 62.7 percent rate. And while the homeownership rate fell for both self-employed and salaried households during the recession, the rates of self-employed households dropped more significantly.
The authors also noted before 2007, self-employed households purchasing a home were almost as likely to carry a mortgage as salaried homebuyers–nearly 80 percent in each category. Use declined for both groups after 2007, but self-employed households purchasing a home in 2016 were less likely to have a mortgage (67 percent) than salaried households that purchased a home in the same year (74 percent), notwithstanding the higher median income of self-employed households.
Mortgage use among the self-employed is down in part because they face additional hurdles when applying for a mortgage. Unlike salaried workers, self-employed applicants lack pay stubs or W-2 wage statements.
“Lenders must therefore rely on specific alternatives, such as tax returns and bank statements, to determine loan eligibility,” the authors said. “These documentation requirements and guidelines for analyzing them are described in detail in appendix Q to the Consumer Financial Protection Bureau’s qualified mortgage rule…these prescriptive requirements are difficult to satisfy and likely make it harder for self-employed households to obtain mortgages.”