DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/1535182
MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 48 May 2025 F E A T U R E F or decades, federal employees were seen as the ideal mortgage borrowers—individuals with steady jobs, reliable income, and low risk. But massive workforce reductions over the past several months have begun to challenge that assumption. Many former government workers are turning to contract work, freelance gigs, or a mix of part-time jobs to make ends meet, and they are not alone. Across the country, more Americans are generating income from multiple sources. And it is creating new chal- lenges for lenders because traditional underwriting models were not built for borrowers with varied or unpredictable income. As these borrowers become more common, how can lenders adapt their processes to keep up? Underwriting Under Pressure T raditionally, a full-time W-2 job gave underwriters everything they need- ed to calculate income and determine their ability to repay, but that's no longer a reality. Today's workforce is changing fast, and mortgage lenders are feeling it. More Americans than ever are embracing gig work, freelancing, or self-employment, driven by both economic shifts as well as a desire for greater flexibility and autonomy. A 2024 report from AllWork and TeamStage estimates that gig workers now make up 36% of the total U.S. workforce, while 15% are fully self-employed. And these numbers are expected to grow. Federal layoffs have been a recent flashpoint. According to Reuters, layoffs in the federal workforce have surged more than 41,000% in February 2025 compared to the same month last year. More than 100,000 federal employees have been laid off or have accepted buyouts, and many are now shifting to freelance work and contract roles. For lenders, this shift presents real challenges. While verifying one source of W-2 income is straightforward, verifying income from multiple part- time jobs, 1099 contracts, or business earnings is not. Each source may have its own documentation and timeline, and many don't feed into traditional payroll databases or employer reporting systems. To build a full financial picture, underwriters often chase down tax returns, bank statements, and letters of explanation—tasks that inevitably drive up loan costs. Traditional underwriting models were never designed for this level of complexity. Even when a borrower has stable earnings, automated systems that flag income gaps or inconsistencies can cause delays or denials. Borrowers with multiple income streams often struggle to explain their income simply because it doesn't fit the old mold, which can cause lenders to risk losing qualified ap- plicants, particularly at the point of sale. To support a borrower base that looks very different than it did just a few years ago, lenders are required to rethink how they assess income—because traditional methods are no longer cutting it. THE GIG IS UP: TIME FOR LENDERS TO RETHINK INCOME VERIFICATIONS As more Americans generate income from multiple sources, new challenges are growing for lenders, as traditional underwriting models were not built for borrowers with varied or unpredictable income. B y C U R T I S R . K N U T H C U R T I S R . K N U T H , President and CEO of NCS/Service 1st, is a recognized expert in credit reporting, verification services and risk mitigation solutions. In his role, he sets the strategic direction for both com- panies and is responsible for the execution of corporate objectives. Curtis is an active member and committee member of multiple trade associations, including the Mortgage Bankers Association (MBA), Consumer Data Industry Association (CDIA), and National Consumer Reporting Association (NCRA).