At Blueprint we get all kinds of questions on how to calculate different types of income through our support email. In a recent email, the client told us the borrower had an unusual income history. The borrower had four to five different W-2s for each year in the last two years and had three different employers in the current year. After a few emails back and forth, our team was able to determine his borrower was a skilled trades or union worker, and we were able to assist our client with how to handle the income properly.
The skilled trade workers hold jobs for short periods of time, not because they get a job and quit that job a few months later, but because their careers are a string of temporary assignments. These are borrowers who generally are part of a union and who are assigned out by their union halls to work on projects. Once the project is complete, the union will generally have another project waiting for them to start when they finish their current assignment. The professions I have mainly seen this type of income are construction trade professions (electricians, welders, carpenters, etc). The other group I run across that has these types of arrangements are movie and TV production workers, such as camera operators, key grips, sound engineers, and other building trades that help make the “movie magic” come to our TV and movie screens.
Bottom line is if you have a job like this, you cannot work for 30 years adding electrical panels to a building or work on the set of the next Hollywood blockbuster for decades! BUT you are really never out of work. You just move on to the next project.
FNMA, FHLMC, FHA, VA, and USDA don’t currently spell out this type of employment in Allregs, but there is a way to determine their income that will meet agency requirements.
Step 1
On the borrowers 1003 I recommend that you put the employer as the borrower’s union hall, not the current employer shown on the paystub. The reason I put the union hall is this is a more accurate representation of the borrower’s employment status. The borrower probably has been with the same union hall and has had the same profession for years, and gets most if not all of their work from the union hall.
You could make the argument that the union hall is not the employer (which is true), but putting down the current assignment the borrower is on is also not a fair representation of the borrower’s employment either. If you put down actual employers over the last two years, it would appear the borrower is “job hopping,” and your 1003 will have pages of addendums to it. I personally think it is better to have your verbal VOE confirm that the borrower is in good standing at the union hall and is on assignment than having a verbal VOE for every job the borrower has had in the last few years.
Step 2
Follow the traditional method of income trending for variable hour or rate employees to choose the right income. What the borrower currently makes per hour is not as relevant to what the qualifying income is versus what the borrower has been averaging per month. Since the borrower will be assigned different jobs at different pay rates, it is much more accurate to get an average income worked up than use the hourly rate.
1) Add up all of the past year W-2’s and get a monthly average of income
2) Add up all of the most recent years W-2’s and get a monthly average of income
3) Add up all the final paystubs for the current year and get a monthly average of income
Once you have those three figures determined, you can choose which average is the most accurate representation of income, for example, the YTD 2023 + 2022 or the YTD + 2022 + 2021 the proper denominator.
Side note, what I said above would apply to any base pay. Base pay would include any base hourly, vacation, holiday, or sick leave.
See screenshots below for our IncomeXpert calculator on variable employed income. This will save you time by NOT adding this up by hand! Based on the process above, adding up all the YTD base pay and entering it under 2023, 2022, and 2021 will allow IncomeXpert to determine the income for you.
Step 3
The borrower should have a minimum of two years history of this type of employment. The variable income guidelines do allow for less (12-24 months), but if a borrower is new to this type of profession, any less than two years’ becomes very risky.
You need two years to answer these key questions:
- How many jobs per year does the union hall offer the borrower?
- Since each job can have a different pay rate, what is the average rate?
- Is the borrower skilled enough to keep getting new assignments? And finally;
If your borrower has also been getting unemployment income to fill in the gap between assignments, with two years’ history of the unemployment income receipt, you could use this to help qualify the borrower.
Step 4
My last but very important pointer for this type of borrower is do not approve a borrower that is not on a current assignment. There is no guarantee from the union hall how many jobs come up per year or when the borrower will get their next job. If the borrower cannot provide a current paystub that shows current work, wait until the union hall gets them started at their next position.
Summary
In my years of underwriting for borrowers that earn income as described, I have not had one loan come back from an internal QC or investor QC report disagreeing with this method of income evaluation. I can’t point you to a paragraph in Allregs that outlines what I did here exactly. However I can assure you by following the steps I have outlined and explaining your income calculations on your 1008, there should be no issues approving your borrowers file.