Recently I received a question through our main email box at UberWriter asking for assistance on how to enter in a borrower that seemed to have an unusual employment history. The issue with this borrower was that the borrower had four to five different W-2s for each year in the last two years, and had three different employers so for in 2016. After a few emails back and forth I was able to assist our client with how to handle the income properly, here was my advice.
Calculating Income for Skilled Trades Workers
Some types of 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. FNMA and FHLMC 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. My term for these types of workers is “Skilled Trade” or “Union” employees. These are people 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 as the normal course of business 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.
The best method of income calculation to follow the variable income guidelines with a few modifications.
On the borrowers 1003 I recommend that you put the employer as the borrower’s union hall not the current party on the paystub. The reason I put the union hall is this is a more accurate representation of the borrowers employment status. The borrower probably has been with the same union hall and 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 history 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 best to have your verbal VOE confirm that the borrower is in good standing at the union hall and is on assignment then having verbal VOE’s for every job the borrower has had in the last few years.
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 then use the hourly rate.
1) Add up all of the 2014 W-2’s and get a monthly average of income
2) Add up all of the 2015 W-2’s and get a monthly average of income
3) Add up all the “final paystubs” for 2016 and get a monthly average of income
Once you have those three figures determined you can choose which average is the most accurate representative of income (IE the YTD + 2015 or the YTD + 2015 + 2014)
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’ experience becomes very risky. You need two years to answer these key questions:
A) How many jobs per year does the union hall offer the borrower
B) Since each job can have a different pay rate what is the average rate
C) Is the borrower skilled enough to keep getting new assignments and finally;
D) 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.
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 his next job in this line of work. If the borrower cannot provide a current paystub that shows current work, wait until the union hall gets them started at their next position.
In the my years of underwriting and approving hundreds of 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, but can assure you by following the steps I have outlined, and doing a good job explaining your income calculations on your 1008, there should be no issues approving your borrowers file.