The New OCR System Just Upgraded Self-Employed Mortgages

Freddie Mac and Fannie Mae have opened new doors for self-employed mortgages. In the past, the process for those self-employed was rigorous and resulted in many headaches. Fannie Mae defines self-employed as owning 25% or greater of the business but “gig” work also falls into this category. The business owned is analyzed for the nature and location of the business, stability, demand of the product or service, and financial strength. All of the extra research takes more time.

Additionally, self-employed mortgage applications used to require two years of full tax records instead of the W-2 forms other borrowers needed. These extra considerations lead to longer review periods and far more hands-on oversight than other borrowers. Loan officers and processors had to manually review pages and pages of documents from a two year period. Any missing information required back-and-forth between borrower and loan officers or the frustration of phone tag. Time is money so these extra hours lead to higher overall costs.


Freddie Mac and Fannie Mae have just implemented “optical character recognition” or OCR. Personally, it seems like a strange name for the program, but I can’t argue with the results. According to a Freddie Mac senior vice president, OCR will take 3 to 5 days off processing, cut overall costs, and reduce risks for the lender. The program automates much of the manual work reducing days’ worth of work into a few minutes. These extra days are crucial.

The final review of a mortgage, referred to as underwriting, happens just before closing. If there is a problem it could delay closing and create a domino effect. In this market, most homes are closing with previous home sales behind both sides. If one closing is delayed all the rest will feel the fallout. Three to 5 days can be the difference between setting a problem straight or setting a new closing date.

Relaxing Requirements

Freddie Mac and Fannie Mae are also loosening their requirements and, in some cases, accepting 12 instead of 24 months of employment history. I’ve heard worries these relaxed requirements will lead to another bubble-burst from underqualified borrowers. I can’t predict the future but I think OCR shows mortgage companies are stepping up to match today’s market.

There has been an explosion of “gig” work, which qualifies as self-employment. This includes jobs like Uber, Lift, Door-dash, or Airbnb. Gig Economy Data Hub calculates more than a quarter of workers gain some income from gig work and one in ten use it as a primary income. OCR makes mortgages easier and more accessible for the growing self-employed workforce. The changes will allow this demographic to get mortgages quicker.

The Bottom Line…

If you thought you wouldn’t qualify for a mortgage because you own a business or depend on gig-work it’s time to think again. OCR is speeding up the process and making it more advantageous for lenders to fund self-employed borrowers. If you’re confident your income is stable and looking for a house, a new highway has just opened up for you.

Learn more about the market and buying a home by reading some of my other blog posts including:

1 – 6 Positives and Negatives When Selling a Home in Spring Market

2 – 4 of the Most Common Closing Problems in Today’s Market

3 – Why Online Estimates Are Not Accurate

If you have any questions, please let me know, I’m always happy to help. You can give me a call at 612-889-6496 or send an email to [email protected].

Read what Sheryl’s clients are saying about working with her and the Selling South of the River team!

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