Bingo? Why is self-employment (“irregular income”) less stable than having a W-2 job? I see hundreds of thousands of W-2 jobs disappearing in the world of banking and finance and my work (I’m self-employed) – part of which is financial consulting, where I’m now taking a portion of the job of someone who has been laid off – is getting more lucrative every quarter.
I see the point you’re trying to make, but I’m not sure that it’s correct. Particularly in the current environment.
In fact, I could make the opposite argument. That is, that folks who are used to being self-employed are more resourceful on average than W-2 folks. And that when times get tough, they’ll figure out a way to make ends meet while laid-off W-2 folks aren’t used to hustling to do what it takes. I’m not saying that’s the case, mind you; I’m just saying that that argument could be made.[/quote]
Dave (in La Jolla?), I agree that the best way to underwrite loans is for a local bank loan officer who knows the customer well over a long time to size the risk up using all the available information. In such a world, I can imagine many self-employed people getting a bigger, lower-cost loan than w2 people earning the same (real) income.
That’s the ideal world. What about the real world? We’re stuck with a big bank remote lending system that uses just a few data elements. Income variability is a very important factor that should be taken into account, and the average amount of variability amongst the self-employed is greater than the average amount of variability amongst the w2 people. So a dumb remote big-bank system should require more downpayments and/or higher interest rates for the self-employed.
Again, I’d prefer the local, more detailed analysis, but it’s not here now.
As for whether a greater % of the self-employed will suffer a big drop in their income than w2 people in this downturn… I don’t know, but it’s not the historical pattern, so the weight of evidence is against it this time too.
