Reviewing Base Income · 2020. 12. 9. · Review and Calculate Base Income 13 Continuity of Income:...

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Reviewing Base Income:With Documentation Requirements

December 2020

©2019 Genworth Financial, Inc. All rights reserved.

Customer Education

Brought to you by: Genworth Customer Development and Process Consulting

Agenda

What we will cover

– ATR

– The Mortgage Application 1003

– Verifying Employment History

– Verifying Employment Income

• Verification of Employment (1005)

• Paystubs

• W-2’s

• Verbal Verification of Employment (VVOE)

• 4506-T and 4506-C

– Fannie Mae & Freddie Mac References

– Genworth Website

– Helpful tools

1Review and Calculate Base Income

Ability-to-Repay (ATR) Rule

Key concepts of the rule:

– The creditor must make a reasonable and good faith determination that the

consumer has the ability to repay the loan.

• Mortgage borrowers must provide ample financial documentation; lenders must verify

the documents.

• In order to be approved for a particular home loan, the borrower must have sufficient

income and assets to repay the loan.


Appendix Q


The Mortgage Application 1003/65

Fannie Mae’s URLA Page

Review and Calculate Base Income 4

https://singlefamily.fanniemae.com/delivering/uniform-mortgage-data-program/uniform-residential-loan-

application

https://singlefamily.fanniemae.com/delivering/uniform-mortgage-data-program/uniform-residential-loan-application

https://www.fanniemae.com/singlefamily/uniform-residential-loan-application


https://www.fanniemae.com/singlefamily/uniform-residential-loan-application


Two year history is required on the 1003 for all applicants

Verifying Employment History

Is the Borrower Self Employed?

– Spell out the full, complete business name and address.

– Correctly identify type of employment:

• Does the borrower receive a W-2 or 1099?

• If the borrower owns 25% or more of the business, they are self-employed.

• Note- A borrower may be self-employed and get a W-2 from that business.

– Years on job and employed in line of work will be compared to job title and credit

report.

– Title/Type of Business should convey enough information to:

• Convey what duties the borrower performs.

*New

*

*

Enter the Employer’s main number. Do NOT list the borrower’s personal work phone

number that was collected in Section 1a.

Verifying Employment History


*New

*

Verifying Non-Employment Income


*New

Verifying Previous Employment History



Verifying Employment Income

What Not to Ask-“How Much Do You Make?”

About $50,000

$39,850!!

Verifying Employment Income

11

The Interview- Let’s talk about how you get paid…

Do you Receive an Annual Salary?

Are you Paid by the Hour?

• If yes, what is your hourly rate?

• How many hours do you work per week?

– Are your hours scheduled or per diem?

– Do the amount of hours vary week-to-week?

– Do you work year round or is your position seasonal?

Do you Receive any Commission Or Bonus Income?

• If yes, have you received it for the past two years? Has it declined? Do you expect to

continue receiving it?

•

Review and Calculate Base Income

How Has COVID-19 Impacted Borrower’s Income? Salary Reduction? Hours

Reduced? Temporary Furlough in 2020? Absence Of Overtime, Bonus Or

Commission Income?

Temporary COVID-19 Policies Fannie Mae and Freddie Mac have temporary policies in place during

COVID-19 pandemic

– Second level

• Third level

– Fourth level

• Fifth level


https://singlefamily.fanniemae.com/media/22316/display https://guide.freddiemac.com/app/guide/bulletin/2020-44

https://singlefamily.fanniemae.com/media/22316/displayhttps://guide.freddiemac.com/app/guide/bulletin/2020-44


Continuity of Income: Effective March 23, 2020 to December 31, 2020

– Verbal VOE

• Lenders may obtain a written VOE confirming the borrower’s current

employment status within the same timeframe as the verbal VOE

requirements.

• An email directly from the employer’s work email address that identifies the

name and title of the verifier and the borrower’s name and current employment

status may be used in lieu of a verbal VOE. In addition, the lender may obtain

the VOE after loan closing, up to the time of loan delivery

• Paystubs: Lenders may obtain a year-to-date paystub from the pay period that

immediately precedes the note date.

• Bank Statements: The lender can provide bank statements (or other

alternative documentation as permitted by the Selling Guide (B3-4.2-01)

evidencing the payroll deposit from the pay period that immediately precedes

the note date.

Fannie Mae LL-2020-03


Effective for applications taken April 14, 2020 and until further notice:

– Age of Documents

• For most income and asset documents, age requirements is reduced from four

months to two months or 60 days from the note date. If an asset statement is

issued quarterly, lenders must obtain the most recent quarterly statement.

• Employment and income verification received directly from a third-party

verification vendor, the information in the vendor’s database cannot be more than

60 days old as of the note date.

• No change to age of documentation requirements for Military income using an

Leave and Earning statement or (LES), Social Security, retirement income, long-

term disability, Mortgage Credit Certificates or (MCC), public assistance, foster

care or royalty payments.

• Construction to Permanent (CTP) Single Close transactions require income and

asset documentation to be dated within 60 days of the original closing



Reminders and Suspension of Employment Validation Service– Reminder that unemployment may only be used if it clearly is associated with seasonal

employment reported on the signed federal tax returns and lenders verified the income by

following B3-3.1-09 of the Selling Guide.

• The CARES Act allows for unemployment for furloughed and unemployed individuals,

however it is considered short-term income in nature and not a reliable and predictable

source of income

– Furloughed borrowers are workers who are suspended from active employment and do not

typically have a guarantee of when they will return to work; therefore use of this income is

“ineligible” under Fannie Mae’s Temporary Leave Income Policy B3-3.1-09

– New Casefiles created May 4, 2020 and until further notice, Fannie Mae is suspending Rep

and Warrant Relief for employment validation with the DU validation service. Lenders must

perform a Verbal Verification of Employment per current Fannie Mae policies as shown in

Employment validation by the DU validation service section


Bulletin 2020-5


The temporary flexibilities are effective immediately for all Mortgages in process and remain in

place for Mortgages with Applications Received on or before December 31, 2020*.

Credit Underwriting:

– Employed Income – 10-day pre-closing verification (PCV), Sellers may obtain

one of the following in lieu of the 10-day PCV:

• An email directly from the employer’s work email address that identifies the

name and title of the verifier and the Borrower’s name and current employment

status

• Year-to-date (YTD) paystub from the pay period that immediately precedes the

Note date

• An asset account statement evidencing the payroll deposit from the pay period

that immediately precedes the Note date

*Extended to December 31, 2020 by Bulletin 2020-44

Bulletin 2020-8


The temporary credit underwriting requirements below are effective for Mortgages with

Application Received Dates on or after April 14, 2020, and remain in place for Mortgages with

Application Received Dates Until Further Notice; however, Sellers are encouraged to apply

these updates to existing loans in process.

Credit Underwriting:

– All Income and Asset documentation must be dated no more than 60 days

prior to the Note Date, except

• Electronic income verifications obtained from 3rd party verification service provider must

have information from the electronic data base dated no more than 60 days prior to the

Note Date

Bulletin 2020-14

18

The temporary flexibilities are in effect for all Mortgages in process and

remain in place for Mortgages with Applications Received Until Further

Notice

GUIDANCE AND REMINDERS

Furloughs and layoffs

Freddie Mac provides requirements for income while on temporary leave

in Section 5303.5. These requirements do not extend to employer-initiated

actions such as furloughs and layoffs, regardless of whether there is a

projected “return to work” date.


https://guide.freddiemac.com/app/guide/section/5303.5

Bulletin 2020-14

19

The temporary flexibilities are in effect for all Mortgages in process and

remain in place for Mortgages with Applications Received Until Further

Notice

Unemployment compensation

While we recognize that many individuals have become eligible for

assistance and compensation available through the Unemployment

Insurance Provisions provided in the Coronavirus Aid, Relief and Economic

Security Act (“CARES Act”), the assistance and compensation are

temporary in nature and therefore do not represent a stable or continuous

source of income.

As such, unemployment compensation continues to be eligible for use in

qualifying only when it is associated with seasonal employment and all

other requirements in Section 5303.3 are met.



Income Calculation


Annual Salary/ 12 months

Weekly- Every Week Weekly Base x 52 / 12 months

Bi-Weekly- Every Two Weeks Bi-Weekly Base x 26/ 12 months

Bi-Monthly- Twice a Month Bi-Monthly Base x 2

Hourly- Per Hours Worked Hourly Rate x # of Hours Per Week x 52/ 12 months

Pier Diem, Commissions, OT… Average over 24 month Period

20

Always show your work!


Monthly Income

Self Employed income (25% or more ownership of business) would be entered as Base Income but

the indicator must be checked in the employment section.


A minimum history of two years of employment is recommended. However, in

certain circumstances income that has been received for a shorter period of time

may be acceptable. Each file is reviewed individually.

Base Pay (Salary and Hourly)

Obtain the following documents:

• A Completed Verification of Employment, (VOE) a/k/a Form 1005 or

• The Borrower’s Recent Paystub & W-2 Forms (covering the most recent two-year

period). A written VOE may be required to document the income types included

on the W-2.

• The paystub must be dated no earlier than 30 days prior to the initial loan application and

it must include all y-t-d earnings.

• They must be computer generated or typed by the employer.

• A Verbal Verification of Employment (VVOE)

• Fannie Mae & Freddie Mac require lenders to have each borrower complete and

sign a separate IRS Form 4506-T or alternative at or before closing if any income

is being used in the transaction.

Verifying the Qualifying Income

Verification of Employment-1005


Plant scheduled for shut down January 2021


VOE Reminders:– Independently verify address to which you are sending

– Do not put “Attention to” on the form

– Forms should be signed, dated with signature and printed name of employer

– If faxed, note the origin of the faxed document-Is it coming from the employer?

– Income Consistent with application

– Is bonus, or overtime likely to continue? Probability of Continued Employment?

– Review for different handwriting styles, cross outs, white out or cutting and pasting

– Should it be handwritten?

– The VOE cannot be hand carried by the applicant NOR should it be mailed to a P.O. Box

unless you have verified that that is the employer’s protocol

– The VOE can be helpful in determining a trend of non-salaried income such as overtime or

bonus

– The VOE may be critical explaining why the y-t-d appears inaccurate (medical leave,

personal leave, recent pay increase…)

– Verify document does not expire prior to note date (Typically documents valid for four

months)*

Written Verification of Employment-1005

*Follow COVID-19 policies for document expiration

VOE -1005All of the information on Form 1005 must be legible.

• The following fields are optional;

• #11- Probability

• #14- OT & Bonus

• #16- Date of next pay increase

• #17- Projected amount of next

pay increase

• #18- Date of last pay increase

• #19 Amount of last pay increase

• #24- Part III- Previous Employment-

Reason for leaving


Examining Pay Stubs



Reminders:

– The borrower’s name and SSN# must be consistent with the application

(Spelling, middle initial or a JR or III).

– Computer generated, if not the most recent tax return is required and/or a written

voe

– If paid hourly, the number of hours must be noted on the paystub

– Dated within 30 days of application; If stale dated ask applicant for more recent

stub.

– YTD income must be provided and should be consistent with monthly income.

– Note any commission, overtime, or bonus income-don’t use if you don’t need.

– Review for possible liabilities that may need to be included in your debt ratio

(child support or alimony or IRS garnishment or a new loan take out).

– If automatically deposited, cross reference the income to the bank statement

– We are calculating income but also validating the document, does employer

match back to application? To the W-2?

Examining Pay Stubs


Examining W-2s


W-2 Reminders:

– Name and SSN# match application and also the pay stub

– Applicant’s address should also match the 1003 and bank statement mailing

address

– Should be the most recent one or two (if required)

– Is the ytd income consistent with monthly income, if not obtain explanation

– Employer addresses match application

– Employer ID# must be valid (XX-XXXXXX) is the proper format

– FICA and Medicare withholding based on wages can be checked

– You generally should NOT have the Employer’s Copy or the Social Security

Administration Copy!

– Review the document at application, don’t just shove in the loan file

– Obtain tax transcripts to support income if needed

Examining W-2s

Verbal VOE (VVOE)


http://freddiemac.com/learn

http://freddiemac.com/learn


Verbal VOE (VVOE)• The Lender must independently obtain a phone number and, if possible, the

employer’s address. Sources include:• Telephone Book• The Internet• Directory Assistance• The Applicable Licensing Bureau

• The Lender must contact the employer & confirm the borrower’s current employment status within 10 business days prior to the note date.• If the employer confirms the borrower is on temporary leave, the borrower is

considered “employed”. See additional guidelines for use and calculation of qualifying income.

• Document the conversation & include the following:• Name & Title of the person who confirmed the employment.• Name & Title of the person who completed the verification for the employer.• Date of the call• The source of the phone number

Follow COVID-19

policies as

directed by your

Investor


2019 Tax Format


Form 4506-TThere is a new transcript format that better protects taxpayer data. This new format partially masks personally identifiable information. Financial data will remain fully visible to allow for tax preparation, tax representation or income verification. Because the full SSN is masked, the IRS has created an entry for a Customer File Number. A 10-digit Customer File Number is selected by the requester and entered on a new Line 5b of Form 4506-T and 4506T-EZ.

The lender will assign a 10-digit number, for example, a loan number, to the Form 4506-T.The Form 4506-T may be signed and submitted by the taxpayer or signed by the taxpayer and submitted by the lender. The Customer File Number assigned by the requestor on the Form 4506-T will populate on the transcript. The requestor may assign any number except the taxpayer’s Social Security number. Once received by the requester, the transcript’s Customer File Number serves as the tracking number to match it to the taxpayer.

33

IRS 4506-C

Fannie Mae


https://www.irs.gov/pub/irs-pdf/f4506c.pdf

https://www.irs.gov/pub/irs-pdf/f4506c.pdf


Fannie Mae Guidelines 4506-T

https://selling-guide.fanniemae.com/

https://selling-guide.fanniemae.com/


Freddie Mac Guidelines 4506-T




Fannie Mae Selling Guide

https://www.fanniemae.com/content/guide/selling/b3/3.1/01.html



Fannie Mae Selling Guide




Freddie Mac Selling Guide

https://guide.freddiemac.com/app/guide/topic/5300

https://guide.freddiemac.com/app/guide/topic/5300


Freddie Mac’s LPA Documentation Matrix

https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf

https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf

Genworth Underwriting Guidelines


Genworth Rate Express®


LOS Connections


Training Tools and Information


Training Tools and Information

45Review and Calculate Base Income 45

Additional MI Site Information


➢ ActionCenter®: 800 444.5664

➢ Your Local Genworth

Regional Underwriter

➢ Your Genworth Sales

Representative

Your Genworth Resources


Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for

accuracy, we also know that any discussion of laws and their application to particular facts is subject to

individual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and is

not a substitute for advice of counsel. You should always check with your own legal advisors for

interpretations of legal and compliance principles applicable to your business.

,GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED

INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A

PARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN

NO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR

CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING AND

THE MATERIALS.

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Opportunities To Boost Your Know-How, Benefit Your Bottom Line, And Serve Your

Borrowers Better. Visit mi.genworth.com To Learn More.

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Reviewing Base Income · 2020. 12. 9. · Review and Calculate Base Income 13 Continuity of Income:...

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