Self-Employed Borrower Schedule Analysis Method …...Schedule Analysis Method Part II, Business...
Transcript of Self-Employed Borrower Schedule Analysis Method …...Schedule Analysis Method Part II, Business...
Genworth Mortgage Insurance Corporation ©2018 Genworth Financial, Inc. All rights reserved.
Self-Employed Borrower
Schedule Analysis Method or SAMPart II: Business Tax Returns
November 2018
2Schedule Analysis Method Part II, Business Return Review
Objective
-Learn to use SAM Form to calculate supportable income for self
employed borrowers, using K-1s and business tax returns
– Partnership income and expenses, IRS Form 1065 and associated K-1s
– S-Corp income and expenses, from IRS Form 1120S and associated K-1s
Fannie Mae policy is different from Freddie Mac
– We will review both in today’s session
Does Borrower Own 25% or More of a
Business?
3Schedule Analysis Method Part II, Business Return Review 3
Can checking the Self-Employed Indicator to yes -
increase the risk of loans when evaluated by DU®?
Loan Product Advisor®?
YesNo
Written Analysis of Income-Fannie Mae
Fannie Mae 2016 Selling Guide B3-3.2-01, Underwriting Factors and
Documentation for a Self-Employed Borrower (06/28/2016)
6Schedule Analysis Method Part II, Business Return Review
Written Analysis of Income-Fannie Mae
7Schedule Analysis Method Part II, Business Return Review
Fannie Mae 2016 Selling Guide B3-3.2-01, Underwriting Factors and
Documentation for a Self-Employed Borrower (06/28/2016)
Freddie Mac Documentation Matrix
Documentation Matrix
– Assists in underwriting and
documenting loans for Freddie Mac
– Lenders may have overlays
– Check specific program
requirements
– Updated September 2018
12
http://freddiemac.com/learn
Freddie Mac Seller/Servicer Guide
13
When Do We Have To Tell Loan Product Advisor Our Borrower Is Self-
Employed?
Updated and Effective September 19,2018
21Schedule Analysis Method Part II, Business Return Review
In Case Study Part I, We
Completed Sections 1-8
Personal Tax Return Review
:You will be working with John and Mary Homeowner who
– Own 33.33% of an LLC called Street Art Design Company (John)
• Reported on a Partnership Return 1065
• John receives a K-1
– Own 100% of an S Corporation called Modern Dwelling Enterprises, Inc. (Mary)
• Mary receives a K-1
• 1120S business tax return
• Mary & John receives a W-2 Wage Statements from the business
The Case Study
23Schedule Analysis Method Part II, Business Return Review
30Schedule Analysis Method Part II, Business Return Review
Freddie Mac Seller/Servicer Guide
5304.1 Stable Monthly Income
31Schedule Analysis Method Part II, Business Return Review
Freddie Mac Seller/Servicer Guide5304.1 Stable Monthly Income
32
1065 Partnership
Line 22 Ordinary Income/Loss
$_________
K-1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II1040
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
Schedule Analysis Method Part II, Business Return Review
Check for trends or changes
– Gross receipts
– Cost of Goods Sold
– Gross Profit
– Bottom line “Ordinary Income”
:Note
– Guaranteed Payments can be
found on Line 10
– This is compensation paid to the
owners and has nothing to do
with distributions
Partnership 1065
Schedule Analysis Method Part II, Business Return Review 33
Page 22
1065 Partnership
Line 22 Ordinary Income/Loss
$_________
K-1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II
1040
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
34Schedule Analysis Method Part II, Business Return Review
Rental Income - Partnership or S Corp
36
No Example
Schedule Analysis Method Part II, Business Return Review
1065 Partnership
Line 22 Ordinary Income/Loss
$_________
K-1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II
1040
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
38Schedule Analysis Method Part II, Business Return Review
1065 Partnership
Line 22 Ordinary Income/Loss
$_________
K-1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II
1040
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
40Schedule Analysis Method Part II, Business Return Review
Remember - We Must Confirm Liquidity
…There was not a distribution so
43Schedule Analysis Method Part II, Business Return Review
Fannie Mae 2017 Selling Guide B3-3.2.2-01, Analyzing Partnership
Returns for a Partnership or LLC (6/28/2016)
44Schedule Analysis Method Part II, Business Return Review
Freddie Mac Seller/Servicer Guide
5304.1 Stable Monthly Income
Liquidity
47
Generally Accepted Accounting Principles
Schedule Analysis Method Part II, Business Return Review
Generally Accepted Accounting Principles
Liquidity - Current Ratio
48Schedule Analysis Method Part II, Business Return Review
Balance Sheet
50Schedule Analysis Method Part II, Business Return Review
(Cash #1 + Acct Receivable #2 + #4+ #5 +Other Current Assets #6)
(Acct Pay. #15 + MNB #16 + Other Current Liabilities #17)
Quick Ratio or Acid Test
Current Assets :
Current Liabilities:
Current Assets:
Current Liabilities: .201 - Solvency
$765 + 0 + 0 +0+0 = $765
$0 + $0+ $3,800 = $3,800
Page 26
Generally Accepted Accounting Principles
Liquidity
51Schedule Analysis Method Part II, Business Return Review
Follow The Guidelines For The Investor You Are Underwriting To And
Provide Justification For Decisioning
Quick Reference Guide Partnership K-1
52Schedule Analysis Method Part II, Business Return Review
Genworth Calculator Is A Tool. Lenders/Underwriters Review Each Loan
File And Determine Compliance With Fannie Mae Or Investor Guidelines.
Partnership K-1
53Schedule Analysis Method Part II, Business Return Review
Can We Use Ordinary Income/Rental Income From the K-1?
Was There A Distribution? Was Liquidity Verified?
Page 20
Quick Reference Guide Partnership K-1
54Schedule Analysis Method Part II, Business Return Review
Genworth Calculator Is A Tool. Lenders/Underwriters Review Each Loan
File And Determine Compliance With Fannie Mae Or Investor Guidelines.
Partnership K-1
55
Page 20
Schedule Analysis Method Part II, Business Return Review
Before You Give Credit For The Guarantee Payments, Does This Business Appear to
Be Capable Of Paying It In The Future? Could We Look At The Balance Sheet Again?
Balance Sheet
56Schedule Analysis Method Part II, Business Return Review
Page 26
Could We Verify What Is Included On Line 17? Our Borrower Indicated The
Business Loan Listed Has Been Paid Off And Provided Evidence When Advised
That The Business Did Not Appear Solvent
Liquidity Test Without The Loan
57Schedule Analysis Method Part II, Business Return Review
Do You Feel More Comfortable Using The Guaranteed Payment Now?
Quick Reference Guide Partnership K-1
58Schedule Analysis Method Part II, Business Return Review
Guaranteed Payments Can Be Used; Follow Investor Guidelines
SAM Form Section XI, IRS Form 1065
59Schedule Analysis Method Part II, Business Return Review
Page 22
Review The Statement
The statement must be reviewed to determine if “other deductions” includes
amortization and/or casualty losses. None have been identified in this return.
Schedule Analysis Method Part II, Business Return Review 63
Page 28
68Schedule Analysis Method Part II, Business Return Review
Calculator and Quick Reference Guide
SAM Quick Reference Guide Form – Page 2 Section XI S-Corp K-1s
70Schedule Analysis Method Part II, Business Return Review
Freddie Mac Seller/Servicer Guide
5304.1 Stable Monthly Income
1120S Corporation
Line 21 Ordinary Income/Loss
$_________
K-1
%
Line 1 Ordinary Income/Loss
Schedule E page 2
Part II
Net Income/Loss $_______
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
72Schedule Analysis Method Part II, Business Return Review
Check for Trends or Changes
– Gross receipts
– Cost of goods sold
– Gross profit
– Bottom line “Ordinary Income”
– W-2 wages
• Were these paid to borrower?
S Corps
73Schedule Analysis Method Part II, Business Return Review
Page 33
Compensation of Owners And/Or Officers From Line 7; Did We Give Credit
For Mary’s W-2 Already?
75Schedule Analysis Method Part II, Business Return Review
1120S Corporation
Line 21 Ordinary Income/Loss
$_________
K-1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
76Schedule Analysis Method Part II, Business Return Review
S Corp K-1
Did Mary get a distribution?
77Schedule Analysis Method Part II, Business Return Review
Page 31
Page 2 of K-1 and Page 3 of Form 1120S
78Schedule Analysis Method Part II, Business Return Review
Page 32
1120S Corporation
Line 21 Ordinary Income/Loss
$_________
K-1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
80Schedule Analysis Method Part II, Business Return Review
Schedule E Partnerships and S Corps
81Schedule Analysis Method Part II, Business Return Review
Page 12
1120S Corporation
Line 21 Ordinary Income/Loss
$_________
K-1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
82Schedule Analysis Method Part II, Business Return Review
Before We Can Use The Income
…Was there a distribution? If not then
84Schedule Analysis Method Part II, Business Return Review
Fannie Mae 2017 Selling Guide B3-3.2.2-02, Analyzing Returns For
An S Corporation (6/28/2016)
86Schedule Analysis Method Part II, Business Return Review
Liquidity
Generally Accepted Accounting Principles
Balance Sheet
Quick Ratio or Acid Test
Current Assets :
Current Liabilities:
88Schedule Analysis Method Part II, Business Return Review
(Cash #1 + Acct Receivable #2 + #4+ #5 +Other Current Assets #6)
(Acct Pay. #16 + MNB #17 + Other Current Liabilities #18)
Current Assets:
Current Liabilities: .045 - Solvency
$6,530 + 0 + 0 +0+ $5,578 = $12,108
$146,222 + $0+ $124,347 = $270,569
Page 36
Liquidity
89
Generally Accepted Accounting Principles
Schedule Analysis Method Part II, Business Return Review
Review for W-2 Paid from Business
– Did we give credit for this income already?
AS A REMINDER…..
90Schedule Analysis Method Part II, Business Return Review
Page 1
S Corp K-1
Did Mary get a distribution?
92Schedule Analysis Method Part II, Business Return Review
Page 31
S Corp K-1
93Schedule Analysis Method Part II, Business Return Review
Page 31
Let’s put numbers on our tool
S Corp K-1 Review
– Was there a distribution?
S Corp K-1
94Schedule Analysis Method Part II, Business Return Review
Page 31
S Corp K-1
?How much does Mary own
107Schedule Analysis Method Part II, Business Return Review
Page 31
S Corporation Form 1120S
108Schedule Analysis Method Part II, Business Return Review
Do you feel comfortable using the W2 income to qualify?
Do Not Use Any W-2 Income For John Or Mary From Modern Dwelling
And You Are NOT Required To For Modern Dwelling Enterprises Losses;
Try to Qualify Using the Partnership Income and Schedule C Income
Fannie Mae
109Schedule Analysis Method Part II, Business Return Review
Freddie Mac
110Schedule Analysis Method Part II, Business Return Review
Requires Sellers To Account For Business Losses If It Is Their Primary
Source Of Income; Other Option Would Be To Take Mary Off The Loan,
BUT Still Not Use John’s W-2 Wages From The Business
117Schedule Analysis Method Part II, Business Return Review
➢ ActionCenter®: 800 444.5664
➢ Your Local Genworth
Regional Underwriter
➢ Your Genworth Sales
Representative
Your Genworth Resources
118Schedule Analysis Method Part II, Business Return Review
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.
Genworth Mortgage Insurance Offers A Comprehensive Suite Of Training
Opportunities To Boost Your Know-How, Benefit Your Bottom Line, And Serve Your
Borrowers Better. Visit mi.genworth.com To Learn More.
Collateral Underwriter®, Home Ready ® and Desktop Underwriter® or DU® are registered trademarks of Fannie Mae
Loan Product Advisor®, Home Possible®, Home Possible Advantage®, Loan Collateral Advisor® and Home Value Explorer® (HVE®) are registered trademarks of
Freddie Mac
ActionCenter®, Homebuyer Privileges® and Rate Express® are registered trademarks of Genworth Mortgage Insurance
Simply UnderwriteSM is a registered service mark of Genworth Mortgage Insurance