presented by genworth mortgage insurance november 2017... · 2017. 12. 12. · freddie mac form 91...

Calculating Income

Presented by Genworth Mortgage Insurance

November 2017

Agenda

What we will cover‏

– General Income Requirements

– Documentation Requirements

– Fannie Mae

– Freddie Mac

– Practice Cases

– Genworth Website

– Helpful tools

2Calculating Income

Let’s Take A Quiz

?True or False: I own 10% of a Partnership. Do I get a Form K-1‏

3Calculating Income

•True or False: If a borrower earns commission income and the trend

over two years is declining, lenders can always take the most recent

year and average over 12 months to be conservative?

See Fannie Mae Seller Guide or The Guide for Freddie Mac for more information

Income Requirements

:Establish that income is‏

– Steady, Stable or increasing.

– Likely to continue into the future

– Must be able to document the income as per investor guidelines (Are they

reporting it on their tax returns??)

– Income from other Non-Employed Sources such as Child Support, Interest

Income or Retirement income might be considered qualifying income but have

different qualifying guidelines

– Policies change often, always verify requirements for uncommon or seldom used

income types

4Calculating Income

Use Of Declining Income Is One Of The Most Common

Calculation Errors

Income Document Requirements

Documentation Requirements‏

– Manual Underwrite: Typically requires two year history to be received and

documented

– Automated underwriting (Loan Product Advisor® f/k/a Loan Prospector ® or

Desktop Underwriter®):

• Typically follow the findings report or feedback certificate

• Often documentation is reduced from a manual underwrite

– Additional documentation is always required to clarify a question, inconsistency

or continuance of an income source

– Conservative income calculations are preferred

– When MI is needed, always verify MI guideline requirements as well

5Calculating Income

Documentation Overlays May Exist; Always Check

Investor Credit Policy For Additional Requirements

Resources

:To access the Fannie Mae Seller Guide‏

– Go to http://www.fanniemae.com

– Click on “Single Family”, “Guides” and then “Allregs”

– Allregs covers both manual and DU underwriting requirements

– Chapter B3-3-2 of the Seller Guide discusses Income Underwriting

requirements

6Calculating Income

•To access the Freddie Mac Loan Product Advisor Documentation

Matrix and The Freddie Mac Seller/Servicer Guide:

– Go to http://www.freddiemac.com

– Click on “Single Family”, “ and then “Allregs.” which is Freddie Mac’s

Seller/Servicer Guide or

– Click on “Learning Center” then “Quick References” for

– Loan Product Advisor Documentation Matrix (Updated October 2017)

– Chapter 5301.1 of Seller/Servicer Guide for Stable monthly income and asset

qualification for Freddie Mac

Documenting Employment and Income

7Calculating Income

Two Year History is Required on the 1003 for all applicants

For Freddie Mac, Gaps Greater Than 30 Days Should

Be Addressed By The Applicant

Documenting Employment and Income

8Calculating Income

Do Not Lump Income Types Together Break

Out Income Type For Proper AUS Results

IRS Form 4506-t

9Calculating Income

www.irs.gov

IRS Form 4506-t

www.irs.gov

Calculating Income

‏ The IRS Form 4506-T

– IRS document used to retrieve past federal tax return transcripts, 1065, 1120S,

1120, or W-2 and 1099 transcripts that are on file with the IRS.

– Gives permission for a third party to retrieve the tax payer’s data.

– Each applicant must sign a separate form regardless of the income source.

– The form is valid for 120 days once signed

– If the form is executed prior to closing it must be used to validate the income

documentation provided by the borrower and used in the underwriting process.

‏ When Completing A Blank 4506-t Form Lenders Must

– Fill in the recipient of the tax documents – either its name or the name of the

servicer, if servicing will be transferred within 120 days of the taxpayer signing

the form

– Indicate that the request is for documentation concerning the year or years for

which the borrower’s income was or will be used in underwriting the loan

– Date the form with the date on which the borrower signs the form (or ascertain

that date the borrower signed)

Fannie Mae Guidelines

‏ 4506-t Must Be signed Once During The Application Process– The timing is at the lender’s discretion but it must be signed on or before the closing of the

mortgage loan

– The Lender must document the requirement to obtain an executed IRS Form 4506-T with

the IRS in their written quality control (QC) plan

– The borrower may need to complete multiple forms for different types of returns

Calculating Income 11

Freddie Mac’s Documentation Matrix

Fannie MaeUpdates, Policies and Fannie Mae’s Form 1084‏

Calculating Income

Fannie Mae Selling Guide Self-Employment

14Calculating Income

Fannie Mae Selling Guide

See B3-3.1-01, General Income Information (7/25/2017)

‏ Trends of Income

– Verify trends of income before using to qualify for a mortgage

– Income used must be likely to continue

See B3-3.1-01, Commission Income Requirements (06/30/2015)

Calculating Income

Highlights‏

– Core principles of prudent underwriting must be followed when considering

income for qualifying purposes

• Source, amount, history of receipt and likelihood of continued receipt

– Income that does not have a defined expiration date (long term disability, interest

and dividend income and social security retirement income) no longer requires

documentation of three-year continuance

– Income that DOES have an expiration date, lenders must document a three-year

continuance (see Fannie Mae Seller Guide)

Continuance of Income‏

Documentation Fannie Mae Selling Guide

Verbal Verifications‏

– Verbal verifications of employment for employed borrowers are required to be

completed within 10 business days of closing or, if lenders choose, a VVOE can

be completed prior to loan delivery

– Verbal verifications of employment for self employed borrowers can now be

completed within 120 days of note date or prior to loan delivery (Check for

investor overlays)

Fannie Mae “Optional” VOE fields

Documentation Fannie Mae Selling Guide

Fannie Mae Job Aids/FAQs

https://www.fanniemae.com/singlefamily/originating-underwriting-training

Fannie Mae Underwriting FAQs

‏ Answers Common Lender Income

Questions– https://www.fanniemae.com/singlefamily/origin

ating-underwriting-training

Fannie Mae Underwriting FAQs

‏ Answers Common Lender

Income Questions– https://www.fanniemae.com/singlefamily/

originating-underwriting-training

Freddie Mac Bulletins, Documentation and Rental Income Matrix and Freddie Mac‏

Form 91

Calculating Income

Bulletin 2016-19-Income Changes

Effective Loans With Settlement Dates On Or After July 6, 2017; Loan

Product Advisor Updated March 6, 2017

General Requirements For Freddie Mac

Updated Freddie Mac Income Guidelines; Everything In Green Is Updated Verbiage In

The Seller/Servicer Guide

Freddie Mac Seller/Servicer Guide

Chapter 5301.1 General requirements for all stable monthly income

Income Continuance Charts Added To The Freddie Mac Seller/Servicer Guide

Income Continuance Requirements

Freddie Mac Primary Base and Secondary

Employment

Freddie Mac Commission Income

Freddie Mac Documentation Matrix

‏ Documentation Matrix

– Assists in underwriting and

documenting loans for Freddie Mac

– Lenders may have overlays

– Check specific program

requirements

– Updated October 2017

http://freddiemac.com/learn

Freddie Mac Monthly Income

Income Documentation Requirements

Freddie Mac Income Documentation

Freddie Mac Form 91

Freddie Mac Income Calculation Form 91 Updated August 2017‏

– Sellers are required to analyze self employed borrowers using Freddie Mac

Form 91 or a similar form

• Updates include removal of Rental income, 2106 expenses, 4797 and 6252

– The form should be maintained in the loan file

– Form can be used for “other types of non-self employed income such as

commissioned income, and capital gain income

– Borrowers that have 25% or more ownership in a business are considered self

employed for Freddie Mac qualifying purposes

– Tax returns may be required for additional scenarios such as:

• Applicants working for family members

• Working for the property seller

• Commission income of 25% or more

• Rental or Farm Income

Freddie Mac Self-Employed Documentation

Updates For Freddie Mac 2017-12

‏ Effective for loans with settlement

dates on or after February 9, 2018;

Sellers may implement immediately

– Short-term and long-term rental income

sources for refinance transactions

– Updates policy for rental properties NOT

owned in the prior calendar year

– Reintroduces Guide Form 1000 and retires

Operating Income Form 998

– Expanding requirements, additional

specificity and guidance for

• Accessory units

• Leases

• Net rental income calculations

• Establishment of DTI ratios

• Rental Income from form 8825

– New Rental Form 92

– Revised Form 91 (Income Calculations)

http://www.freddiemac.com/singlefamily/forms/sell/pdf/91.pdf

Updates For Freddie Mac 2017-20

‏ Effective Immediately

– Allowing use of Restricted Stock and

Restricted stock units in certain cases

– Expanding “Assets as basis for Mortgage

Qualification”

• Changing name to Assets as a basis for

repayment of obligations

• Adding depository accounts and securities as

assets available to be used (not just retirement

accounts)

– One borrower must be 62 years of age

– Borrower must be the sole owner o the asset (or if

jointly owned both must be on the mortgage

transaction)

– No withdrawal penalty

– Document source of funds for any deposit

exceeding 10% of the borrower’s total eligible

assets; verify the deposit does not include gifts or

borrowed funds or reduce assets used to qualify

See Freddie Mac Seller/Servicer Guide For Complete Details

Document Review Pay Stubs, W-2s, Written VOEs‏

Calculating Income

Income Conversion Exercises

Calculate the monthly income for each pay scenario above.

$60,000

$1,000

$1,250

$20/ hour, 40 hours weekly

Reminders:

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

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

– Computer generated?

– 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

– 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?

Pay Stubs

Paystub

: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

: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? Large corporations probably not!

– 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

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

overtime or bonus

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

four months)

Written Verification of Employment

Exercises

Calculating Income

Income Calculation Exercises

Keep in Mind:

Sometimes there are

several ways to calculate

income!

Local Iron Workers Union W2’s from various jobs

Income‏ 15 ’16 `17

– W2 $52,399 $61,555

Y-T-D paystub*‏ As of 09-30-17 $59,765

John is unemployed seasonally.

Calculation W2’s & Paystub and 1099

Gross Monthly Income

Borrower

Base Income

Self Employed

Overtime

Bonuses

Commissions

Dividends/Interest

Sub Total

Net Rental

Subject Net Cash

What is the qualifying monthly income?

Calculation from W2’s & Paystub

-- Sally works as a school nurse and works from Sept 1st- June 30th earning $802 every two weeks.

-- She also receives child support for $500 per month that will continue for 10 years.

’15 ’16 ’17

W-2 $28,897 $30,250 * See pay stub

* YTD pay stub as of 12/15/17 - $33,925

- Sam’s current salary is $35,400

Borrower

Base Income

Self Employed

Overtime

Bonuses

Commissions

Dividends/Interest

Sub Total

Net Rental

Subject Net Cash

Borrower

Base Income

Self Employed

Overtime

Bonuses

Commissions

Dividends/Interest

Sub Total

Net Rental

Subject Net Cash

Borrower

Base Income

Self Employed

Overtime

Bonuses

Commissions

Dividends/Interest

Sub Total

Net Rental

Subject Net Cash

Paystub

Borrower

Base Income

Self Employed

Overtime

Bonuses

Commissions

Dividends/Interest

Sub Total

Net Rental

Subject Net Cash

Pay Stub with Prior Year W-2

‏ Eli receives $4080 in taxable social security income as per his most recent tax returns. His

application states he is 42 years old with no dependents

‏ Calculate the monthly social security income ONLY for Eli. Do you have to do anything special?

Calculation from Tax Returns

Base Income

Self Employed

Overtime

Bonuses

Commissions

Dividends/Interest

Sub Total

Net Rental

Subject Net Cash

Income‏ ‘15 ‘16 ’17ytd *

– Base $50,000 $53,000 $12,500

– Commission $0 $0 $35,000

Y-T-D-2015 through 6/30/17*‏

– Assume it is currently 6/30/17!

Donovan’s pay structure changed 1/1/17 to base plus commission-New Annual Salary is $25000

Calculation from VOE

http://fanniemae.com/portal/index.html

Fannie Mae Website

Freddie Mac Seller/Servicer Guide

Genworth Underwriting Guidelines

Genworth Rate Express®

LOS Connections

Training Tools and Information

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.

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

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presented by genworth mortgage insurance november 2017... · 2017. 12. 12. · freddie mac form 91...

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