Self-Employed Borrower Freddie Mac Form 91€¦ · Freddie Mac Form 91 Part II Review 3 Objective...

Self-Employed Borrower

Freddie Mac Form 91Business Tax Returns‏

March 2017‏

2Freddie Mac Form 91 Part II Review

Lender Responsibility

Investors (Fannie Mae, Freddie Mac, Private Investors) require it be‏

determined that self-employed borrowers demonstrate the financial

ability to repay the mortgage.

– History

– Income calculation

– Continuance / Stability of income

Today’s Session Covers Conventional Loans and Reviews K-1’s And

Business Tax Returns; Personal Returns Are Reviewed in Part I

Objective

Learn to use the Freddie Mac Income Analysis Form (Form 91) and‏

data from tax returns to calculate supportable self-employed borrower

income.

– Calculate Partnership Income and Expenses from K-1s and Form 1065

– Calculate S Corp (Sub-Chapter S) Income and Expenses from K-1s and Form

Freddie Mac Seller/Servicer Guide

THESE CHANGED MARCH 6 2017!!!!

Bulletin 2016-19-Income Changes

Implementation Of Income Requirements For Loans With Settlement Dates

of July 6, 2017 or After; LPA Be Updated March 6, 2017 And Lenders May

Begin Following As Of March 6, 2017

When Do We Have To Tell LPA Our Borrower Is Self-Employed?

LPA documentation Matrix

Tool to Help document your files‏

– Updated for loans with settlement

dates on or after July 6, 2017.

– If you choose to implement on and

after March 6, you must comply with all

asset or all the income changes, not

just some of the new requirements

– The existing LPA matrix (July 2016) is

still available should your lender

choose to wait to implement until July

http://www.freddiemac.com/learn/pdfs/uw/docmatrix_settlement_dates_july_6_2017.pdf

mi.genworth.com

Quick Reference Guide and Webinars

Monthly Webinar

Calendars

Course Catalog

Does Borrower Own > 25% of a Business?

Can checking the Self Employed Indicator to “Yes”

increase the risk of the loan when evaluated by

LPASM?

You’ll Need

The Case Study

:You will be working with John and Mary Homeowner who‏

– Own 50% of an LLC called MHI (Mary)

• Reported on a Partnership Return 1065

• Mary receives a K-1

– Own 100% of an S Corporation called Always Watching Security, Inc. (John)

• John receives a K-1

• John receives a W-2 Wage Statement from the business

• John receives an 1120S Sub Chapter S business tax return

In Case Study Part I We Completed Sections 1-8 With The Personal

Tax Returns

Calculator and Quick Reference Guide

Access your Quick Reference Guide Form 91 Section 9 and the Case‏

Business Classifications

Partnership (General or Limited)‏

– Two or More Partners

– Business Income Reported on Form 1065

– Personal Income Reported on Schedule E and K-1

– Income Taxed at Personal Rate

– All owners are issued a K-1s which are attached to the business tax return (IRS

Form 1065)

Advantages‏

– Taxed at Personal Rate (Partnership Pays No Tax on Income)

– Limited Partnership - Only Liable for Amount Invested

Disadvantages‏

– General Partnerships Have Unlimited Personal Liability for Partnership Debts

and Losses

1065 Partnership

Line 22 Ordinary Income/Loss

$_________

Schedule E page 2

Part II1040

Line 17 Net Income/Loss Sch.E

$_________

Taxed at a personal rate

Check for trends or changes‏

– Gross Receipts

– Cost of Good Sold

– Gross Profit

– Bottom line “Ordinary Income”

Partnerships

Freddie Mac Form 91 Part II Review

1065 Partnership

$_________

Schedule E page 2

Part II

$_________

Partnership K-1

Rental Income - Partnership or S Corps

No Example

Partnership K-1

1065 Partnership

$_________

Schedule E page 2

Part II

$_________

Schedule E Partnerships and S Corps

1065 Partnership

$_________

Schedule E page 2

Part II1040

$_________

Freddie Mac Does Not Have a Written Policy

Regarding Distributions

- However, Fannie Mae Does‏

Balance Sheet

Monthly Webinar

Calendars

Course Catalog

Liquidity

Generally Accepted Accounting Principles‏

(Cash #1 + Acct Receivable #2 + #4+ #5 +Other Current Assets #6)

(Acct Pay. #15 + MNB #16 + Other Current Liabilities #17)

Balance Sheet

Quick Ratio or Acid Test

Current Assets :

Current Liabilities:

Current Assets:

Current Liabilities: 10,308 - Solvency

$10,308 + 0 + 0 +0+0 = $10,308

$0 + $0+ $0 = $0

Quick Ratio

Quick Reference Guide

:Access‏

– Form 91

• Quick Reference Guide Section 9

– The Partnership K-1

Partnership K-1

Can We Use Ordinary Income/Rental Income?

Is The Business Capable Of Paying Out The Earnings?

Quick Reference Guide Partnership K-1

Prudent Underwriting: Evaluate The Business. Determine If Any Of The

$10,628 Can Be Used. It Must Make Sense And Be Supported In Writing.

$10624

Partnership K-1

Genworth Calculator Is A Tool; Lenders/Underwriters Review Each Loan

File And Determine Compliance With Freddie Mac Or Investor Guidelines

$10624

Section 11

Partnership Form 1065

See Statement‏

Partnership K-1

Can We Use to Qualify?

Business Classifications

S Corporation‏

– Can be owned by one person

– “Managing Shareholder” must receive a salary

– Business Income Reported on Form 1120S

– Income reported on Form 1040’s

• Schedule E

• Could also be W-2 wage or 1099 income

– All shareholders of an S Corp are issued K-1’s

– K-1s are attached to the S Corp tax return (IRS Form 1120S)

Advantages‏

– Taxed on Personal Basis

• S Corp. Pays No Tax on Income

– Liability Limited to Amount Invested

Disadvantages‏

– Limited to 100 Shareholders

$_________

Schedule E page 2

Part II

$_________

1120S S Corp

S Corps

Check for trends or changes‏

– Gross receipts

– Cost of goods sold

– Gross profit

– Bottom line “Ordinary Income”

– Were W-2 wages paid to

borrower?

S Corps

Review for W-2 paid from business‏

– Is this salary income or self employed income?

– Did we give credit for this income already?

$_________

Schedule E page 2

Part II

$_________

1120S S Corp

S Corp K-1

Did John Get A Distribution?

of K-1 and Page 3 of Form 1120S

1120S S Corp

$_________

Schedule E page 2

Part II

$_________

Schedule E Partnerships and S Corps

$_________

Schedule E page 2

Part II

$_________

1120S S Corp

Freddie Mac Does Not Have a Written Policy

Regarding Distributions

- However, Fannie Mae Does‏

Liquidity

Generally Accepted Accounting Principles‏

Balance Sheet

Quick Ratio or Acid Test

Current Assets :

Current Liabilities:

(Cash #1 + Acct Receivable #2 + #4+ #5 +Other Current Assets #6)

(Acct Pay. #15 + MNB #16 + Other Current Liabilities #17)

Current Assets:

Current Liabilities: 2.09 - Solvency

$8,972 + 0 + 0 +0+0 = $8,972

$0 + $0+ $4,286 = $4,286

Quick Ratio

S Corp K-1

Let’s Put Numbers On Our Tool!

S Corp K-1Let’s Put Numbers On Our Tool!

Did John Get a Distribution? Does The Business Have The

Capacity To Continue Operations?

S Corp K-1

S Corporation Form 1120S

S Corp K-1

?How Much Does John Own‏

We Must Subtract This Amount/Adjustment From The Qualifying Income

We Are Using

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Genworth Resources

Genworth Rate Express® Updated!

Freddie Mac Form 91 Part II Review103

Rate Express

Access Genworth Rates Using

Rate Express Mobile App Or

Desktop

– Only 5 Required Fields

– Find Our MI Rates And Products

And Compare Them To FHA

– Find Previous Quotes With

“Scenario ID”

– Like The Rate? Order MI Directly

From The Results Screen

– Compare Up To 4 Quotes!

Visit mi.genworth.com To Run A Rate Today!

Freddie Mac Form 91 Part II Review 104

Genworth Rate Express

GENWORTH RESOURCES

ActionCenter®: 800 444.5664

Your Local Genworth Underwriting Manager

Your Genworth Account Executive or Manager

Freddie Mac Form 91 Part II 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

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