self- employed borrower fannie mae cash flow form 1084 …...fannie mae cash flow analysis form...

Self- Employed Borrower

Fannie Mae Cash Flow Form 1084 Part II Business Returns

January 2018

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

Lender Responsibility

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

Business Tax Returns; Personal Returns Are Reviewed in Part I.

Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Learn to use the Fannie Mae Cash Flow Analysis Form (Form 1084)‏

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

Objective

3Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

SEL 2015-09‏– Cash Flow Analysis Form updated

– Sections of Chapter B3-3-2 for Self-

Employed Borrowers updated

• Evidence of liquidity if no distributions made

from partnerships or S corps

– DU updated to allow one year personal

and business tax returns for certain case

– Changes effective for applications dated

February 1, 2016

Fannie Mae Updates

Note The Requirement To Evidence Access To Income Has Since Been

Removed By Fannie Mae

2016 Fannie Mae Updates

SEL 2016-05‏– Updates to Business Income

• Eliminate requirement to confirm

borrower has access to income

• Guidance for methods lenders may use

to determine adequate business liquidity

when liquidity assessment is required

• Verbal verifications of employment for a

self-employed borrower can be obtained

within 120 days prior to note date

– Chapter B3-3-1.07, 09 and B3-3-2 of

the Selling Guide have been updated

– Effective on or before October 1, 2016

Self-Employed Calculators

Self-Employment Fannie Mae

When Is a An Analysis of Income Required?

Fannie Mae 2016 Selling Guide B3-3.2-01, Underwriting Factors and

Documentation for a Self-Employed Borrower (10/24/2016)

Does Borrower Own 25% Or More Of A Business?

Can checking the Self Employed Indicator to “Yes”

increase the risk of the loan when evaluated by DU?

You’ll Need

In Case Study Part I We

Completed Sections 1-6 of

the Personal Tax Returns

:You will be working with John and Mary Homeowner who‏

– Own 50% of an LLC called MHI (Mary)

• Reported on a 1065 Partnership Return

• 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 1120 S Corp Tax Return

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

The Case Study

-Access your Cash Flow Quick Reference Guide Form‏ page two

Calculator and Quick Reference Guide

Analyzing IRS Form K-1

As A Reminder……

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

1065 Partnership

$_________

Schedule E page 2

Part II

$_________

Partnership K-1

Rental Income - Partnership or S Corps

No Example

Partnership K-1

Was The Ordinary Income Distributed To the Owner?

1065 Partnership

$_________

Schedule E page 2

Part II

$_________

Schedule E

1065 Partnership

$_________

Schedule E page 2

Part II

$_________

Remember We Must Confirm Liquidity

…There was not a distribution so‏

Fannie Mae 2016 Selling Guide B3-3.2.2-01, Analyzing Partnership

Returns for a Partnership or LLC (10/24/2016)

K-1 Less than 25% Ownership

new.mi.genworth.com

Self-Employed Calculators

Liquidity- Quick Ratio

Generally Accepted Accounting Principles‏

Liquidity-Current Ratio

Balance Sheet

(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:

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

$0 + $0+ $0 = $0

Liquidity

-Access your Cash Flow Quick Reference Guide Form‏ page two

Note The Requirement To Evidence Access To Income Has Since Been

Removed By Fannie Mae

Partnership K-1

Can We Use Ordinary Income/Rental Income From K-1?

Was There A Distribution? Was Liquidity Verified?

Partnership Form 1065

Partnership K-1

Can We Use To Qualify? Was The Business Liquid/Solvent?

S Corporation Income

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

Business Classifications

1120S Corporation

$_________

Schedule E page 2

Part II

Net Income/Loss $_______

Line 17 Net Income Sch.E

*$_________

*Taxed at a personal rate

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

Does Our Applicant Have Ownership?

?Is this W-2 wage for Self-Employed or Salary income‏

S Corp K-1

of K-1 and Page 3 of Form 1120S

1120S Corporation

$_________

Schedule E page 2

Part II

*$_________

Schedule E Partnerships and S Corps

1120S Corporation

$_________

Schedule E page 2

Part II1040

*$_________

Before We Can Use The Income

…Was there a distribution? If not then‏

Fannie Mae 2016 Selling Guide B3-3.2.2-02, Analyzing Returns For

An S Corporation (6/28/2016)

Liquidity

Balance Sheet

Quick Ratio or Acid Test

Current Assets :

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

(Acct Pay. #16 + MNB #17 + Other Current Liabilities #18)

Current Assets:

Current Liabilities: 2.09 - Solvency

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

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

Liquidity

S Corp K-1

Let’s put numbers on our tool‏

S Corp K-1 Review‏

– Was there a distribution?

S Corp K-1

S Corporation Form 1120S

S Corp K-1

?How much does John own‏

And You Have $5000 W-2 Income From The S Corp Business Which Was

Entered On Line 1 Of the 1084 Calculator

Genworth Underwriting Guidelines

Genworth Rate Express®

Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 92

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.

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

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self- employed borrower fannie mae cash flow form 1084 …...fannie mae cash flow analysis form...

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