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Genworth Mortgage Insurance Corporation ©2018 Genworth Financial, Inc. All rights reserved. Self- Employed Borrower Fannie Mae Cash Flow Form 1084 Part II Business Returns January 2018

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Page 1: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

Genworth Mortgage Insurance Corporation ©2018 Genworth Financial, Inc. All rights reserved.

Self- Employed Borrower

Fannie Mae Cash Flow Form 1084 Part II Business Returns

January 2018

Page 2: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

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

2

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

Page 3: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

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

1120S

Objective

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

Page 4: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

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

files

– Changes effective for applications dated

February 1, 2016

Fannie Mae Updates

4Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Note The Requirement To Evidence Access To Income Has Since Been

Removed By Fannie Mae

Page 5: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

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

5Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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7Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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8

Self-Employed Calculators

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

Page 8: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

9Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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Self-Employment Fannie Mae

10Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 10: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

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)

12Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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Does Borrower Own 25% Or More Of A Business?

16Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Can checking the Self Employed Indicator to “Yes”

increase the risk of the loan when evaluated by DU?

YesNo

Page 12: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

You’ll Need

17Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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In Case Study Part I We

Completed Sections 1-6 of

the Personal Tax Returns

18Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 14: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

: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

19Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 15: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

-Access your Cash Flow Quick Reference Guide Form‏ page two

Calculator and Quick Reference Guide

20Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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Analyzing IRS Form K-1

21Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 17: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

Analyzing IRS Form K-1

22Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 18: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

As A Reminder……

23Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 19: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

25

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

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

Page 20: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

Check for trends or changes‏

– Gross receipts

– Cost of Good Sold

– Gross Profit

– Bottom line “Ordinary Income”

Partnerships

26

Page 19

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

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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

27Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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Partnership K-1

28

Page 17

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

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Rental Income - Partnership or S Corps

29Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

No Example

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Partnership K-1

30

Page 17

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

Was The Ordinary Income Distributed To the Owner?

Page 25: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

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

31Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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Schedule E

32Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 11

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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

33Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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1040

34Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 2

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Remember We Must Confirm Liquidity

…There was not a distribution so‏

35Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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

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

Page 30: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

K-1 Less than 25% Ownership

36Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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37

new.mi.genworth.com

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

http://mi.genworth.com/
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38

Self-Employed Calculators

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

Page 33: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

39

Liquidity- Quick Ratio

Generally Accepted Accounting Principles‏

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

Page 34: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

40

Liquidity-Current Ratio

Generally Accepted Accounting Principles‏

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

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Balance Sheet

41Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 23

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(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:

42Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 23

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

$0 + $0+ $0 = $0

Page 37: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

43

Liquidity

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

Page 38: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

-Access your Cash Flow Quick Reference Guide Form‏ page two

Calculator and Quick Reference Guide

44Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Note The Requirement To Evidence Access To Income Has Since Been

Removed By Fannie Mae

Page 39: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

Partnership K-1

45

Page 17

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

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Partnership K-1

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

Was There A Distribution? Was Liquidity Verified?

47Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 17

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Partnership Form 1065

48Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 19

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Partnership Form 1065

49Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 19

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Partnership Form 1065

50Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 24

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Partnership Form 1065

51Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 19

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Partnership Form 1065

52Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 23

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Partnership Form 1065

53Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 19

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Partnership Form 1065

54Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 23

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Partnership Form 1065

55Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 19

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Partnership K-1

56Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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

Page 50: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

Calculator and Quick Reference Guide

57Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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S Corporation Income

58Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 52: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

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

59Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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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

60Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 54: Self- Employed Borrower Fannie Mae Cash Flow Form 1084 …...Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 59. 1120S Corporation Line 21 Ordinary Income/Loss $_____ K-1 % Line

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

61Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 27

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Does Our Applicant Have Ownership?

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

62Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 1

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S Corp K-1

63Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 25

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Page 2 of K-1 and Page 3 of Form 1120S

64Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 26

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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

65Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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Schedule E Partnerships and S Corps

66Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 11

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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

67Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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68Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 2

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Before We Can Use The Income

…Was there a distribution? If not then‏

70Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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

An S Corporation (6/28/2016)

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71Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Liquidity

Generally Accepted Accounting Principles‏

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Balance Sheet

72Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 30

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Balance Sheet

Quick Ratio or Acid Test

Current Assets :

Current Liabilities:

73Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

(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

Page 30

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74Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Liquidity

Generally Accepted Accounting Principles‏

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S Corp K-1

75Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 25

Let’s put numbers on our tool‏

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S Corp K-1 Review‏

– Was there a distribution?

S Corp K-1

76Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 25

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S Corporation Form 1120S

77Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 27

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S Corporation Form 1120S

78Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 27

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S Corporation Form 1120S

79Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 27

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S Corporation Form 1120S

80Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 27

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S Corporation Form 1120S

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S Corporation Form 1120S

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S Corporation Form 1120S

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S Corporation Form 1120S

84Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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S Corporation Form 1120S

85Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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S Corporation Form 1120S

86Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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S Corporation Form 1120S

87Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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S Corp K-1

?How much does John own‏

88Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

Page 25

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S Corporation Form 1120S

89Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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

Entered On Line 1 Of the 1084 Calculator

http://mi.genworth.com/
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Genworth Underwriting Guidelines

91Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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Genworth Rate Express®

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LOS Connections

Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II 93

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Training Tools and Information

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Training Tools and Information

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Additional MI Site Information

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97Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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98Fannie Mae Cash Flow Analysis Form (Form 1084) Pt II

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

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