self-employed borrower freddie mac form 91€¦ · freddie mac form 91 part ii review 3 objective...
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Genworth Mortgage Insurance Corporation ©2017 Genworth Financial, Inc. All rights reserved.
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
3Freddie Mac Form 91 Part II Review
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
1120S
4Freddie Mac Form 91 Part II Review
Freddie Mac Seller/Servicer Guide
THESE CHANGED MARCH 6 2017!!!!
Bulletin 2016-19-Income Changes
5Freddie Mac Form 91 Part II Review
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
6Freddie Mac Form 91 Part II Review
Freddie Mac Seller/Servicer Guide
7Freddie Mac Form 91 Part II Review
Freddie Mac Seller/Servicer Guide
When Do We Have To Tell LPA Our Borrower Is Self-Employed?
8Freddie Mac Form 91 Part II Review
Freddie Mac Seller/Servicer Guide
9Freddie Mac Form 91 Part II Review
Freddie Mac Seller/Servicer Guide
10Freddie Mac Form 91 Part II Review
LPA documentation Matrix
11Freddie Mac Form 91 Part II Review
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
6.
http://www.freddiemac.com/learn/pdfs/uw/docmatrix_settlement_dates_july_6_2017.pdf
15Freddie Mac Form 91 Part II Review
mi.genworth.com
Quick Reference Guide and Webinars
16Freddie Mac Form 91 Part II Review
Monthly Webinar
Calendars
Course Catalog
Quick Reference Guide and Webinars
17Freddie Mac Form 91 Part II Review
18Freddie Mac Form 91 Part II Review
Does Borrower Own > 25% of a Business?
19Freddie Mac Form 91 Part II Review
Can checking the Self Employed Indicator to “Yes”
increase the risk of the loan when evaluated by
LPASM?
YesNo
You’ll Need
20Freddie Mac Form 91 Part II Review
21Freddie Mac Form 91 Part II Review
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
22Freddie Mac Form 91 Part II Review
In Case Study Part I We Completed Sections 1-8 With The Personal
Tax Returns
23Freddie Mac Form 91 Part II Review
Calculator and Quick Reference Guide
Access your Quick Reference Guide Form 91 Section 9 and the Case
Study
24Freddie Mac Form 91 Part II Review
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
25Freddie Mac Form 91 Part II Review
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
Check for trends or changes
– Gross Receipts
– Cost of Good Sold
– Gross Profit
– Bottom line “Ordinary Income”
Partnerships
26
Page 19
Freddie Mac Form 91 Part II 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
27Freddie Mac Form 91 Part II Review
Partnership K-1
28Freddie Mac Form 91 Part II Review
Page 17
Rental Income - Partnership or S Corps
29Freddie Mac Form 91 Part II Review
No Example
Partnership K-1
33Freddie Mac Form 91 Part II Review
Page 17
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
35Freddie Mac Form 91 Part II Review
Schedule E Partnerships and S Corps
36Freddie Mac Form 91 Part II Review
Page 11
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
37Freddie Mac Form 91 Part II Review
38Freddie Mac Form 91 Part II Review
Page 2
41Freddie Mac Form 91 Part II Review
Freddie Mac Does Not Have a Written Policy
Regarding Distributions
- However, Fannie Mae Does
Balance Sheet
42Freddie Mac Form 91 Part II Review
Page 23
Quick Reference Guide and Webinars
43Freddie Mac Form 91 Part II Review
Monthly Webinar
Calendars
Course Catalog
Quick Reference Guide and Webinars
44Freddie Mac Form 91 Part II Review
45Freddie Mac Form 91 Part II Review
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
46Freddie Mac Form 91 Part II Review
Page 23
$10,308 + 0 + 0 +0+0 = $10,308
$0 + $0+ $0 = $0
47Freddie Mac Form 91 Part II Review
Quick Ratio
48Freddie Mac Form 91 Part II Review
Quick Reference Guide
:Access
– Form 91
• Quick Reference Guide Section 9
– The Partnership K-1
Page 17
49Freddie Mac Form 91 Part II Review
Partnership K-1
Can We Use Ordinary Income/Rental Income?
Is The Business Capable Of Paying Out The Earnings?
Page 17
Quick Reference Guide Partnership K-1
50Freddie Mac Form 91 Part II Review
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
$0
Partnership K-1
51Freddie Mac Form 91 Part II Review
Genworth Calculator Is A Tool; Lenders/Underwriters Review Each Loan
File And Determine Compliance With Freddie Mac Or Investor Guidelines
Page 17
$10624
$0
$0
Section 11
52Freddie Mac Form 91 Part II Review
Page 19
Partnership Form 1065
53Freddie Mac Form 91 Part II Review
Page 19
54Freddie Mac Form 91 Part II Review
Partnership Form 1065
Page 19
55Freddie Mac Form 91 Part II Review
Partnership Form 1065
See Statement
Page 19
Partnership Form 1065
56Freddie Mac Form 91 Part II Review
Page 24
57Freddie Mac Form 91 Part II Review
58Freddie Mac Form 91 Part II Review
Partnership Form 1065
Page 23
59Freddie Mac Form 91 Part II Review
60Freddie Mac Form 91 Part II Review
Partnership Form 1065
Page 19
61Freddie Mac Form 91 Part II Review
Partnership Form 1065
Page 23
62Freddie Mac Form 91 Part II Review
Partnership K-1
Can We Use to Qualify?
Page 17
63Freddie Mac Form 91 Part II Review
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
64Freddie Mac Form 91 Part II Review
Line 21 Ordinary Income/Loss
$_________
K1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II
1040
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
1120S S Corp
65Freddie Mac Form 91 Part II Review
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?
Page 27
66Freddie Mac Form 91 Part II Review
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?
Page 1
67Freddie Mac Form 91 Part II Review
Line 21 Ordinary Income/Loss
$_________
K1
%
Line 1 Ordinary Income/Loss
$_________
Schedule E page 2
Part II
1040
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
1120S S Corp
S Corp K-1
68Freddie Mac Form 91 Part II Review
Did John Get A Distribution?
Page 25
Page 2 of K-1 and Page 3 of Form 1120S
69Freddie Mac Form 91 Part II Review
Page 26
71Freddie Mac Form 91 Part II Review
1120S S Corp
Line 21 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
Schedule E Partnerships and S Corps
72Freddie Mac Form 91 Part II Review
Page 11
73Freddie Mac Form 91 Part II Review
Line 21 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
1120S S Corp
74Freddie Mac Form 91 Part II Review
Page 2
75Freddie Mac Form 91 Part II Review
Freddie Mac Does Not Have a Written Policy
Regarding Distributions
- However, Fannie Mae Does
76Freddie Mac Form 91 Part II Review
Liquidity
Generally Accepted Accounting Principles
77Freddie Mac Form 91 Part II Review
Balance Sheet
Page 30
78Freddie Mac Form 91 Part II Review
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
Page 30
79Freddie Mac Form 91 Part II Review
Quick Ratio
81Freddie Mac Form 91 Part II Review
S Corp K-1
Let’s Put Numbers On Our Tool!
Page 25
82Freddie Mac Form 91 Part II Review
S Corp K-1Let’s Put Numbers On Our Tool!
Page 25
Did John Get a Distribution? Does The Business Have The
Capacity To Continue Operations?
S Corp K-1
83Freddie Mac Form 91 Part II Review
Page 25
S Corporation Form 1120S
84Freddie Mac Form 91 Part II Review
Page 27
S Corporation Form 1120S
85Freddie Mac Form 91 Part II Review
Page 27
S Corporation Form 1120S
86Freddie Mac Form 91 Part II Review
Page 27
S Corporation Form 1120S
87Freddie Mac Form 91 Part II Review
Page 27
88Freddie Mac Form 91 Part II Review
S Corporation Form 1120S
Page 32
S Corporation Form 1120S
89Freddie Mac Form 91 Part II Review
Page 27
90Freddie Mac Form 91 Part II Review
S Corporation Form 1120S
Page 30
S Corporation Form 1120S
91Freddie Mac Form 91 Part II Review
Page 27
S Corporation Form 1120S
92Freddie Mac Form 91 Part II Review
Page 27
93Freddie Mac Form 91 Part II Review
S Corporation Form 1120S
Page 31
S Corporation Form 1120S
94Freddie Mac Form 91 Part II Review
95Freddie Mac Form 91 Part II Review
S Corp K-1
?How Much Does John Own
Page 25
S Corporation Form 1120S
96Freddie Mac Form 91 Part II Review
We Must Subtract This Amount/Adjustment From The Qualifying Income
We Are Using
99Freddie Mac Form 91 Part II Review
mi.genworth.com
Quick Reference Guide and Webinars
100Freddie Mac Form 91 Part II Review
Monthly Webinar
Calendars
Course Catalog
Quick Reference Guide and Webinars
101Freddie Mac Form 91 Part II Review
Genworth Resources
102Freddie Mac Form 91 Part II Review
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
105Freddie Mac Form 91 Part II Review
106Freddie Mac Form 91 Part II Review
GENWORTH RESOURCES
ActionCenter®: 800 444.5664
Your Local Genworth Underwriting Manager
Your Genworth Account Executive or Manager
107
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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AND THE MATERIALS.
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