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Genworth Mortgage Insurance Corporation ©2019 Genworth Financial, Inc. All rights reserved.
Self-Employed Borrower
Freddie Mac Form 91Part II - Business Tax Returns
April 2019
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-1s 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
Freddie Mac Self-Employed Guidelines
Freddie Mac Form 91 Part II Review 4
Freddie Mac Documentation Matrix
Documentation Matrix
– Assists in underwriting and
documenting loans for Freddie Mac
– Lenders may have overlays
– Check specific program
requirements
– Updated April 2019
5Freddie Mac Form 91 Part II Review
http://www.freddiemac.com/learn/pdfs/uw/docmatrix.pdf
6Freddie Mac Form 91 Part II Review
Documentation Matrix
Page 12 of Matrix
7Freddie Mac Form 91 Part II Review
Documentation Matrix
Page 13 of Matrix
8Freddie Mac Form 91 Part II Review
Documentation Matrix
Page 13 of Matrix
9Freddie Mac Form 91 Part II Review
Documentation Matrix
Page 14 of Matrix
10Freddie Mac Form 91 Part II Review
Documentation Matrix
Page 27 of Matrix
Chapter 5304 of the Guide
Chapter 5304.1(d) Business and Income
Analysis
11Freddie Mac Form 91 Part II Review
12Freddie Mac Form 91 Part II Review
Chapter 5304.1(d) Business and Income
Analysis
13Freddie Mac Form 91 Part II Review
Chapter 5304.1(d) Business and Income
Analysis
14Freddie Mac Form 91 Part II Review
Chapter 5304.1(d) Business and Income
Analysis
15Freddie Mac Form 91 Part II Review
http://www.freddiemac.com/singlefamily/forms/sell/pdf/91.pdf
Genworth Has Forms 91 And 92 Income Calculation Tools Posted To Our Website
Training Tools and Information
www.new.mi.Genworth.com
Training Tools and Information
Freddie Mac Form 91 Part II Review 1717
18Freddie Mac Form 91 Part II Review
When Borrowers Own Multiple Partnerships, S Corps Or Corporations, Do
A Separate Worksheet For Each Business; Do A Separate Worksheet For
Each Borrower
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 Loan Product
Advisor®?
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 a Schedule C business called Impressive Images (John)
– Have schedule B interest income earned from personal assets
– Have capital gain/loss activity reported on a Schedule D
– Own an existing rental property shown on a Schedule E
– Own 35% of an LLC called Dallas Designers (Mary)
• Reported on a 1065 Partnership Return
• Mary receives a K-1
– Own 100% of an S Corporation called Wellness World (John)
• Income reported on 1120S Tax Return
• Receives a K-1
• John Receives a W-2 Wage from the business (Wellness World)
2018 Forms
22Freddie Mac Form 91 Part II Review
23Freddie Mac Form 91 Part II Review
Calculator and Quick Reference Guide
In Case Study Part I We Completed Sections 1-7 With The Personal
Tax Returns
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 or Schedule 1
Line 17 Net Income/Loss Sch E
$_________
Taxed at a personal rate
Check for trends or changes
– Date business started
– Gross Receipts
– Cost of Good Sold
– Gross Profit
– Bottom line “Ordinary Income”
– Guaranteed Payments
• Payments “paid out” to all partners,
review the K-1 to see how much
was paid to your partner
Partnerships
26
Page 19
Freddie Mac Form 91 Part II Review
27Freddie 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 or Schedule 1
Line 17 Net Income/Loss Sch E
$_________
Taxed at a personal rate
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
30Freddie Mac Form 91 Part II Review
Page 17
31Freddie 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 or Schedule 1
Line 17 Net Income/Loss Sch E
$_________
Taxed at a personal rate
Schedule E Partnerships and S Corps
32Freddie Mac Form 91 Part II Review
Page 12
33Freddie 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 or Schedule 1
Line 17 Net Income/Loss Sch E
$_________
Taxed at a personal rate
34Freddie Mac Form 91 Part II Review
Page 2 and 3
Freddie Mac Does Not Have a Written Policy
Mandating Distributions
35Freddie Mac Form 91 Part II Review
- However, Fannie Mae Does
36Freddie Mac Form 91 Part II Review
Freddie Mac Income Guidelines
Balance Sheet
37Freddie Mac Form 91 Part II Review
Page 23
Training Tools and Information
40Freddie Mac Form 91 Part II Review
Liquidity
Generally Accepted Accounting Principles
Liquidity-Current Ratio
Generally Accepted Accounting Principles
Freddie Mac Form 91 Part II Review 41
(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: 4.539 - Solvency
42Freddie Mac Form 91 Part II Review
Page 23
$208,105 + 0 + 0 +0+0 = $208105
$0 + $0+ $45,844 = $45,844
43Freddie Mac Form 91 Part II Review
Quick Ratio
44Freddie Mac Form 91 Part II Review
Quick Reference Guide
:Access
– Form 91
• Quick Reference Guide Section 8
– The Partnership K-1
Page 17
45Freddie Mac Form 91 Part II Review
Partnership K-1
Can We Use Ordinary Income/Rental Income?
Was There A Distribution? Solvent?
Page 17
Quick Reference Guide Partnership K-1
46Freddie 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
47Freddie Mac Form 91 Part II Review
Partnership K-1
Can We Use Ordinary Income/Rental Income?
Was There A Distribution? Solvent?
Page 17
Quick Reference Guide Partnership K-1
48Freddie 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
0.00
Partnership K-1
49Freddie Mac Form 91 Part II Review
Page 17
Section 8
50Freddie Mac Form 91 Part II Review
Page 19
Partnership Form 1065
51Freddie Mac Form 91 Part II Review
No Example
52Freddie Mac Form 91 Part II Review
Partnership Form 1065
Page 19
53Freddie Mac Form 91 Part II Review
Partnership Form 1065
See Statement
Page 19
Partnership Form 1065
54Freddie Mac Form 91 Part II Review
Page 24
55Freddie Mac Form 91 Part II Review
56Freddie Mac Form 91 Part II Review
Partnership Form 1065
Page 23
57Freddie Mac Form 91 Part II Review
Chapter 5304
58Freddie Mac Form 91 Part II Review
Partnership Form 1065
Page 19
59Freddie Mac Form 91 Part II Review
Partnership Form 1065
Page 23
60Freddie Mac Form 91 Part II Review
Partnership K-1
62Freddie 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 or Schedule 1
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
1120S S Corp
63Freddie Mac Form 91 Part II Review
S Corps
Check for trends or changes
– Date Incorporated
– Gross receipts
– Cost of goods sold
– Gross profit
– Bottom line “Ordinary Income”
– Were W-2 wages paid to
borrower?
Page 30
64Freddie Mac Form 91 Part II Review
S Corps
Review 1125-E For Compensation Paid to Officers
– You can be an officer, but not an owner
Page 35
65Freddie 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
66Freddie 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 or Schedule 1
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
1120S S Corp
S Corp K-1
67Freddie Mac Form 91 Part II Review
Did John Get A Distribution?
Page 28
Page 2 of K-1 and Page 3 of Form 1120S
68Freddie Mac Form 91 Part II Review
Page 29
69Freddie 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 or Schedule 1
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
1120S S Corp
Schedule E Partnerships and S Corps
70Freddie Mac Form 91 Part II Review
Page 12
71Freddie 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 or Schedule 1
Line 17 Net Income/Loss Sch.E
$_________
Taxed at a personal rate
1120S S Corp
72Freddie Mac Form 91 Part II Review
Pages 2 and 3
73Freddie Mac Form 91 Part II Review
Freddie Mac Does Not Have a Written Policy
Regarding Distributions
- However, Fannie Mae Does
74Freddie Mac Form 91 Part II Review
Liquidity
Generally Accepted Accounting Principles
75Freddie Mac Form 91 Part II Review
Balance Sheet
Page 33
76Freddie 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: .842 - Solvency
$4,523 + 0 + 0 +0+$0 = $4,523
$0 + $5,373+ $0 = $5,373
Page 33
77Freddie Mac Form 91 Part II Review
Quick Ratio
78Freddie Mac Form 91 Part II Review
S Corp K-1
Let’s Put Numbers On Our Tool!
Page 28
Page 28
79Freddie Mac Form 91 Part II Review
S Corp K-1Let’s Put Numbers On Our Tool!
*
*If you use $11,735 you must justify the use and maintain in your file
80Freddie Mac Form 91 Part II Review
S Corp K-1Let’s Put Numbers On Our Tool!
*
Page 28
S Corporation Form 1120S
81Freddie Mac Form 91 Part II Review
Page 30
Rental Income - Partnership or S Corps
82Freddie Mac Form 91 Part II Review
No Example
S Corporation Form 1120S
83Freddie Mac Form 91 Part II Review
Page 30
S Corporation Form 1120S
84Freddie Mac Form 91 Part II Review
Page 30
1120S Statement
85Freddie Mac Form 91 Part II Review
Page 36
S Corporation Form 1120S
86Freddie Mac Form 91 Part II Review
Page 33
87Freddie Mac Form 91 Part II Review
S Corporation Form 1120S
Page 33
S Corporation Form 1120S
88Freddie Mac Form 91 Part II Review
Page 30
S Corporation Form 1120S
89Freddie Mac Form 91 Part II Review
Page 34
90Freddie Mac Form 91 Part II Review
S Corp K-1
?How Much Does John Own
Page 28
S Corporation Form 1120S
91Freddie Mac Form 91 Part II Review
We Must Subtract This Amount/Adjustment From The Qualifying Income
Which Was The W-2 Wages Paid From The Business
S Corp Totals
92Freddie Mac Form 91 Part II Review
Genworth Underwriting Guidelines
Genworth Rate Express®
LOS Connections
Training Tools and Information
Training Tools and Information
99
Additional MI Site Information
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➢ Your Local Genworth
Regional Underwriter
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Representative
Your Genworth Resources
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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
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