Genworth Mortgage Insurance Corporation ©2018 Genworth Financial, Inc. All rights reserved. Self-Employed Borrower Schedule Analysis Method or SAM Part I: Personal Tax Returns November 2018
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Genworth Mortgage Insurance Corporation ©2018 Genworth Financial, Inc. All rights reserved.
Self-Employed Borrower
Schedule Analysis Method or SAMPart I: Personal Tax Returns
November 2018
Lender Responsibility
Investors (Fannie Mae, Freddie Mac as well as Private Investors)
require that we determine that the self-employed borrower
demonstrates the financial ability to repay the mortgage.
– History
– Income calculation
– Continuance / Stability
– Ability to repay the mortgage
Schedule Analysis Method Part I
Session Reviews Conventional Loans Only; Today’s Session Reviews
Personal Tax Returns; Business Returns Are Reviewed In Part II
2
Schedule Analysis Method Part I
Objective
-Learn to use SAM Form to calculate supportable income for self
employed borrowers using personal tax returns
– 2017 personal tax returns
Fannie Mae policy varies from Freddie Mac
– We will review both in today’s session
3
Does Borrower Own 25% Or More Of A
Business?
Schedule Analysis Method Part I 4
Can checking the Self-Employed Indicator to yes-
increase the risk of loans when evaluated by DU®? Loan
Product Advisor®?
YesNo
4
Self-Employment Fannie Mae
Schedule Analysis Method Part I 7
Self-Employment Fannie Mae
Schedule Analysis Method Part I 8
Written Analysis of Income-Fannie Mae
Fannie Mae 2016 Selling Guide B3-3.2-01, Underwriting Factors and
Documentation for a Self-Employed Borrower (06/28/2016)
Schedule Analysis Method Part I 9
Schedule Analysis Method Part I
Implementation Of Income Requirements
12
Freddie Mac Documentation Matrix
Documentation Matrix
– Assists in underwriting and
documenting loans for Freddie Mac
– Lenders may have overlays
– Check specific program
requirements
– Updated September 2018
Schedule Analysis Method Part I
http://freddiemac.com/learn
13
Freddie Mac Seller/Servicer Guide
Schedule Analysis Method Part I
When Do We Have To Tell Loan Product Advisor Our Borrower Is Self-
Employed?
Updated and Effective September 19,2018
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Schedule Analysis Method Part I
Freddie Mac Self-Employed Documentation
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Schedule Analysis Method Part I
Freddie Mac Self-Employed Documentation
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Schedule Analysis Method Part I
Freddie Mac Self-Employed Documentation
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Schedule Analysis Method Part I
Chapter 5304
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Schedule Analysis Method Part I
Chapter 5304
5304.1 Stable Monthly Income
19
Schedule Analysis Method Part I
5304 Income NOT On the Personal Returns
20
Updates For Freddie Mac 2017-12
Schedule Analysis Method Part I
Effective for loans with settlement
dates on or after March 1, 2019;
Sellers may implement immediately
– Short-term and long-term rental income
sources for refinance transactions
– Updates policy for rental properties NOT
owned in the prior calendar year
– Reintroduces Guide Form 1000 and retires
Operating Income Form 998
– Introduces Form 92 for Rental Income
– Revised Form 91 (Income Calculations)
21
Freddie Mac Form 91
Freddie Mac Income Calculation Form 91 Updated August 2017
– Sellers are required to analyze self employed borrowers using Freddie Mac
Form 91 or a similar form
• Updates include removal of Rental income, 2106 expenses, 4797 and 6252
– The form should be maintained in the loan file
– Form can be used for “other types” of non-self employed income such as
commissioned income, and capital gain income
– Borrowers that have 25% or more ownership in a business are considered self
employed for Freddie Mac qualifying purposes
– Tax returns may be required for additional scenarios such as:
• Applicants working for family members
• Working for the property seller
• Commission income of 25% or more
• Rental or Farm Income
Schedule Analysis Method Part I 22
Training Tools and Information
Schedule Analysis Method Part I 2424
Schedule Analysis Method Part I 25
You’ll Need
Schedule Analysis Method Part I 26
The Case Study
:You will be working with John and Mary Homeowner who
– Own a Schedule C business called Impressive Images (John)
– Have 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 33.33% of an LLC called Street Art Design Company (John)
• Reported on a 1065 Partnership Return
• John receives a K-1
– Own 100% of an S Corporation called Modern Dwelling Enterprises, Inc. (Mary)
• Income reported on 1120S Tax Return
• Receives a K-1
• John and Mary Receive W-2 Wage Statements from the business
Schedule Analysis Method Part I 27
Calculator And Quick Reference Guide
You will need Quick Reference Guide
Schedule Analysis Method Part I 28
:Review for
– Identifiers
• Name
• Address
• Social Security Number
– All pages and schedules
– Any Red Flags
– Date
• Most recent
– Signatures
Form 1040
Schedule Analysis Method Part I
Page 3
29
Calculator and Quick Reference Guide
?What Document Should you Review
Schedule Analysis Method Part I 30
Is this W-2 wage self-employment or salary income?
Does Our Applicant Have Ownership?
Schedule Analysis Method Part I
Page 1
31
Schedule E to Validate Ownership
Schedule Analysis Method Part I
Page 12
32
IRS Form K1
Schedule Analysis Method Part I
Page 31
33
Schedule Analysis Method Part I
Does Our Applicant Have Ownership?
?SEB Or Salary Income? What will you enter on your form
Page 1
34
SEB W-2 Wages- Was there a second W-2?
Schedule Analysis Method Part I
Page 2
*Use of this income is subject to review of the business tax return
*
35
Does Our Applicant Own 25% or more?
Does this income go on our SAM worksheet? Can we use it to
qualify?
Page 2
Schedule Analysis Method Part I 36
Tax-Exempt Interest Income
Schedule Analysis Method Part I
Page 3
37
Alimony Received
Schedule Analysis Method Part I
Page 3
38
IRA Pension/Annuity Income
Schedule Analysis Method Part I
Page 3
39
Recurring Unemployment Compensation
Schedule Analysis Method Part I
Page 3
40
Social Security Income
Schedule Analysis Method Part I
Page 3
41
Other Income: What Are Some Examples?
Schedule Analysis Method Part I
Page 3
42
Total Section Allows Division by 12 or 24
Schedule Analysis Method Part I 43
Form 2106 Employee Business Expenses
?Was the applicant required to file an IRS Form 2106 with their returns
– Check page two of the 1040 to verify if borrower “Itemized” or took the “Standard
Deduction”
Schedule Analysis Method Part I 44
Review Line 40 Entry vs. Standard Deduction Values on Page 2 of IRS
Form 1040
Itemized Or Standard Deduction Taken
Schedule Analysis Method Part I
Page 4
45
Schedule A For Business Expenses
Review Schedule A, Line 21 for
unreimbursed employee expenses
Schedule Analysis Method Part I
Page 5
46
Form 2106 Employee Business Expenses
?Were the applicants required to file IRS Form 2106
– John and Mary did not have any unreimbursed business expenses
• We will enter zero
– If applicants do have expenses, follow instructions on the quick reference guide
Fannie Mae And Freddie Mac Guidelines Are Now In Alignment; But Always
Follow Investor Guidelines As Overlay Exist
Schedule Analysis Method Part I 47
IRS Publication 463
Schedule Analysis Method Part I 48
Interest And DividendsDon’t use unless needed
– Look for:
• Two year history of stable receipt
• Likelihood of continuance
• Income may be listed on 1040, Lines
8a and/or 9a as sometimes there is no
schedule B
• Review for income from assets held by
a business
• Check guidelines for usage information
as Fannie and Freddie are different
Schedule Analysis Method Part I
Page 6
49
Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 7
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Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 7
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Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 7
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Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 7
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Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 7
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Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 7
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Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 7
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Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 7
57
Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 8
58
Schedule C
Verify 4562 is for the Schedule C
– Review Page 2 of the worksheet Line #30
Page 13
Schedule Analysis Method Part I 59
Schedule C
Page 14
Business Miles Of 8,109 x 25¢ is $2027.25 In Additional
Depreciation That Could Be Added Back.
Schedule Analysis Method Part I 60
Schedule C
Pages 16 and 17
Schedule Analysis Method Part I 61
Schedule C Sole Proprietorship
Schedule Analysis Method Part I
Page 8
62
Schedule C Sole Proprietorship
55Schedule Analysis Method Part I 63
Schedule D Capital Gains
57Schedule Analysis Method Part I 64
Schedule D
Schedule Analysis Method Part I
Where Did The $16,544 Loss On Line 6 Come From?
The 1040 Showed a $3,000 Loss
Page 9
65
Schedule D
Schedule Analysis Method Part I
Page 10
66
IRS Form 6252
Installment Sale Income
– If using, obtain:
• Copy of agreement
• Proof of timely receipt
– Principal flows to Form 6252
– Interest portion, if any flows to
Schedule B
• Did you already give credit for the
interest?
Schedule Analysis Method Part I
No Example
67
Schedule E Royalty Income
68
.Only Royalty Income is entered on SAM Form, Section VII
– Rental income is calculated separately on a rental income worksheet
Schedule Analysis Method Part I
Page 11
68
Rental Income
:In Your Materials
– Locate Calculator and
Quick Reference
Guide for Rental
Income
– Turn to Schedule E,
Part I, Rentals
Page 11
Schedule Analysis Method Part I 69
Mortgage Statement/Payment Coupon
:A mortgage statement/payment coupon can verify
– If loan is impounded or escrowed
– What property associated with the mortgage payment
– Current tax and insurance information
– Current HOA dues: most investors want verification PUD, Condo or Coop
Schedule Analysis Method Part I 70
Mortgage Statement/Payment Coupon
For Non-Impounded Loans: Obtain Tax And Insurance Information.
Payment Information Below Is From a Borrower Provided Mortgage
Statement And HOA Coupon.
– Taxes, Insurance and HOA Dues are Impounded
HOA DUES $310
$1990
Schedule Analysis Method Part I 71
Page 11
Schedule Analysis Method Part I 72
Schedule Analysis Method Part I
2017 Schedule E Rental Income
73
Schedule Analysis Method Part I
Page 11
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2017 Schedule E Rental Income
Schedule Analysis Method Part I 75
Schedule Analysis Method Part I
Page 11
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2017 Schedule E Rental Income
Schedule Analysis Method Part I 77
Schedule Analysis Method Part I
Page 11
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2017 Schedule E Rental Income
Schedule Analysis Method Part I 79
Schedule Analysis Method Part I
Page 11
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Page 11
2017 Schedule E Rental Income
Schedule Analysis Method Part I 81
Schedule Analysis Method Part I
Page 11
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2017 Schedule E Rental Income
Schedule Analysis Method Part I 83
Schedule Analysis Method Part I
Page 11
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2017 Schedule E Rental Income
Schedule Analysis Method Part I 85
Schedule Analysis Method Part I
Page 11
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2017 Schedule E Rental Income
Schedule Analysis Method Part I 87
2017 Schedule E Rental Income
Enter The Verified Mortgage Payment From The Mortgage Statement And Tax
Bills/Insurance Binders If Non-Escrowed
Schedule Analysis Method Part I 88
2017 Schedule E Rental Income
Negative Net Rental Losses Must Be Included As A Liability
Schedule Analysis Method Part I 89
$-400
Compare “rental income” figure with
loan application (Fannie Mae Form
1003)
– Most systems calculate rental income
from the REO section of the 1003
– Review the 1003 to verify what appears
as rental income/rental loss
– If the number is different, override your
system to reflect the true income/loss
based on the tax returns
2017 Schedule E Rental Income
Schedule Analysis Method Part I 90
.Do not use leases; Use the “Cash Flow” from the property
– Flag the mortgage payment in your system as a rental property lien so that it will
NOT count it in the debt ratio
– You may need to override your REO Section
Net Rental Income
234c Condo Court225,000 180,400 3,500 2,500 875 -400
$2300
R
Schedule Analysis Method Part I 91
LOS Connections
Schedule Analysis Method Part I 92
Schedule Analysis Method Part I
Training Tools and Information
93
Training Tools and Information
Schedule Analysis Method Part I 9494
Additional MI Site Information
Schedule Analysis Method Part I 95
Schedule Analysis Method Part I
➢ ActionCenter®: 800 444.5664
➢ Your Local Genworth
Regional Underwriter
➢ Your Genworth Sales
Representative
Your Genworth Resources
96
Schedule Analysis Method Part I
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.
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Opportunities To Boost Your Know-How, Benefit Your Bottom Line, And Serve Your
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97
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