How to Work with Rental Income for Underwriters

Overview

As an Underwriter you can work with rental income from the Rental section of the Income Calculation page. Rental property data extracted from the IRS Schedule E (Form 1040) is displayed in the Rental section with an individual drilldown for each property listed.

Additionally, for loans being sold to Fannie Mae Income Analysis provides Fannie Mae® Rep and Warrant (R&W) relief.

Observe the Baseline, Potential and Adjusted income columns

The Income Calculation tab is the first tab displayed to you as an Underwriter. It is the primary screen that you work from and is viewable by Loan Officers. From here you will interact with borrower income that is categorized by Wage, Self Employed, Rental and Other income. The figures from each of these categories will automatically calculate the income totals and display them in one of the following three columns:

• Baseline: Most conservative income figures calculated by using the exact documented values that align with guideline requirements and no conditioning.

• Potential: Calculated income value that includes income opportunities which, with proper documentation, could be used to increase the borrower’s qualifying income.

• Adjusted: Calculated value of income that reflects modifications or adjustments made by you during review. When a loan is initially reviewed, the Adjusted amount should mirror the Baseline value, unless Fannie Mae has immediate overrides.

Tip: Here are some examples that could increase the values presented in the Potential income column 1) a paystub showing a significantly higher rate of pay than the W-2; 2) commission indicated on the Paystub, but there is no two-year verification of income present in the file; 3) short term notes payable on a 1065 partnership.

Select the investor guideline

The Investor Guideline dropdown allows you to switch between investors and see alternative eligibility options. The Investor Guideline determines the set of investor rules that Income Analysis will use when calculating the income. When the initial order is submitted, the Investor Guideline will either have been chosen at that time or left blank. If the investor was left blank, then Income Analysis will default to the investor that your organization selected during configuration.

1. From the Investor Guideline dropdown menu, select the investor. A guideline option confirmation popup displays.

2. Depending on the investor selected, selectable options may appear in the popup. If presented with options, make your selections.

3. Review the messaging, then click Save Changes.

4. Observe the updated investor is reflected.

Toggle between borrowers

You can use the borrower tabs, located above the Wage section, to toggle between borrowers associated with the order. When you select a borrower’s name, you will see the income details specific to the borrower selected.

1. To review income details for a specific borrower, select the tab with the borrower’s name you want to review.

2. Use the slider to include or exclude a borrower’s wage income from the calculations.

Explore the Rental section

The Rental section includes each rental property found on Schedule E. Each rental has a further drilldown that can be expanded to see specific income details. Explore the Rental section features to better manage the income calculations.

Tips for Encompass®-integrated Users

• Before you begin your rental income review, go to the Task List and locate the Rental Match task. Review this task first, as this will ensure that each rental property identified by Income Analysis is matched to a corresponding record in Encompass®.

• If you are seeking R&W Relief and new matches are made after the initial submission to Fannie Mae, you can resubmit rental income data by clicking Resend to Fannie Mae, reviewing details in the Rental Attestation popup, and then clicking Send. This will ensure that accurate PITIA information is pulled from Encompass® and used in your new submission.

• Schedule E Rental Income Total: This value shows the total calculated income for the rental properties.

• Schedule E Rental Income Panel: Click on the caret icon to expand the panel. Rental income information for each property listed on the Schedule E is organized under this panel.

• Preview Mode: The words “Preview Mode” displayed in red text indicates the file is missing a DU Casefile ID. Until the DU Casefile ID is added, the loan will remain in this mode with no R&W in effect.  

• Initial Rental Property Summary: Displays summary details for each rental property listed. The following fields are displayed in the Initial Rental Property Summary:

  • Edit: Clicking Edit opens the Editing Rental Property popup, allowing you to manually update the calculation field values for that rental property.  

  • Link: Encompass®-integrated users can select Link to match the rental property in Income Analysis to a record in Encompass®. The button appears when there is no matching record in the previous tax year, which is commonly due to a slight difference in the property address listed in the tax return.    

  • Calc Selection: The default calculation is for 12 Month, but you can change this to 24 Month or Lease instead.

  • Net Monthly Rent: This value is calculated by subtracting expenses from rent, then adding back ITIA (Interest, Taxes, Insurance, and Association Dues).

  • Months in Service: This value is based on the number of days in service, which is identified on the Tax Return.

  • Current PITIA: Defaults to include ITIA until updated by user. A task will be presented in the Task List to update the PITIA.

• FNMA Surround: If Fannie Mae has provided an approved calculation, a rectangular FNMA Surround will display. Clicking the Surround opens the Fannie Mae’s investor popup with eligibility findings for R&W relief.

• View/Resend to Fannie Mae: Displays when Fannie Mae has been selected as the investor. When clicked, the Fannie Mae Rental Attestation popup displays. Use this feature to send Fannie Mae updated information after making changes.

• Go to Grid View: Clicking this feature will open the Rental tab. Here an editable worksheet view of each rental property listed on a Schedule E. You can edit rental income, reassign income to another borrower, and view the results from the GSE analysis from this page.

Identify the R&W status

The details outlined in this section apply only to loans with Fannie Mae selected as the investor, since Freddie Mac does not currently offer R&W relief for rental income.

Income Analysis rapidly provides Fannie Mae R&W results from an IRS Schedule E (Form 1040). R&W results are indicated by the presence of a FNMA Surround located in the Rental income section of the Income Calculation tabs. Each Surround is color coded, clickable and contains detailed feedback from the investor.

• Green indicates that Fannie Mae has confirmed the rental income for relief. In this scenario the income figures are locked to prevent further edits.

• Yellow indicates that the DU Casefile ID has not been provided.

  Tip: If the FNMA surround displays yellow and you need to provide a DU Casefile ID, then click the FNMA Surround, enter the DU Casefile ID, and click Resend.

• Red indicates one of the following 1) the submitted rental income has not been confirmed as eligible for representation and warranty relief; or 2) the Fannie Mae Rental Income Attestation has not yet been completed and submitted.

  Note: If the surround remains red after the attestation has been completed, it means that Fannie Mae has reviewed the submission and determined that the rental income does not meet the criteria for relief.

Complete the Fannie Mae Rental Attestation

When rental income is identified on a loan with Fannie Mae as the investor, completion of the Fannie Mae Rental Attestation is required for the loan to be eligible for R&W relief. If the attestation has not yet been completed, you will be prompted with the attestation popup each time you access the loan file until it is completed.

1. When Income Analysis opens, you should be automatically directed to the Fannie Mae Rental Attestation popup.

   Tip: If you are not directed to the Fannie Mae Rental Attestation upon login, then click Resend to Fannie Mae. This action will prompt the Fannie Mae Rental Attestation popup to display.

2. Review each of the first four questions carefully and select an appropriate responses.

   1. If the loan is financing one of the Sch E properties, please select the property from the dropdown.

   2. Does borrower 1 own a principal residence or pay rent?

   3. If a Sch E rental is the borrower’s principal residence, please select the property from the dropdown.

   4. Does borrower 1 have at least 1 year history of receiving rental income or at least a 1 year history of property.  

3. From the Update PITIA section, Confirm the current PITIA per month values to ensure they are the most up-to-date figures available. If necessary, make updates using the A/mo or TIA/mo fields and click Update to save.

   Note: If you are an Encompass® user, the fields will be pre-populated with the figures from the LOS.

4. Click the Comment icon to add comments.

5. Enter your comments and click Save Changes.

6. Click Update to save your changes.

7. Review and update the Update Other Rental Info table as necessary.

8. When all attestations are updated and final, check the box “Check this box once the above information is confirmed to be accurate”.

9. Once you have completed the attestation, click Send. Fannie Mae will will return Schedule E rental R&W results.

Edit rental income

1. Locate the rental property you want to edit, then click Edit. You can also click in any field with a figure and the Edit Rental Property popup will display.

   Note: If your investor is Fannie Mae, you must first “Unaccept” the values in the Fannie Mae investor popup (FNMA Surround) to unlock the fields for editing.

2. The Edit Rental Property popup allows you to edit all of the basic fields in the rental property drilldown.

   1. If “Lease” is selected, then the standard 75% calculation is applied to the rental.

   2. If Schedule E is selected, then the Manual Adjustment fields allow you to account for one-time expenses.

3. Enter your comments in the Comment field.  

4. Click Save Changes. The Editing Rental Property popup will close.

5. Click Resend to Fannie Mae to send the investor the updates, if the investor is Fannie Mae.

6. Review the popup information, then click Send.

7. Finally, if you’re an Encompass®-integrated user, click Update LOS to send the updates to the Loan Origination System (LOS).

Outcome

You can work with rental income, access the Fannie Mae investor popup, identify the R&W status and edit rental calculations.