How to Work with Self Employed Income for Underwriters

Overview

As an Underwriter you can work with self-employed income information from the Income Calculation tab. Self-employed income extracted from borrower documentation is displayed in the Self Employed section of the page. For each business type, Schedule C (Form 1040), Partnership (Form 1065), S Corporation (Form 1120S) and Corporation (Form 1120), cash flow is analyzed using either the Fannie Mae Form 1084 or Freddie Mac Form 91, depending on the investor guideline selected for your loan.

Additionally, Income Analysis provides Rep and Warrant (R&W) relief for both Fannie Mae^® and Freddie Mac^®, though the workflows to obtain relief differs between the two investors.

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.

From the Investor Guideline dropdown menu, select the investor. A guideline option confirmation popup displays.
Depending on the investor selected, selectable options may appear in the popup. If presented with options, make your selections.
Review the messaging, then click Save Changes.
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.

To review income details for a specific borrower, select the tab with the borrower’s name you want to review.
Use the slider to include or exclude a borrower’s wage income from the calculations.

Explore the Self Employed section

The Self Employed section includes income calculation details from each document submitted for analysis. Each business has a further drilldown that can be expanded to see additional income details. Explore the Self Employed section features to better manage the income calculations.

Self Employed Total: Total calculated Self Employed income for the individual borrower being reviewed.
Cashflow Calculation: Displays the calculation used for cashflow.
Self-Employed Summary: Provides summary of self employed income.
Schedule E Summary Total: Displays a summary of income from Schedule E.
Business Panel: This panel will display the names of companies. Clicking the caret icon will expand it to reveal the income calculation breakdown.
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.
Documentation Flag(s): Highlights quick details about the income documentation provided and any key actions taken by the Loan Officer, for example.
FNMA Surround: If Fannie Mae has provided an approved calculation, a rectangular FNMA Surround will display. Clicking the Surround opens the Fannie Mae investor popup with eligibility findings for R&W relief.
Accept/Unaccept: Click Accept/Unaccept within the Fannie Mae investor popup (FNMA Surround) to accept or unaccept calculations from Fannie Mae. Unaccepting the calculations unlocks the values for manual underwriting adjustments, but no R&W relief will be provided for that business.
Business Type Drilldown: Each business type, Schedule C (Form 1040), Partnership (Form 1065), S Corporation (Form 1120S), and Corporation (Form 1120), includes a drilldown that can be expanded to review calculations and make edits if applicable.
Profit & Loss: This is optional and can be used to document income continuity or use as a qualifying calculation. The calculation will not qualify for Fannie R&W unless the income is less than the approved calculation derived from the tax returns.
Year End Profit & Loss: This is optional and can be used if tax returns are not yet available.
Bank Statements (Proof of Deposit): This is optional and can be used to provide alternative documentation.
Liquidity Analysis: This enables you to view detailed figures behind a liquidity ratio calculation.

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’s Asset and Income Modeler (AIM) for the Self-Employment Relief Program functions differently than Fannie Mae’s.

Warning: For Freddie Mac make sure to review the steps outlined in How to Manage Freddie Mac® Rep & Warrant for Self Employed Income.

If Fannie Mae has provided an approved calculation, a rectangular FNMA Surround will display. The FNMA Surround is located to the right of the Self Employed section. Each Surround is color coded, clickable and contains detailed feedback from the investor.

Green indicates that Fannie Mae has confirmed the income for relief. In this scenario the income figures are locked to prevent further edits. When the surround is green but the the record displays Preview Mode, it means that the DU Casefile ID is missing. The ID should be added then resubmitted to Fannie Mae.
Yellow indicates that only one year of tax data has been submitted to Fannie Mae, but two years of tax data are required to determine eligibility.
Red indicates that the income submitted is ineligible and does not qualify for relief. This does not mean that the income can’t be considered as part of the qualifying income, however.

Edit Self Employed Income

Locate the Business Panel.
If Fannie Mae is the investor and the calculations are “accepted”, you must first unlock the fields for editing. To do this, click the FNMA Surround to open the Fannie Mae investor popup. If the investor is not Fannie Mae, then skip to Step 6.
Within the Fannie Mae investor popup:
1. Files with a DU Casefile ID, click Unaccept.
2. Files without a DU Casefile ID, click Exit Preview.
Manual Options are displayed and allow you, as the Underwriter, to attest to exceptions and still receive R&W relief. If you make changes to the Manual Options field, click Resend located at the top of the investor popup and Fannie Mae will reassess the file in real time and the results will be auto accepted.
Enter your comments in the Comment box for future reference.
Click Close.
If you need to make further updates to items outside the investor popup, then navigate to the income field(s) that need to be updated and click inside the field. The editing popup displays.
Make your manual updates.
Enter relevant comments in the Comments box.
Click Save Changes. The Editing popup will close and the new figures will be reflected in the field you selected.
Repeat this process for all figures that need to be updated.
Send the updated figures to the investor by clicking Resend to Fannie Mae. The Send Income to Fannie Mae popup displays.
Use the checkboxes to indicate the income you want to send to Fannie Mae, then click Send.
Finally, if you’re an Encompass®-integrated user click Update LOS to send the updates to your Loan Origination System (LOS).

Outcome

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