Underwriting Assessment January 2012

All of the above organizations, including Fannie Mae, Freddie Mac, and lenders, have the ability to pool loans for securitization. This means that they can combine multiple loans into a single financial instrument, such as a mortgage-backed security, which can then be sold to investors. By pooling loans, these organizations can spread risk and increase liquidity in the market.

If the calculation of Net Rental income results in a negative amount, it should be listed as "Monthly Debt". This is because a negative net rental income indicates that the expenses related to the rental property are higher than the rental income received. In this case, the negative amount should be considered as a monthly debt, as it represents an ongoing financial obligation that needs to be accounted for in the borrower's monthly budget.

Reserves are funds set aside by a borrower to cover future expenses related to the property, such as property taxes, insurance, and maintenance. These funds are typically held in a liquid account, such as a savings account or money market fund, and are easily accessible. Therefore, reserves can be considered as liquid assets that are available to the borrower after closing. Hence, the statement is true.

To calculate Net Rental Income, you multiply the gross rental income by 75% and then subtract the total mortgage payment from the result. This means that 75% of the gross rental income is considered as the net income after deducting the mortgage payment.

Handwritten pay stubs and/or W-2s are not considered acceptable income documentation. Generally, official and computer-generated pay stubs and W-2 forms are considered acceptable as they provide accurate and verifiable information about an individual's income. Handwritten documents may lack the necessary details and could be easily manipulated or forged, making them unreliable as income documentation.

If a borrower is employed by a relative or closely held family business, in addition to a VOE (Verification of Employment), the borrower is required to provide their personal federal income tax returns for the past two years (option a) and a confirmation letter from an accountant (non-family member) to verify that the borrower does not own 25% or more of his/her family business (option c). These additional documents are necessary to verify the borrower's income and employment status accurately.

Under standard non-AUS underwriting guidelines, overtime pay, bonus, or commissions must be reflected in the borrower's current employment history for a minimum of 2 years before it is considered qualifying income.

The default rate for a self-employed borrower is significantly higher than that for a salaried borrower when all other risk factors are constant. This could be due to the fact that self-employed individuals may have more variable income and less stable employment compared to salaried employees. Additionally, self-employed borrowers may have more difficulty providing consistent documentation of their income and financial stability, which could increase the risk of default.

If a borrower owns 25% or more of a business, they are considered self-employed. This means that they have a significant ownership stake in the business and are responsible for its operations and finances. Being self-employed can have implications for tax returns, as self-employed individuals typically have to file additional forms and may be eligible for different deductions and credits compared to employees.

Declarations are the yes/no questions that must be answered by both the borrower and co-borrower on the application. This implies that the borrowers need to make specific statements about their intentions, verifications, and provide affidavits. These declarations are crucial for the lender to assess the borrower's eligibility and credibility.

The correct answer is "Both b and c" because both documented bonus income received annually for the past 3 years and court-ordered child support with consistent receipt for the past 2 years can be used to calculate gross monthly income for a borrower under standard non-AUS underwriting guidelines. Overtime pay is not included in the options, so it is not a correct answer.

To substantiate employment and income for a self-employed borrower according to standard non-AUS guidelines, the lender must obtain confirmation of the borrower's personal and business earnings for the past 2 years.

A letter from the corporate accountant, on their official letterhead and signed and dated, serves as valid documentation for the borrower's percentage of ownership in the corporation. This letter provides evidence of the borrower's ownership stake in the company and can be used as proof for various purposes such as loan applications or legal matters.

Child support must continue for at least 3 years beyond the closing date of the mortgage to be used as qualifying income.

A sole proprietor is an individual who owns and operates their business as a single entity. They are not separate from their business for tax purposes. The 1040: Schedule C is a form used by sole proprietors to report their business income and expenses on their personal income tax return. It allows them to calculate their net profit or loss from their business, which is then included in their overall tax liability. The other options, 1065 K-1, 1120S K-1, and 1120, are forms used by different types of businesses, such as partnerships and corporations, which do not apply to sole proprietors.

The borrower's present mortgage that will be paid off is listed as a liability because it represents a debt or obligation that the borrower owes to the lender. It is a financial obligation that the borrower will have to repay over time, and it is considered a liability on the borrower's balance sheet.

The Good Faith Estimate is a form used in real estate transactions to provide an approximation of the closing costs that the buyer will be responsible for. It includes an itemized list of fees and charges such as loan origination fees, appraisal fees, and title insurance fees. The purpose of the Good Faith Estimate is to inform the buyer of the expected costs associated with the closing so they can make an informed decision about the purchase.

Fannie Mae requires borrowers to have a history of stable income and a reasonable expectation that the income will continue in the foreseeable future. The term "foreseeable future" is defined by Fannie Mae as 36 months. This means that the borrower must have a consistent income for at least the next three years to meet Fannie Mae's requirements for a loan.

If a borrower is paid on a bi-monthly schedule, it means they are paid every two months. In a calendar year, there are 12 months. Therefore, if the borrower is paid every two months, they will receive a paycheck 12 times in a year. Since the question asks for the number of paychecks, the correct answer is 24 paychecks.

Ingrid's pay stubs show a gross pay of $3,045 each, and she is paid bi-weekly. This means that she receives a paycheck every two weeks. To calculate her gross monthly salary, we need to multiply her bi-weekly pay by the number of paychecks in a month. Since there are 52 weeks in a year, and she is paid every two weeks, she receives 26 paychecks in a year. Therefore, her gross monthly salary is $3,045 multiplied by 26, which equals $79,170. However, we need to divide this by 12 to get the monthly amount, which equals $6,597.

The GSE requires a standard Mortgage Insurance (MI) coverage of 30% on a 30-year, fixed rate loan with a 95% loan-to-value (LTV) ratio. This means that the borrower must pay for mortgage insurance that covers 30% of the loan amount in case of default. This requirement is in place to protect the lender in case the borrower is unable to repay the loan.

The correct answer is $7,500 because the question states that Conner has provided documentation to support wages of $7,500 per month. Since there is no mention of any additional income or documentation for Carrie, we can only consider Conner's wages as the total monthly income for qualifying purposes.

Both an S Corporation and a Limited Liability Company (LLC) can issue a Schedule K-1. A Schedule K-1 is a tax form used to report the income, deductions, and credits of a partnership, S Corporation, or trust. An S Corporation is a type of business structure that provides limited liability protection to its owners and allows for pass-through taxation, meaning the profits and losses of the business are passed through to the owners' personal tax returns. Similarly, an LLC is a business structure that combines the limited liability protection of a corporation with the pass-through taxation of a partnership. Therefore, both an S Corporation and an LLC can issue a Schedule K-1.

Stock options may not be considered as reserve funds because they are a type of financial derivative that gives the holder the right, but not the obligation, to buy or sell a specific amount of stock at a predetermined price within a certain period of time. Unlike the other options listed, stock options do not represent easily accessible liquid or near liquid financial assets. They are speculative in nature and their value is dependent on the performance of the underlying stock, making them less suitable as reserve funds.

The correct answer is None of the above. The question asks which document will disclose the dear-to-date earnings for the self-employed borrower. However, none of the options provided (1040: Schedule C, 1065 K-1, 1120S K-1, 1120) are the correct document for disclosing the dear-to-date earnings. Therefore, the correct answer is None of the above.

The borrower's child support payments are listed as income on the application. This means that the borrower receives regular payments from the other parent for the financial support of their child. These payments are considered as part of the borrower's overall income and are taken into account when determining their financial situation and ability to repay a loan.

The 1120 form is used by a Corporation to document their earnings. This form is specifically designed for corporations to report their income, deductions, and tax liabilities to the Internal Revenue Service (IRS). It provides a comprehensive overview of the corporation's financial activities, including details about their profits, losses, and other relevant financial information. Therefore, the 1120 form is the correct document to support the earnings for a self-employed borrower who operates as a corporation.

Shannon's total monthly income is $5,000 from her full-time job. In addition, she receives $400 per month for each child, so she receives an additional $400 for Tyler and $400 for Madison, totaling $800. Therefore, Shannon's total monthly income is $5,000 + $800 = $5,800.

All of the above documents may disclose the percentage of ownership of a partnership that the borrower has. The 1040: Schedule C is a tax form used by sole proprietors to report their business income and expenses. The 1065 K-1 is a tax form used by partnerships to report each partner's share of the partnership's income, deductions, and credits. The 1120S K-1 is a tax form used by S corporations to report each shareholder's share of the corporation's income, deductions, and credits. The 1120 is a tax form used by C corporations to report their income, deductions, and credits. Therefore, all of these documents can provide information about the borrower's ownership percentage in a partnership.

The correct answer is $708.33. This is because the question asks how much bonus income can be used to qualify James for a mortgage loan. The bonus income for 2007 and 2008 is lower than the bonus income for 2006, so it cannot be used. Therefore, only the bonus income of $12,000 from 2006 can be used to qualify James for a mortgage loan. To calculate the monthly amount, divide $12,000 by 17 months (from January 2006 to May 2007), which equals $708.33.

To qualify Curtis for a home mortgage using non-AUS guidelines, we would typically calculate his average monthly income over the past two years, including base pay and commissions. Since he earned $20,500 in commissions from April 1 of one year to March 31 of the next year, we can assume this amount is for the year prior to his mortgage application.

His total income for that year would be $4,000 per month (base pay) + $20,500 (commissions) = $4,000 + $20,500 = $24,500.

To find the average monthly income, we divide this total by 12 (months): $24,500 / 12 = $2,041.67.

Therefore, the amount of total monthly income you can use to qualify Curtis for a home mortgage would be $2,041.67.