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For self-employed borrowers, the income approach typically is based on their personal or corporate tax returns, depending on the structure of their businesses. In most cases, a two-year average of the earnings is used to establish stability in their earnings. Taking a course on analyzing income for self-employed borrowers may be prudent because of the nuances and complexities involved. Fannie Mae and Freddie Mac offer free online courses and tools to assist in this endeavor.
Although there are many different types of asset accounts — each of which may be approached differently from lender to lender — brokers and originators benefit from familiarizing themselves with a few of the most common forms of asset accounts, as well as the approaches to each.
Funds held in checking or savings accounts typically are used at 100 percent of the cash value, provided that the borrower is the sole owner of the account or has 100 percent access to the funds in a mutually owned account. In the case of mutual fund accounts, 100 percent of the cash value is used, and the invested portion is subject to the same percentages as retirement and stock accounts.
Retirement, annuities, stocks and other asset accounts subject to fluctuations, penalties or taxable liabilities are qualified by using a percentage of the vested balance or, in the case of stocks, the account value. In the case of retirement annuities and stocks, 60 percent of the vested balance usually will be counted toward the borrower’s asset profile.
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Being familiar with underwriting procedures and considerations can help mortgage brokers close higher quality originations, which may lead to less repurchase demands. Don’t be discouraged if getting up to speed in this respect feels overwhelming; underwriting can be a complex facet of the business, even more so in light of ongoing industry changes and requirements.
The good news is that your bank or brokerage doesn’t have to tackle its underwriting alone. There are a number of companies that offer offensive services — i.e., contractual underwriting and upfront quality control tools — and defensive services, as well — i.e., forensic underwriting and repurchase defense. Regardless of any outside assistance, however, simply knowing more about underwriting can help brokers do what they do best: originate loans.
Tisha D. Hartman is senior forensic underwriter with zIngenuity Inc., a boutique consulting company offering defense and resolution services (ZIN DRS) for representation and warranty repurchase demands, mortgage insurance rescissions and denials, and litigation support services.
Hartman is a 17-year mortgage industry veteran with more than five years of experience in the risk-management and loss-mitigation arenas. Reach her at (408) 331-1781 or Tisha.Hartman@zIngenuity.com.
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