1. Clio Customer Happy Health Center The following pay stubs were provided. What information indicates the borrower has variable income? Do we need further documentation?

4. Some indicators that a VOE would be required: Gross Earnings include all types of pay Pay codes are not defined Hours fluctuate on pay stubs Clio Customer Happy Health Center (cont.)

6. First calculation: 23.8805 x 40 x 52 / 12 = $4,139.29 based on hourly wage $39, 267.40 / 10.33 months = $3,801.30 year-to-date earnings.

7. Clio Customer Happy Health Center (cont.) Trending Analysis – Base Pay $39,267.40 + 43,496.70 + 42,497.50 = $125,261.60/34.33 months = $3,648.75 YTD 2015 (11/10/15) 20142013 Annual$39,267.40$43,496.70$42,497.50 Months10.3312 Monthly$3,801.30$3,624.73$3,541.46

8. The hourly wage multiplied by the hours indicated on the VOE (80 hours per pay period) should be compared to the year-to- date and prior year earnings. Based on the hours shown on the pay stubs and the earnings shown on the VOE provided, the borrower does not work 80 hours per pay period and the income must be averaged. The trending analysis indicates income is steadily increasing so the average over the last two years and year-to-date, or $3,648.75, is used for qualification. Clio Customer Happy Health Center (cont.)

9. Documentation obtained consists of a VOE and a letter from MN Unemployment Insurance dated 12/24/15 which indicates the weekly benefit amount the borrower receives. What information indicates the borrower has variable income? Do we need further documentation? Harold Homeowner Construction Co.

11. First calculation: 24.00 x 40 x 52 / 12 = $4,160.00 based on hourly wage No year-to-date earnings as of 2/22/16 and “seasonal layoff every winter” indicated in comments – seasonal worker which indicates variable income Harold Homeowner Construction Co. (cont.)

12. Trending Analysis – Base Pay $33,060.00 + 29,268.00 = $62,328/24 months = $2,597.00 YTD 2016 (2/23/16) 20152014 Annual$0.00$33,060.00$29,268.00 Months1.7912 Monthly$0.00$2,755.00$2,439.00

13. Because this borrower has been employed since 2008, and seasonal layoffs are the norm, it can reasonably be expected the borrower will return to work in the spring and an average of the previous 2 years can be utilized. The VOE also indicates the borrower has overtime, and indicates the overtime is likely to continue. Therefore a trending analysis for overtime should be completed if the overtime is needed for qualification. Harold Homeowner Construction Co. (cont.)

14. Trending Analysis – Overtime $20,898.00 + 15,462.00 = $36,360.00/24 months = $1,515.00 Overtime is increasing from 2014 to 2015 and according to the VOE, the continuance is likely. An average of the last 2 years can be utilized. YTD 2016 (2/23/16) 20152014 Annual$0.00$20,898.00$15,462.00 Months1.7912 Monthly$0.00$1,741.50$1,288.50

15. The VOE indicates the continuance of bonus income is likely and he has a history of receiving it for two years. Due to the seasonal nature of his position, it stands to reason that he receives his bonus at the end of the year. Therefore we average the two prior years for qualification. Harold Homeowner Construction Co. (cont.)

16. Trending Analysis – Bonus $7,500 + 5,000.00 = $12,500.00/24 months = $520.83 Bonus is increasing from 2014 to 2015 and according to the VOE, the continuance is likely. An average of the last 2 years can be utilized. YTD 2016 (2/23/16) 20152014 Annual$0.00$7,500.00$5,000.00 Months1.7912 Monthly$0.00$625.00$416.67

17. What other documentation would be required if the unemployment compensation was necessary for qualification? Harold Homeowner Construction Co. (cont.)

18. 2 years tax returns indicating unemployment income was received Use an average of the last two years from the tax returns. Harold Homeowner Construction Co. (cont.)

19. The following pay stubs were provided by the borrower. What information indicates the borrower has variable income? Do we need further documentation? Joe Borrower ABC Utility

22. Based on the pay stubs provided, year-to-date earnings support full time pay based on the rate shown. No additional documentation is required if only base pay is used to qualify. A VOE is required if overtime or on-call pay is necessary for qualification as these are considered variable types of pay. Joe Borrower ABC Utility(cont.)

24. Because on-call pay is being used for qualification, the VOE should be revised to reflect on-call pay as a separate category with a comment regarding the same. Joe Borrower ABC Utility(cont.)

26. First calculation: 23.66 X 40 X 52 /12 = $4,101.07 based on hourly wage $7,571.26 /1.24* months = $6,105.85 year-to-date earnings. The year-to-date calculation can sometimes be skewed based on how many pay periods there have been within that time frame. We typically see this in the first couple months of the year when previous year pay may be included in the first pay period of the new calendar year. Joe Borrower ABC Utility(cont.)

27. Trending Analysis – Base Pay YTD 2016 (2/7/16) 20152014 Annual$7,571.26$48,939.69$48,031.03 Months1.2412 Monthly$6,105.85$4,078.31$4,002.59

28. Joe Borrower ABC Utility(cont.) Based on updated VOE, overtime and on-call pay have been received for at least 2 years and can be used for qualification depending on the trending analysis.

29. Joe Borrower ABC Utility(cont.) Trending Analysis – Overtime $869.53 + $12,884.75 + $6,058.26 = $19,812.54/25.24 months = $784.97 The overtime pay increased from 2014 to 2015; however, it has decreased in 2016 yet is stable. Therefore, an average of 2014, 2015, and 2016 should be utilized. YTD 2016 (2/7/16) 20152014 Annual$869.53$12,884.75$6,058.26 Months1.2412 Monthly$701.23$1,073.73$504.86

30. Joe Borrower ABC Utility(cont.) Trending Analysis – On-Call Pay $922.74 + $6,293.70 + $3,861.65 = $11,078.09/25.24 months = $438.91 On-call pay steadily increased from 2014 to 2016 so an average of 2014, 2015, and 2016 should be utilized. YTD 2016 (2/7/16) 20152014 Annual$922.74$6,293.70$3,861.65 Months1.2412 Monthly$744.15$524.48$321.80

31. Joe Borrower ABC Utility(cont.) Can bonus income be utilized for qualification? Why or why not?

32. Joe Borrower ABC Utility(cont.) Because the bonus income has not been received for the past two years, this income cannot be used for qualification even though the box on the VOE indicates bonus income will continue.

33. Questions?