1. Mortgage Scenarios
Never say die! It’s not over until the fat lady sings! If at first you don’t succeed try until you do!

2. More than 1 way to get home
Question: In our world of loans why is it that some mortgage companies deny a loan due to loan not meeting guidelines and low and behold another mortgage company closes the same loan 30 days later.
Answer: Sometimes guidelines are interpreted in different ways. Therefore one underwriters “NO” is another underwriters “YES or lets structure it this way”

3. Case Study 1: Self Employed
Divorced borrower. Self employed. Schedule C Income on Personal tax return Income lower than on Extension 3. Owned Business for 10 years 4. One Liability on Credit report BMW Lease 5. 20% down payment credit score 7. Purchase price 205, Assets not an issue

5. Income Schedule C net income 59,241/12=4936 monthly
There is no depreciation to add back to borrowers income. Loan officer used only this tax return as the prior year was lower. (Freddie Mac rule: 1 year tax return for self employed borrower is acceptable as long as they have owned the business at least 5 years)
This is pretty straight forward right? Let’s see what the underwriter comes up with.

7. Income Calculations differ
In this scenario the underwriter takes the net income of and deducts Why? Line 24 of the schedule C shows a deduction already of 4057 for meals and entertainment. However this is only ½ and the other ½ must also be deducted from income. This lowers our original income to 4640 per month.

8. So lets do a quick recap so far
Purchase price
Loan amount
Monthly income 4640
Credit report debt 427 (BMW lease)
Piti payment 1228
Total DTI is 36%
Wow this file is easy!! Not so fast

9. Here comes the First rub
Child Support Obligation: Child support order from Divorce was in 2008 calling for $1,100 biweekly until 2010, at which time it would be re-assessed. We received modification agreement filed Nov. 2010, stating support would now be $ per month. All parties were to produce their w2’s and tax returns in 2011 and then again every year after to recalculate. Borrower thought that one more modification was filed in 2012 but then remembered, to avoid attorney fees, the support was never again modified through the court. The borrower increased the monthly payment amount himself to $ per month to compensate for increased  health insurance.  The issues were; what amount do we use to document this obligation and how would we show he was current when he paid directly to the ex-wife and not through the court.
For the sake of this study the documentation of child support is not attached as there are too many personal items on the documents.

10. OK Lets think about this
Well now we know we have to use child support but how much to use? Should we use the original 1100 bi weekly. Should we use the 897 from the revised child support modification? Well why is our borrower paying per month and how do we prove this and how do we get the underwriter to work with this number. If we can convince the underwriter of this we are still up a creek without a paddle because this still kills our ratio. OK what would our ratio be if we used the in our calculation and paid off the car payments of 427 per month. Lets calculate: 4640 income / 2138 (1228 PITI CHILD SUPPORT)=46% back ratio. Uh oh it’s a car lease. I cannot have client pay off and not count debt. I am done!! But wait……………

11. Our Keep it simple Saviour to the Rescue
Brian Pool our Executive VP of Operations had a thought. What if the car was a write off? Low and behold we looked at the schedule C and business bank statements and got proof that sure enough the car was paid thru the business. We ran the loan thru LP with a 46 back ratio and received an eligible/Accept. Now we still had to convince the underwriter that the 910 child support should stick. Perhaps a very convincing letter from our borrower with continuous proof for the past 12 months of the child support payment with the most recent documentation from the court. Wait, wait its coming………….

13. I think we can get this done!!
OK. Let’s see what we have done here:
Did a 1 year tax return self employed file thru Freddie Mac because income was worse the previous year
Used a lower income than originally disclosed
Needed to count an extra 910 of child support and prove that was the amount we can use
Needed the car to be part of the business deductions and show proof.

14. Cleared to Close
The loan was approved and we closed. We made a believer out of the realtor, the attorney and of course the client! If there is a will there is a way! Work thru it, figure it out than close it!

15. Under Appraising
Property under appraising is probably the biggest issue in restructuring loans in today’s housing climate. If your client and the seller cannot come to an agreement on a new purchase price but your client still want to move forward we have a couple of options. Let me give you a scenario

16. Two loan scenario Purchase price: $400,000.00
Down payment: $80, (20%)
Appraised Value: 380,000.00
We are going to use the lower of the appraised value or purchase price. In this case the appraised value under appraised by 20, The client has 3 choices:
We go off the 380,000 value and the client does an 80% loan (304,000) and brings the 76,000 down payment and brings an extra 20,000 to closing.
The client still puts the original 80,000 down payment making the LTV % and paying a monthly MI.
We do a Two Loan Scenario. Lets do 304,000 which is 80% of the 380,000 appraised value and a 16,000 second loan

17. Some New Guideline Hints
All non mortgage liabilities paid by others and proven with 12 months payment history do NOT have to be counted against the borrower
Educational loans that have a low monthly payment on the credit report can be counted as the monthly debt obligation for (Freddie Mac and Fannie Mae). FHA still require 1% of the balance to be counted if you cannot prove the fully amortized monthly payment
Borrowers who are w/2 employees but have a separate self employed business and are not counting the business for income do not have to be hit with a loss on that business. This is for fannie and freddie however FHA the loss must be counted