Income Calculation Worksheets Update

Memo

Wholesale Lending

Issue Date: June 22, 2015

Memo No. 15-06-22

Effective Date: December 1, 2017

Updated: December 26, 2018

Income Calculation Worksheets ? Update

NOTE: This communication includes new and previously published material. Sections that have been updated since February 9, 2018 are shown in green font. Previously published communications on this topic should be considered outdated; this document, in addition to the Lending Guide, should be referred to for current information.

Overview

Franklin American Mortgage Company (FAMC) is pleased to announce that updated income calculation worksheets are now available to better assist customers. Brokers and Emerging Mortgage Banker (EMB) Lenders can access the Income Calculation Worksheet and Real Estate Owned (REO) Net Rental Income/Loss Calculation Worksheets at wholesale. > Resources > Income Calculator. There are separate REO worksheets available for Conventional, FHA/VA, and USDA loans. Instructions previously provided on the rental income worksheets are available in easy-to-read job aids located at wholesale. > Resources > Training Materials. These tools are intended to help customers with information regarding income calculations. However, the final income calculations used for loan qualifying purposes are to be completed and determined by the FAMC underwriter.

Note: Prior to downloading the Income Calculation Worksheets, the Broker/EMB Lender must accept the following disclaimer verbiage:

Disclaimer: This web-based income calculator is being made available solely for the convenience of customers approved by Franklin American Mortgage Company, a division of Citizen's Bank, N.A. (FAMC). This calculator provides feedback based on the information you provide; therefore, it is important that you enter accurate information, validate the source of the data, and adhere to FAMC and all other industry standards of underwriting and documentation. Use of this calculator does not in any way relieve broker/lender of the obligations prescribed in the Wholesale Lending Guide. Final income calculations used for loan qualifying purposes are to be completed and determined by the FAMC underwriter.

Memo 15-06-22

For FAMC Wholesale Customers Only

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Wholesale Lending

Income Calculation Worksheet

? Complete a separate worksheet for each borrower, and if the borrower has more than one job complete a worksheet for each job (please see the tabs at the bottom of the worksheet for up to 4 worksheets).

? Identify how the applicant is paid (hourly, weekly, bi-weekly, semi-weekly, semi-monthly, monthly, annually) and complete the appropriate section of the Income Calculation Worksheet.

? Complete the applicant's year to date (YTD) income and date range of paystub. (Use the pay period ending date if available on the paystub. Otherwise, use the paystub date.)

? If the applicant has worked for the current employer less than 2 years, utilize the "Partial Yr" section to determine the amount of income earned for the current employer during the time period worked.

? Identify income averages by completing the "Total W-2 Income" for the last two years; the worksheet will auto-calculate "W-2 (Monthly)", "YTD & Year 1", and "YTD & Year 1 & 2" averages on worksheet.

? If the applicant has unreimbursed employee expenses, complete unreimbursed business expenses for the last 2 years if applicable. The worksheet will auto-calculate the monthly business expense and percentage of "Business Expense/Total W-2 Income". o Enter the percentage which is to be applied to the year to date income based on the calculated percentage from the previous year(s). o Unreimbursed expenses must be manually entered in the "Determine Monthly Qualifying Income" section; it will not automatically populate.

? Complete "Identify Miscellaneous Income Sources" if the applicant earns bonus, overtime, or commission income. ? The most conservative calculation for base, bonus, overtime, and commission income will populate to the "Determine

Monthly Qualifying Income" section. Although there is an override option available on the calculator, any overrides are subject to underwriter review and approval. ? The worksheet will identify if the income used for qualification is less than or greater than 10% of validated income based on the last 2 years of W-2 income. Any increase over 10% must be fully documented and explained in the comments section.

REO Net Rental Income/Loss Worksheet

? The worksheet includes the following property types: o Subject property whenever rental income is reported for investment property transactions o Borrower's primary residence when the primary is a multi-unit property with rental income reported o Any rental properties that the borrower owns

? The worksheet performs the calculation for determining rental income of any property that was acquired after the borrower's most recent IRS tax filing or one which was not in service in the previous year. For Conventional, FHA, and VA loans, a current lease can be used in place of tax returns by applying a vacancy factor.

? Brokers/EMB lenders should refer to FAMC guidelines to determine when rental income may or may not be used for qualification.

? To access the calculator, open the worksheet and enable macros. ? Read and comply with all notes/instructions provided on the job aids. ? If a property was acquired after the borrower's most recent IRS tax filing, be sure to apply the appropriate vacancy factor

if the current lease is being used: o FHA offers different options for the vacancy factor; refer to FHA guidelines for the appropriate vacancy factor. o The vacancy factor for Conventional loans is 25%.

For USDA REO Net Rental Income/Loss Worksheet Only

The USDA worksheet reflects USDA guidelines, which limit the borrower to only one rental property and do not allow property owned/rented less than 24 months.

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Wholesale Lending

For Conventional REO Net Rental Income/Loss Worksheet Only ? Updated

? The AUS (DU or LPA) used must be selected.

? Document and complete the current Principal, Interest, Taxes, Insurance, and HOA dues (if applicable) for each rental property.

? Complete whether the rental property was reported on the business tax returns.

? If the rental property was reported on the business tax returns (IRS Form 8825), select "Yes" for Business Owned?; the worksheet will determine whether the calculation results in income or loss.

o For Fannie Mae loans, run through Desktop Underwriter (DU): If it is a loss, the normal calculation and logic apply. If it calculates to positive income, the total column will display as zero; a message will state that the selfemployment income worksheet must be used for income calculation.

o For Freddie Mac loans, run through Loan Prospector/Loan Product Advisor (LP/LPA): Regardless of whether the calculation results in income or loss, all rental income and expenses are treated as self-employment income. A message will state that the property must be assessed using a selfemployment income worksheet. This requirement applies regardless of whether the borrower is personally obligated on the note.

? Two new fields were added due to the simplified Freddie Mac (LPA) rental income requirements announced in Wholesale Lending Guide Update #2018-11-19, effective for loans closed and funded on or after January 1, 2019.

o Use Does the borrower have a one-year history investment property management experience? for new investment property purchase transactions or when the borrower's current residence is being converted to a rental property.

o Property Type appears if the Does a borrower have one-year history of investment property management experience? field = "No". Identify whether the rental property is the "subject" property or "conversion" to a rental.

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Wholesale Lending

? These new fields may be utilized in conjunction with the revised Freddie Mac (LPA) guidelines as follows:

If...

The borrower is purchasing a new investment property and owns a primary residence, but does NOT have one year of investment property management experience documented,

The borrower is purchasing a new investment property, owns a primary residence, and has one year of investment property management experience documented,

The borrower is converting their current primary residence into an investment property,

Then...

The excess rental income may not be added to the borrower's gross monthly income to qualify.

? Select "No" for Does a borrower have one-year history investment property management experience? Field.

? Identify the rental property as the "subject" property by completing the Property Type field.

? If the TOTAL line shows a rental loss, normal calculation and logic apply. ? If the subject property has positive rental income, the TOTAL line will display as

zero (0). The excess rental income may be added to the borrower's gross monthly income to qualify.

? Select "Yes" for Does a borrower have one-year history investment property management experience? field.

? Normal calculation and logic apply. The rental income may only be used to offset the principal, interest, taxes, and insurance (PITI) of the property the borrower is vacating. Excess rental income may not be used for qualification.

? Identify the rental property as the "conversion" property by completing the Property Type field.

Please contact your Account Executive if you have any questions. We thank you for your continued business!

Information contained within this document is considered proprietary non-public information and is provided for internal use only to approved customers of Franklin American Mortgage Company, a division of Citizens Bank, N.A., a national banking association. It is accurate as of the date of publication and may be superseded by future publications. If you have any questions regarding any of the information contained herein, contact your Account Executive and refer to the Lending Guide for additional information. Distribution of this document or communication of any of the information contained herein to third parties without the prior written consent of Franklin American Mortgage Company is strictly prohibited. If you wish to unsubscribe from these communications, click here.

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For FAMC Wholesale Customers Only

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