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Bulletin 2020-055 Conforming Transactions – Self-Employed Borrowers

Effective immediately, for loans submitted to NewRez for underwriting where a borrower is self-employed, the following information is needed in order to move the loan from set-up to the underwriting queue.

Effective immediately, for loans submitted to NewRez for underwriting where a borrower is self-employed, the following information is needed in order to move the loan from set-up to the underwriting queue.

 

  • Applicable number of the most recent years tax returns required by DU/LPA
      • If 2019 tax returns are not filed, provide P & L and proof of IRS extension
  • 2020 YTD profit and loss statement by quarter
  • COVID Impact on business - Information from the borrower regarding impact to the business as a result of COVID (NewRez Agency Self-Employed Attestation recommended).

 

Background

 

NewRez Announcement 2020-42 provided Temporary Guidance for Self-Employed Borrowers based on recent updates from Fannie Mae and Freddie Mac. The update provided guidance on:

 

  • Requirements for a year to date profit and loss statement and
  • Assessing the Impact of COVID 19 on the borrower’s business

 

Year to Date Profit and Loss requirement

 

The following is required to determine that self-employed income is stable and has a reasonable expectation of continuance

 

  • Unaudited 2020 year-to-date profit and loss statement and the two most recent months business bank statements or
  • Audited 2020 year-to-date profit and loss statement

 

The profit and loss statements must break out revenue, expenses, and net income up to and including the most recent month preceding the loan application date. For loans submitted to NewRez for underwriting, the profit and loss statements must break out by quarter and in some cases may need to break out monthly to determine stability and trending of income.

 

If the profit and loss statement is unaudited, 2 months business bank statements, representing the last 2 months of the profit and loss statement are required. Use the NewRez Bank Statement and Profit and Loss Comparison Worksheet to reconcile deposits on the business bank statements to the revenue on the profit and loss statement

 

If 2019 tax returns have not been filed by July 15, 2020, an Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (Form 4868) is required in addition to a 2019 Profit and Loss statement

 

Assessing the impact of COVID 19 on the borrower’s business

 

Using the profit and loss statements along with the business bank statements and other relevant factors, determine the extent to which the business has been impacted by COVID 19. Use the following guidance to perform assessment of the business operations and the stability and continuance of income that was used to qualify

 

      • Summary of how business operates in a normal environment; how it generates income; where it operates and how many people it employs.
      • Has the business been impacted by the pandemic, including an impact to staffing levels?
      • What is being done to mitigate the impact of the pandemic on the business?
      • Has the business plan been modified as a result of the pandemic?
      • What is the current capital position and what access does the business have to capital?
      • Has the business applied for relief under the CARES Act, such as Paycheck Protection Program (PPP) emergency economic injury grant or small business debt relief program?
      • For what duration can the business continue under current market conditions and has any forecasting for 30, 60, 90 or longer periods been done determine variability?

 

You are encouraged to use the NewRez Agency Self-Employed Attestation document under Income Worksheets in the Forms Library to assess the impact to the business but any form or document can be used as long as it contains the relevant information.