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Update to Conventional Loan Programs regarding
Self-Employed Borrowers



Dear Licensed Partner,

FNMA released Lender Letter LL-2020-03 while FHLMC released Bulletin 2020-19 providing additional guidance amid the COVID-19 national emergency (“pandemic”). Sun West Mortgage Company, Inc. has updated its policy for conventional programs to align with these FNMA and FHLMC guidelines. Following guidelines will be applicable on all loans with an application date on or after 6/11/2020:

Requirements for borrowers using self-employment income to qualify:

  • Additional documentation requirement - Due to the pandemic’s continuing impact on businesses throughout the country, lenders are now required to obtain the following additional documentation to support the decision that the self-employment income meets agency requirements:
    • an audited year-to-date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date;OR
    • an unaudited year-to-date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and two business depository account statements no older than the latest two months represented on the year-to-date profit and loss statement.
      • For example, the business depository account statements can be no older than April and May for a year-to-date profit and loss statement dated through May 31, 2020.
      • Personal asset account statements evidencing business deposits and expenses may be used when the borrower is an owner of a small business and does not have a separate business account.
      • The year-to-date profit and loss statement must be no older than 60 days old as of the Note date consistent with current age of documentation requirements.
  • Assessing the impact of COVID-19
    • Business operations - In addition to the minimum additional documents as mentioned above, the lender may have to obtain supplemental documents (given below) while performing the assessment of the business operations and stability of the business.
      • Have business operations been maintained or modified to support continued business income? - Lender may need to review an updated business plan
      • Is the business continuing to operate in the current location or an alternate location suitable for business operations? - Lender need to perform extensive online search or verification through third-party sources.
      • Is there a demand for the product or service currently offered by the business? - Lender may need to review current business receipts or purchase contracts.
      • Is the business operation and/or revenue temporarily restricted due to state and /or local shelter in place, stay-at-home or other similar state or local orders?
      • Is the impact to the business operations negligible due to the nature of the business? - Lender may have to obtain a written explanation from the business owner or confirmation that income is seasonal apart from the event timeline.
    • Business income analysis - Lender will need to complete a business income assessment by comparing YTD net business income from the YTD profit and loss statement to historical business income calculated using cash flow analysis (Form 1084) for a similar timeframe (such as monthly)
      • When the lender determines that net business income is impacted, but profit and loss details are not sufficient to determine the income is stable at the reduced level, the lender may obtain additional documentation to supplement the profit and loss statement (such as a month-to-month income trending analysis) to make this determination. If this stability cannot be confirmed, the income is not eligible for qualifying purposes.
      • Business income calculation adjustment - When the lender determines current year net business income has been impacted by the COVID-19 pandemic and is
        • less than the historical monthly income calculated using Form 1084, but is stable at its current level, the lender will reduce the amount of qualifying income calculated using Form 1084 to no more than the current level of stable income as determined by the lender.
        • more than the historical income calculated using Form 1084, the lender will use no more than the currently stable level of income calculated using Form 1084 to qualify the borrower.
    • Business stability - Following factors will be considered while assessing business stability
      • Does the profit and loss identify a significant imbalance between expenses and revenue that may impact financial stability? Or, have modifications to the current business operations been made to correct this imbalance? - Lender may need to review an updated business plan.
      • Do prior year business tax returns demonstrate ample financial liquidity due to a history of retained earnings? - Lender may need to review current balance sheet.
      • Do current business account balances [excluding Paycheck Protection Program (PPP) or other similar COVID-19 related loans or grants] support the financial ability of the business to operate given the current market and economic conditions? - Lender may need to review current balance sheet.

If you have any questions, please contact your Client Relations Manager at (855) AT-SUNWEST or (855) 287-8693.


Sincerely,

Sun West Mortgage Company, Inc.

6131 Orangethorpe Avenue, Suite 500
Buena Park, CA 90620
Phone: (800) 453-7884



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This information is provided to licensed mortgage professionals only and not for distribution to consumers. Please visit https://www.swmc.com/disclaimer.php or refer to www.nmlsconsumeraccess.org to see where Sun West Mortgage Company, Inc. (NMLS ID 3277) is a licensed lender and servicer. All Rights Reserved. We are not accepting applications from Georgia or Massachusetts residents. We are purchasing mortgages secured by Massachusetts properties but not Georgia. Sun West Mortgage Company, Inc. (NMLS ID 3277) holds a Financing Law License (#6030119) [Loans made or arranged pursuant to a California Financing Law license], licensed by the California Department of Business Oversight, Phone: (866) ASK-CORP and has a DRE Real Estate Corporation License Endorsement (#00793885), licensed by the California Department of Real Estate, Phone: (877) 373-4542.

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