I must admit that I have messed up writing the correct year of 2020 (instead of 2019) more in the first few weeks of the year since any date since 2000! Something in my brain just does not like putting down 20 instead of 19 on the date field of documents!
Date changes are not the only thing we need to reset in our minds, so this seems like a good time to put out some reminders on some critical item reminders as we change the calendar over for this new year!
Number One – Underwriting Income Document Dates
Having the correct documents is crucial when underwriting a loan and part of getting the correct document is making sure the relative date is withing guidelines. What I mean by relative date is the date relative to a loan event, for example paystubs must be within 30 days of application.
The part where I get the most questions is in “What is the most recent W-2”. Many people think that a borrower must have a 2020 W-2 when applying for a loan in January of 2020, which is not true. Federal law states than an employer must ensure that the employee receives that W-2 by January 31st. So how do we handle the annual change over when reading agency guidelines?
W-2 key dates for employees:
Applications Dated Jan 1st 2020 – Jan 31st 2020
The most recent W-2 is the 2018 and the previous year W-2 is 2017
Applications Dated Feb 1st 2020 – Jan 31st 2021
The most recent W-2 is the 2019 and the previous year W-2 is 2018
Keep in mind if the borrower CAN provide the 2019 W-2 there is nothing stating you can’t use it earlier than Jan 31st but you can’t force a borrower to give you something they don’t have yet!
Self-Employment Key Income Dates
Applications Dated Jan 1st 2020 – April 14th 2020
The most recent tax documents (personal returns, business returns, W-2’s) is 2018/2017
Applications Dated Apr 15th 2020 – April 14th 2021
The most recent tax documents (personal returns, business returns, W-2’s) is 2019/2018
Just like the employed borrowers if the borrower can provide filed tax returns earlier than April 15th 2020 you can use those returns to qualify the income.
Number Two – Year To Date Calculation Errors
One of the common questions we get in our software support box is “UberWriter has an error, the year to date income calculation is crazy hi!… Is this a bug?”. Let me provide an example about what I mean!
VOE dated 01/15/2020 states the following
01/03/2020 Pay Period Ending
$2,000 base pay earned as of 01/03/2020
$52,000 per year is borrowers current pay rate
$49,100 earned in 2019
$45,800 earned in 2018
So how is it possible that UberWriter THINKS the income is $20,000 per month??
The math is right… this issue is just a side effect of the way many pay systems are set up. There is lag time between when the borrower earns the income (pay period) and when the borrower is paid the income (pay date). The most common pay period is bi -weekly, so the borrower works two weeks and then is paid about seven days later on the pay date, so every year some of the income earned in the previous year (2019) is paid in the current year (2020) and can skew the math.
Here is the math done manually
$2,000 pay earned in 2020
January 3rd is the pay date which is .10 of the month (3rd of the moth / 31 days = .10)
$2,000 / .10 = $20,000 per month
This error is always present but the earlier in the year it is the more we notice it. This problem has NO effect on underwriting it just looks weird when we calculate it. The reason is does not matter is this year to date number with such a small time window would never be used.
That wraps up our blog for this week, we hope you enjoy this new video blog format and looking forward to serving the mortgage business MORE in 2020!!