I was at a compliance conference a few weeks back in Pontiac, Michigan, it was a great event put on by FIC Conferences.  I had a question come up about Restricted Stocks which to me is a “new” income!  Restricted Stocks were added to FHLMC guidelines 09/14/2017 with Bulletin 2017-20.  Not many people know of this change to the rules!  Freddie added this income as allowable because according to the bulletin:

“Employers increasingly include RS and RSU as a component of employee compensation. RS are grants of company shares which represent equity interest in the company”

 

RSU Compensation

Suppose Madeline receives a job offer. The company offers her 1,000 RSUs as part of her compensation, in addition to a salary and benefits. The company’s stock is worth $10 per share, making the RSUs potentially worth $10,000. To give Madeline an incentive to stay with the company and receive the 1,000 shares, it puts the RSUs on a five-year vesting schedule. After one year of employment, Madeline receives 200 shares; after two years, she receives another 200, and so on until she acquires all 1,000 shares at the end of the vesting period. Depending on how the company’s stock performs, Madeline may receive more or less than $10,000.

Underwriting RSU Compensation

At this time only Freddie Mac allows this type of income.  The basis of income calculation is dependent on how the RSUs vest.  RSUs can vest based on performance or time. But the common things needed for both methods are (this is not all-inclusive but an “at a glance”) :

  • Three-year continuance
  • Fully document receipt of the RS/RSU’s
  • Provide employer documentation on vesting schedules
  • Provide borrower asset documents showing receipt of the RS/RSU’s

In part two of this blog, we will cover the math behind the RS/RSU income calculations follow the link to part two here

Income is a deep subject for mortgage professionals to keep up with, there are so many types of income and with each income, they are not all created equal, keep up with all these changes by joining our online continuing education program, more details are here at www.uwfieldguide.com