Regulation Change Update:

The following blog was posted in January of 2013 and the regulations have changed since we posted.  Please see current guidelines our more recent blogs from UberWriter
 https://uber-writer.com/blog/

Question:

When reviewing business tax returns such as 1165, 1120S, and 1120, should we treat any additional income derived from the business returns all the same regardless of FNMA or FHLMC?

Answer:

FNMA and FHLMC have different rules for each of the business income types and must be analyzed differently. The chart below shows how to apply the additional business income or loss depending on the type of business returns reviewed.

Business Type Agency Tax Form Explanation of Income AllRegs Reference
Partnership / LLC FNMA 1065  Allows for addition or subtraction of borrower’s percentage of ownership. FNMA
B3-3.2.2-01
Partnership / LLC FHLMC 1065 Only allows for addition of income IF borrower is 100% OR has express written consent documented by a corporate resolution or other corporate document that establishes the right. Losses must be applied based on percentage of ownership.  FHLMC
SSG vol 1
37.13 sec vii B
S Corporation FNMA 1120S Allows for addition or subtraction of borrower’s percentage of ownership.  FNMA
B3-3.2.2-03
S Corporation FHLMC 1120S Only allows for addition of income IF borrower is 100% OR has express written consent documented by a corporate resolution or other corporate document that establishes the right. Losses must be applied based on percentage of ownership. FHLMC
SSG vol 1
37.13 sec vii B
Corporation FNMA 1120 Not allowed for additional income UNLESS borrower is 100% owner. However borrowers percentage of losses must always be subtracted.  FNMA
B3-3.2.2-03
 Corporation  FHLMC  1120  Only allows for addition of income IF borrower is 100% OR has express written consent documented by a corporate resolution or other corporate document that establishes the right. Losses must be applied based on percentage of ownership.  FHLMC
SSG vol 1
37.13 sec vii B

 

I have always found the 1084 and form 91 lacking because they don’t do a great job in explaining every line of the business tax returns from which you can get additional income with which to qualify a borrower.  The also fail to tell you about the requirements we just reviewed.

 

Simple Solution and Shameless Plug

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