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Mortgage

Fannie Mae issues lender letter on self-employment income

Lenders are required to determine if a borrower’s business “has a reasonable expectation of continuance”

Fannie Mae issued a lender letter on Wednesday with additional requirements for borrowers who are self-employed. 

“Income from a business that has been negatively impacted by changing conditions is not necessarily ineligible for use in qualifying the borrower,” the letter said. “However, the lender is required to determine if the borrower’s income is stable and has a reasonable expectation of continuance.”

Fannie Mae said lenders were “encouraged to apply these requirements to existing loans in process,” with the new standards mandated for loans with application dates after June 11.

“Lenders must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID-19,” the Fannie Mae letter said.

The new requirements were necessitated by “the pandemic’s continuing impact on businesses throughout the country,” Fannie Mae said. The pandemic forced some businesses to close as states issued stay-at-home orders to stem the spread of disease. All 50 U.S. states have started reopening their economies, in varying degrees.

COVID-19 has infected 1.7 million Americans, and more than 102,000 have died of the disease, according to Johns Hopkins University.

Lenders are now required to obtain the following documentation to see if self-employment income meets Fannie Mae 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, plus two business depository account(s) statements no older than the latest two months represented on the year-to-date profit and loss statement.
  • Two of the most recent depository account statements to support and/or not conflict with the information presented in the current year-to-date profit and loss statement. Otherwise, the lender must obtain additional statements or other documentation to support the information from the current year-to-date profit and loss statement.

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