Reporting Cash Reserves and Rental Loss

[socalmom]

Hi All - Quick question on my loan mod app.

1) Cash reserves - our bank statements list a higher cash balance than we have available to pay our mortgages. This is due to a security deposit we received from our tenant and funds to pay our property taxes since we don't have an escrow account. Do I just show the lower amount and note the difference between the bank statement balance and what I am reporting?

2) Rental loss - should I just leave this off the app entirely or report as a reduction of income?

Thanks!

[Cat Damiano]

socalmom,


You may want to put the security deposit into a separate savings account instead for the purpose of the modification.

Rental income:

You’ll need to provide Schedule E (which is where rental income and loss is generally documented) for the mots recent tax year. If you’re renting out part of your primary residence, only 75 percent of what you collect will be counted (with the remaining 25 percent considered vacancy loss and maintenance). If you’re using rental income from other properties, HAMP will do the following calculation: 75 percent of the monthly gross income minus your monthly debt service (principal, interest, taxes, insurance, and association fees).

According to the guidelines regarding rental income:

Rental Income

Borrowers who receive rental income must provide evidence of that income, which is generally
documented on IRS Schedule E (Supplemental Income and Loss) of the borrower’s tax return for
the most recent tax year.

When Schedule E is not available to document rental income because the property was not
previously rented, servicers may accept a current lease agreement and bank statements or
cancelled rent checks.

If the borrower is using income from the rental of a portion of the borrower’s principal residence,
the income may be calculated at 75 percent of the monthly gross rental income, with the
remaining 25 percent considered vacancy loss and maintenance expense.

If the borrower is using rental income from properties other than the borrower’s principal
residence, the income to be calculated for HAMP purposes should be 75 percent of the monthly
gross rental income, reduced by the monthly debt service on the property (i.e., principal, interest,
taxes, insurance, including mortgage insurance, and association fees), if applicable.

Rental income should not be included in a borrower’s monthly gross income if there is currently
no income due to vacancy (even if rental income was identified in their tax return or tax
transcript). The servicer must reconcile any differences between what the borrower
communicates and the borrower’s information. For example, the servicer might choose to
perform a property inspection of the rental property.


Expenses:

Monthly mortgage payment for second home including principal, interest, taxes and
insurance and, when applicable, leasehold payments, homeowner association dues,
condominium unit or cooperative unit maintenance fees, but excluding unit utility charges.

[socalmom]

Thanks. I performed the calculation using that information and the monthly figure is negative (i.e. a loss). Do I deduct this from my other income.

[Cat Damiano]

You may need to ask the lender where or if you would need to indicate that. It may be calculated by the lender from the information provided, but I am unsure. From the guidelines it would seem that all of the information necessary would be coming from the schedule E and the tax return.

[nimaj]

Does anyone knows: When i calculate my income/payment ratio to see where I am in regard to the 31% ratio, if I should calculate my gross income (I am self employed) based on actual minus negative cash flow I have (based on 75% banks calculate)?
Thank you.
Nimaj

[Cat Damiano]

Hi Nimaj,


Welcome to the forum and thank you for joining.............

Self-Employment Income:

Each self-employed borrower must provide his or her most recent quarterly or year-to-date profit
and loss statement. Audited financial statements are not required.
When calculating gross income for self-employed borrowers, a servicer must include the
borrower’s net profit plus any salary or draw amounts that were paid to the borrower in addition to
making allowable adjustments used in analyzing the tax returns for the business, if applicable, to
decrease gross income (e.g. nonrecurring income) or to increase gross income (e.g. expenses,
depreciation and depletion).

If consistent with the Verification Policy, servicers may require up to four consecutive months of
bank statements as an alternative to obtaining a profit and loss statement or if, following receipt, it
is determined that the information in the profit and loss statement is insufficient.


You can also post your figures and question in the following thread for help as well;

Find out Now If you even QUALIFY for a Loan Workout Solution. Post Your Situation