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Thanks for listening to Mortgage Connects, an MGIC podcast. If you have questions, comments, or want to get involved, send an email to mortgageconnects@mgic.com.
Looking for even more expert insights? Check out our mortgage industry content portal, Mortgage Connects knowledge hub. Subscribe today so you don't miss out on the latest! Subscribe
Concepcion Guerrero (00:03):
Welcome to Mortgage Connects by MGIC, bringing you the latest insights from top mortgage professionals around the industry. I'm your host, Concepcion Guerrero, and joining me today is MGIC's, senior customer Trainer and program designer Sandra Sweeney. Now, during this podcast, Sandra will be speaking to us about MGIC'S self-employed borrower program that was recently updated. Sandra, what can you tell us about the changes and updates and what resources are there regarding MGIC'S SEB program?
Sandra Sweeney (00:35):
Thank you Concepcion. As you know, this is a busy time of the year here at MGIC when it comes to our self-employed borrower program because we provide a comprehensive resource program that includes our cashflow worksheets, as well as our in-depth self-employed training program. We spend a considerable amount of time tracking any IRS tax changes, as well as agency guidelines that may affect the way we analyze self-employed income. Each year in February, we roll out our updated worksheets and shortly after that, our training includes case studies that reflect review of tax returns from 2022. So I thought I would pop on here and share with our listeners what resources we currently have for them when it comes to understanding and calculating self-employed income, as well as discuss what changes have occurred in the last year. Our self-employed borrower program was designed with a goal of making your life easier.
Sandra Sweeney (01:40):
We hear at MGIC like to partner with you to help you grow and sustain your business. Of course, when you receive a loan application, you discover that your borrower has an interest in five different businesses and owns three rental properties. Your initial reaction might not be positive because you know that you are facing more work and possibly some challenges. However, I always like to remind mortgage professionals that they should keep in mind that self-employed individuals know a lot of people, and as such, they are rich sources of referrals for your business. If they get a sense that you are knowledgeable when it comes to the self-employed borrower, they will make it their mission to refer others to you. In our current lending environment, growing a referral business is paramount, so wherever you are in your journey of understanding the self-employed borrower, we are here to help.
Sandra Sweeney (02:39):
We have six different SEB webinars that will take you step by step through your journey to understanding the self-employed borrower. We take the mystery out of reviewing tax returns and analyzing businesses for stability of earnings and continuance of income. We give you the foundational tools that will prepare you for any circumstance that you may encounter, and we take you through the thought process that you need to develop. That goes beyond just plugging in numbers and will keep you out of trouble in the qualification process. Additionally, we have resources such as the help document, resource manual, SEB documentation, MA matrix, and infographics to assist you as well. One of our biggest value adds is our worksheets, which consist of the SEB Cashflow Worksheet, as well as our liquidity and comparative analysis and rental and income worksheets. We constantly receive feedback from our lender partners regarding how much they enjoy using our worksheets. They are especially helpful to folks that are newer to the self-employed borrower as they contain line by line help as to where to look on the tax returns, as well as links to the help document. Our worksheets can be found at www.mgic.com/seb and are currently updated for the tax year of 2022.
Sandra Sweeney (04:14):
Okay. What's new when it comes to analyzing 2022 tax returns? The short answer is thankfully, not a lot. We did have an unusual situation in 2022 where the IRS increased the mileage rate in the middle of the year. At the beginning of the year, the standard mileage rate for business travel was 58.50 cents per mile, and then it was raised to 62.50 cents per mile as of July the first 2022. The good news for us is that for cash flowing purposes, the portion of that that can be attributed to depreciation remained at 26 cents per mile. Additionally, we are still operating under a temporary tax provision that was meant to assist a suffering restaurant business. This provision affects the years 2021 and 2022 and allows business owners who take a potential client out at a restaurant or obtain food from a restaurant to claim a hundred percent of these expenses instead of the usual limited IRS meal expenses that are generally kept at 50%.
Sandra Sweeney (05:28):
Now, when it comes to Fannie Mae and Freddie Mac, last February, we saw the retirement of the temporary COVID-19 guidelines that required lenders to obtain a PNL in business bank statements on every SEB loan. We were then left with one remaining overlay, which was the requirement to verify that the business is open and operating within 20 days of note date. However, as of February 15th, 2023, this last overlay is now retired. It looks like we are finally back to our regularly published selling guidelines. However, this difficult COVID-19 episode did leave us with some very defined steps and processes that we can refer back to if we encounter some difficult self-employed files that may require additional documentation to support the use of this income. Remember that Freddie Mac and Fannie Mae do give their lender partners a lot of discretion when it comes to analyzing.
Sandra Sweeney (06:31):
SEB income always refer to your particular lender and or investor for any guideline nuances or lending overlays. Outside of that, there has not been any change. The self-employed borrower guidelines other than some bulletins from Freddie Mac that have provided additional guidance addressing borrowers that own less than 25% of a business or independent contractors that receive a 10-99 versus a W2. You know what Concepcion, I believe there's nothing worse than what I call SEB anxiety. If you feel lost when you are talking to your self-employed borrowers or your vision blurs, when you are asked to review a tax return, please avail yourself of our MGIC SEB training and resources. I promise that they will help you become SEB proficient. As always, do not hesitate to reach out to your MGIC account manager or myself if we can support you in any way.
Concepcion Guerrero (07:40):
Sandra, thank you very much for the quick SEB insights and just like Sandra mentioned today, you can learn more about MGIC's self-employed borrower program by attending one of our many live trainings or listening to a previously recorded session by going to mgic.com/training. Thank you all for listening. For the latest industry insights, subscribe to Mortgage Connects on Apple, Stitcher, Google Podcast, Spotify, Amazon Music, or go to mortgageconnects.com.