Enact Holdings, Inc. · NASDAQ:ACT
Enact — Investor Presentation (May 2019)
49 slides from Enact's investor presentation, May 2019
Slide 1: Self-Employed Borrower Basics
Self-Employed Borrower Basics Part I - Personal Tax Return Review May 2019 Genworth Mortgage Insurance Corporation ©2019 Genworth Financial, Inc. All rights reserved.
Slide 2: Agenda
Agenda Business Income Concepts Qualifying Income General Underwriting Guidelines Self-Employed Business Types IRS Form 1040 Personal Tax Return Profit and Loss Statement Income Analysis Forms Sole Proprietor Schedule C – Adjustments to Income • Non-reoccurring Income
Slide 3: Business Income Concepts
Business Income Concepts Four Concepts – Business Income May Be Reported On Personal Tax Returns and/or Business Tax Returns – Taxable Income • Calculated on Tax Returns • Income on Which Borrower Owes Taxes – Qualifying Income • Money Available to Pay Mortgage • Taxed Income May Have Been Passe
Slide 4: Business Income Concepts
Business Income Concepts Four Concepts – Examine Past to Predict Future • 1 or 2 Year History With Documentation • Calculations Shown – Fannie Mae- Form 1084 – Freddie Mac- Form 91 – Lender Form – MI Co. Form (Continues on Next Slide) SEB Basics 4
Slide 5: Qualifying Income
Qualifying Income The only income that can be used to qualify your borrower is income that is: – Steady, – Stable, – Likely to Continue, and – Provable. Generally: Two Year History Of Receipt, Three Year Continuance. Specific Income Types May Vary. SEB Basics 5
Slide 6: General Underwriting Guidelines
General Underwriting Guidelines Declining Personal Income – Can the income be used to qualify? – If so, use only the lower of the two years Declining Business Income – Conduct a Trend Analysis • Fannie Mae Comparative Income Form (Form 1088) • Cheat sheet located on our training page @ mi.Ge
Slide 7: Self-Employed Business Types
Self-Employed Business Types Each business structure reports taxes as follows: – Sole Proprietor • Completes IRS Form 1040 – Schedule C – Farm • Completes IRS Form 1040 • Schedule F (Continues on Next Slide) SEB Basics 7
Slide 8: Self-Employed Business Types
Self-Employed Business Types Each business structure reports taxes as follows: (Continued from previous slide) – Partnership • Completes IRS Form 1065 • Partners receive Form K-1s from the partnership reporting the partner’s profit/loss – IRS Form 1040 may reflect pass through income on B, C, D,
Slide 9: Self-Employed Business Types
Self-Employed Business Types Each business structure reports taxes as follows: (Continued from previous slide) – Corporation • Completes IRS Form 1120. • Shareholders may receive – Wages reported on a W-2 – Dividend reported on IRS Form 1040, Schedule B SEB Basics 9
Slide 10: IRS Form 1040- Individual Tax Return
IRS Form 1040- Individual Tax Return SEB Basics 10
Slide 11: What Taxable Activities Has Your Borrower Filed?
What Taxable Activities Has Your Borrower Filed? This return shows two different types of income report: – Taxable Interest – Business Income Schedule C The presence of a schedule prompts the mortgage file reviewer to investigate the activity posted. SEB Basics 11
Slide 12: What Taxable Activities Has Your Borrower Filed?
What Taxable Activities Has Your Borrower Filed? The Example is Dan Designer Dan runs a business from home. The business is a Sole Proprietor and he files a Schedule C. He is a 100% owner. Review Schedule 1 Line 12 to determine if a Schedule C has been filed SEB Basics 12
Slide 13: What Taxable Activities Has Your Borrower Filed?
What Taxable Activities Has Your Borrower Filed? Review Line 31 to determine if just 1 Schedule C has been filed SEB Basics 13
Slide 14: Review Schedule C
Review Schedule C Start with the Net Profit or Loss Each schedule simply shows the math behind the sum that carried forward to the Form 1040. After reviewing the schedule you may determine that adjustments need to be made to the taxable income reported to convert it to qualifying income for
Slide 15: The Profit and Loss Statement
The Profit and Loss Statement What is it? – Profit and Loss Statement (P&L) may also be referred to as The Income Statement or Earnings Statement – The P&L Statement shows the total actions of a business over a period of time • It may represent a month, a quarter or a year – A 1040 Schedule C &
Slide 16: Income Statement/ P&L Definitions
Income Statement/ P&L Definitions NET SALES: The total dollar volume of all cash or credit sales less returns, allowances, discounts and rebates. COST OF GOODS SOLD: – For a retail or wholesale business it is the total price paid for the products sold plus the cost of having it delivered to
Slide 17: The Profit and Loss Statement/Income Statement
The Profit and Loss Statement/Income Statement It begins when a sale is made… – The first entry or account would be Sales. If the sale was $30,000 it would look like this: Sales $30,000 – The next entry would be the Cost of Goods Sold. If the cost was $22,000 it would be subtracted to show the G
Slide 18: Profit and Loss Statement
PROFIT AND LOSS STATEMENT Company XYZ January X Through March X, 20XX NET SALES (LESS ALLOWANCES AND DISCOUNTS $700,000 COST OF GOODS SOLD (500,000) GROSS PROFIT 200,000 DRAWINGS (OWNERS) $ 74,000 WAGES 65,000 DELIVERY 7,000 BAD DEBT 4,000 TELEPHONE 2,000 DEPRECIATION 4,000 INSURANCE 7,000 TAXES (LO
Slide 19: Schedule C vs. Income Statement
Schedule C vs. Income Statement SEB Basics 19
Slide 20: Income Worksheets/Calculator
Income Worksheets/Calculator SEB Basics
Slide 21: Income Worksheets/Calculator
Income Worksheets/Calculator SEB Basics 21
Slide 22: Income Worksheets/Calculator
Income Worksheets/Calculator SEB Basics 22
Slide 23: Income Worksheets/Calculator
Income Worksheets/Calculator SEB Basics 23
Slide 24: Sole Proprietor
Sole Proprietor Only one owner (100% ownership) Income reported on schedule C Taxed on personal rate Advantages – Easy to form – Inexpensive – 100% ownership Disadvantages – Unlimited personal liability – Unable to raise large sums of money to invest in business SEB Basics 24
Slide 25: Income Analysis Calculator
Income Analysis Calculator Genworth Calculators SEB Basics 25
Slide 26: Adjustments To The Income
Adjustments To The Income Common sense guides us through most of the adjustments. If a business received income/revenue in the past tax year but was NOT expected to receive it in future years, can you rely on it to be a source of income for the borrower to make mortgage payments with? SEB Ba
Slide 27: Adjustments To The Income
Adjustments To The Income Common sense guides us through most of the adjustments. If a business has acknowledged an expense that is considered a “non- cash” expense or a “paper loss” does the business still have the cash to be a source of income for the borrower to make mortgage payments wit
Slide 28: Depreciation
Depreciation Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as busines
Slide 29: Property Classifications For Depreciation
Property Classifications For Depreciation Example of straight line depreciation Purchase Price of Race Horse $20,000 Accumulated Placed in Service Jan 1st 2015 Depreciation Book Value Depreciation 1st Year write-off $6,666.66 $13,333 $6,666 2nd Year write-off $6,666.66 $6,666 $13,333 3rd Year write-
Slide 30: Property Classifications For Depreciation
Property Classifications For Depreciation 2. 5-year property a. Automobiles, taxis, buses, and trucks b. Computers and peripheral equipment c. Office machinery (such as typewriters, calculators, and copiers d. Any property used in research and experimentation e. Breeding cattle and dairy cattle f. A
Slide 31: Property Classifications For Depreciation
Property Classifications For Depreciation 3. 7-year property a. Office furniture and fixtures (such as desks, files, and safes) b. Agricultural machinery and equipment c. Railroad track d. Any property that does not have a class life and has not been designated by law as being in any other class e.
Slide 32: Depreciation And Amortization Worksheet
Depreciation And Amortization Worksheet The worksheet allows the mortgage file reviewer to review the asset that was considered. SEB Basics 32
Slide 33: Section 179
Section 179 Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCH
Slide 34: Depreciation
Depreciation The loss of value to an asset due to wear and tear. A cost of doing business. A non-cash expense. + Underwriting guideline: add it back ! SEB Basics 34
Slide 35: Amortization
Amortization Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. It is similar to the straight line method of depreciation. The Internal Revenue Service (IRS) allows taxpayers to take a deduction for certain amortized expenses: – Geological a
Slide 36: Amortization
Amortization The depreciation of an intangible asset. – Goodwill – Trade Marks – Copy Rights – Patents A non-cash expense. + Underwriting guideline: add it back! SEB Basics 36
Slide 37: Depletion
Depletion Depletion is the using up of natural resources by mining, quarrying, drilling, or cutting. The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. SEB Basics 37
Slide 38: Depletion
Depletion The using up of a natural resource. – Coal – Timber – Gas A cost of doing business. A non-cash expense. + Underwriting guideline: add it back ! SEB Basics 38
Slide 39: Adjustments To The Income
Adjustments To The Income Common sense guides us through most of the adjustments. If a business has not acknowledged an expense but the expense resulted in a cash outlay from the business does the business still have the cash to be a source for the borrower to make mortgage payments with? SE
Slide 40: Meals And Entertainment Expenses = Enjoyment Tax
Meals And Entertainment Expenses = Enjoyment Tax To qualify for a business expense the business owner would need to be present. Meals – Your borrower had to eat anyway! Entertainment – Your Borrower had a Really good time! Regardless of the amount of people present, your borrower ate 50%
Slide 41: Taxable Income + Paper Write-Offs + Untaxed Income
Taxable Income + Paper Write-Offs + Untaxed Income + Losses Not Continuing - Taxed Income Not Available - Income Not Expected To Continue Estimated Cash Available To Pay Mortgage In The Future SEB Basics 41
Slide 42: Genworth Underwriting Guidelines
Genworth Underwriting Guidelines SEB Basics
Slide 43: Genworth Rate Express
Genworth Rate Express® SEB Basics
Slide 44: LOS Connections
LOS Connections Genworth 5% =. & 800 444.5664 | 3 | MI&RATES | UNDERWRITING & GUIDES LOS&CONNECTIONS GENWORTHTOOLKIT | TRAINING YOU-CENTRIC SOLUTIONS Genworth Mortgage Insurance \V7 Submit on our Site Submit with your LOS Use Optimal Blue & Doc Delivery \IZ LEARN MORE “\N Access Paper Applications 7
Slide 45: Training Tools and Information
Training Tools and Information SEB Basics
Slide 46: Training Tools and Information
Training Tools and Information SEB Basics 46
Slide 47: Additional MI Site Information
Additional MI Site Information SEB Basics
Slide 48: Your Genworth Resources
Your Genworth Resources ActionCenter®: 800 444.5664 Your Local Genworth Regional Underwriter Your Genworth Sales Representative SEB Basics
Slide 49: Legal Disclaimer
Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for accuracy, we also know that any discussion of laws and their application to particular facts is subject to individual interpretation, change, and other uncertainties. Our train