Enact Holdings, Inc. · NASDAQ:ACT
Enact — Investor Presentation (April 2020)
65 slides from Enact's investor presentation, April 2020
Slide 1: Self-Employed Borrower Basics: Part 2 - Personal and Business Tax Return Review
Self-Employed Borrower Basics: Part 2 - Personal and Business Tax Return Review April 2020 Customer Education Brought to you by: Genworth Customer Development and Process Consulting
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 Business Tax Returns – Adjustments to Income • Non-reoccurring Income • Depreciation • Amortization • Deple
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 Passed Th
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 Part II 3
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 Part II 4
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.Genworth.
Slide 7: 1088 Comparative Income Analysis
1088 Comparative Income Analysis SEB Basics Part II 6
Slide 8: 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 Part II 7
Slide 9: 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 10: 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. (Continues on Next Slide). SEB Basics Part I
Slide 11: Partnership
Partnership A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business. There are two types of typical partne
Slide 12: Partnership
Partnership A partnership must file an “annual information return” to report the income, deductions, gains and losses from the business’s operations, but the business itself does not pay income tax. Instead, the business "passes through" any profits or losses to its partners. Partners include their
Slide 13: Partnership
Partnership Partnership (General or Limited – Two or more partners – Business income reported on Form 1065 – Personal income reported on 1040 • K1 – Schedule E – Schedule B – Schedule C – Schedule F – Income tax at a personal rate SEB Basics Part II 12
Slide 14: Partnership
Partnership Advantages of a Partnership – Easy and Inexpensive: Partnerships are generally an inexpensive and easily formed business structure. The majority of time spent starting a partnership often focuses on developing the partnership agreement. – Shared Financial Commitment: In a partnership, ea
Slide 15: Partnership
Partnership Disadvantages of a Partnership – Joint and Individual Liability: Similar to sole proprietorships, partnerships retain full, shared liability among the owners. Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addi
Slide 16: 1065 Partnership/S Corp K-1 flow chart
1065 Partnership/S Corp K-1 % Line 1 Ordinary Income/Loss $_________ Line 22 Ordinary Income/Loss $_________ Net Income $_________ Schedule E page 2 Part II 1040 Schedule 1 Line 5 Net Income/Loss Sch.E *$_________ This flow chart reflects both Partnership (1065) *Taxed at a personal rate income and
Slide 17: S Corporation
S Corporation An S Corporation (sometimes referred to as an S Corp) is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S Corporation.
Slide 18: S Corporation
S Corporation Limited to 100 shareholders Business income reported on Form 1120S Personal income on Form 1040’s (Schedule E) and K-1 Advantages – Taxed on personal basis (S Corp. pays no tax on income) – Liability limited to amount invested – Ownership easily transferable through sale of stock Disad
Slide 19: 1120S Partnership/S Corp K-1 flow chart
1120S Partnership/S Corp K-1 % Line 1 Ordinary Income/Loss $_________ Line 21 Ordinary Income/Loss $_________ Net Income $_________ Schedule E page 2 Part II 1040 Schedule 1 Line 5 Net Income/Loss Sch.E This flow chart reflects both Partnership (1065) *$_________ income and S Corp (1120S) taxation c
Slide 20: Limited Liability Company (LLC)
Limited Liability Company (LLC) A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The "owners" of an LLC are referred to as "members." Depending on the s
Slide 21: Limited Liability Company (LLC)
Limited Liability Company (LLC) Since the federal government does not recognize LLC as a business entity for taxation purposes, all LLCs must file a corporation, partnership, or sole proprietorship tax return. Certain LLCs are automatically classified and taxed as a corporation by federal tax law. A
Slide 22: Limited Liability Company (LLC)
Limited Liability Company (LLC) May file taxes to the IRS as a Corporation, Partnership, Sole Proprietor or S Corp Business income reported on 1120, 1065,1040-Sch C, or Form 1120S When filing as a Partnership or S Corp, the personal income typically flows to 1040 Schedule E, a Sole Proprietor files
Slide 23: Corporation
Corporation A corporation is a separate legal entity created by the state in which the corporation is headquartered Corporations are owned by stockholders, who are not personally responsible for the debts of the corporation (since the corporation is a separate legal entity, the corporation is liable
Slide 24: Corporation
Corporation No limit on number of stockholders Business income reported on Form 1120 Personal income reported on Form 1040 (dividends on Schedule B) Taxed at a corporate rate Advantages – Limited Liability - limited to amount of investment in stock of the company – Ability to Generate Capital - abil
Slide 25: Corporation
Corporation If your borrower owns 100% of a traditional corporation (C), you may wish to perform some analysis to determine whether income is available to the borrower – Please remember, however, that when a borrower removes cash from a business, he or she may be inhibiting the corporation's ability
Slide 26: The Business Return
The Business Return Each business return’s page 1 is a basic Income Statement After reviewing the return, you may find adjustments to be made that change the taxable income reported, into potential qualifying income for loan purposes SEB Basics Part II 25
Slide 27: Income Statement
Income Statement The income statement serves as a record of the operating activity for the period it covers Current net earnings should be analyzed along with the last two years tax returns to determine stability Consistency and continuous positive flow should be demonstrated Unless financial statem
Slide 28: The Profit and Loss Statement (P&L) or Income Statement
The Profit and Loss Statement (P&L) or Income 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
Slide 29: 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, this is the total price paid for the products sold, plus the cost of having it delivered to the s
Slide 30: Income Statement/ P&L
Income Statement/ P&L 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 Gross Profit. Sales $30,000 Co
Slide 31: Profit and Loss Statement
PROFIT AND LOSS STATEMENT Company XYZ January X Through March X, 20XX NET SALES (LESS ALLOWANCES AND DISCOUNTS COST OF GOODS SOLD $700,000 GROSS PROFIT (500,000) 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 32: Business Return vs. Income Statement
Business Return vs. Income Statement SEB Basics Part II 31
Slide 33: Financial Statements
Financial Statements Financial statements are comprised of a balance sheet and income statement. The balance sheet represents the financial picture as it stood for that particular time. It is useful as a representation of the weight of the assets vs. the liabilities. The most important analysis to b
Slide 34: The Balance Sheet
The Balance Sheet Why is it called a “Balance Sheet”? The key word is balance. Because both the total assets and the liabilities and net worth are the same, they balance. This is true even if the liabilities exceed the assets. In this case, net worth becomes a negative and it must be subtracted from
Slide 35: The Balance Sheet
The Balance Sheet Balance Sheet Assets are normally broken into two main categories: current assets and fixed assets. Current assets usually mean anything that can be converted to cash within one year. Fixed assets are more permanent items like buildings or major equipment. Liabilities are similarly
Slide 36: How a Balance Sheet is Prepared
How a Balance Sheet is Prepared ASSETS LIABILITIES CURRENT ASSETS NET WORTH Cash $100,000 $100,000 A balance sheet on a new business started with the owners savings. SEB Basics Part II 35
Slide 37: How a Balance Sheet is Prepared
How a Balance Sheet is Prepared ASSETS LIABILITIES CURRENT ASSETS CURRENT LIABILITIES Cash $75,000 Accounts payable $25,000 Inventory $50,000 NET WORTH $100,000 TOTAL $125,000 TOTAL $125,000 The owner decides to stock her store, and purchases $50,000 worth of merchandise (Inventory), but pays only $
Slide 38: How a Balance Sheet is Prepared
How a Balance Sheet is Prepared ASSETS LIABILITIES CURRENT ASSETS CURRENT LIABILITIES Cash $50,000 Accounts payable $25,000 Inventory $50,000 TOTAL CURRENT LIABILITIES TOTAL CURRENT ASSETS $25,000 $100,000 LONG TERM DEBT FIXED ASSETS Mortgage $75,000 Building $100,000 TOTAL LONG TERM DEBT TOTAL FIXE
Slide 39: The Balance Sheet
The Balance Sheet The difference between the assets and liabilities equals the net worth. That is, after all the bills and notes are paid, anything left is called net worth. Another definition is that the net worth is what is due the owner(s) of the business once all the liabilities have been paid.
Slide 40: The Balance Sheet
The Balance Sheet BALANCE SHEET ASSETS = LIABILITIES + NET WORTH Assets are normally broken into two main categories: current assets and fixed assets. Current assets usually mean anything that can be converted to cash within one year. Fixed assets are more permanent items like buildings or major equ
Slide 41: The Business Return
The Business Return Each business return’s page has a Balance Sheet Section- Schedule L You may have to determine the businesses Solvency/Liquidity position SEB Basics Part II 40
Slide 42: Liquidity-Current Ratio
Liquidity-Current Ratio Generally Accepted Accounting Principles SEB Basics Part II 41
Slide 43: Income Analysis Forms
Income Analysis Forms https://singlefamily.fanniemae.com/media/7746 /display https://guide.freddiemac.com/ci/okcsFattach/get/1001350_5 SEB Basics Part II 42
Slide 44: 1065 K1 Review
1065 K1 Review SEB Basics Part II 43
Slide 45: Form 1065 Review
Form 1065 Review SEB Basics Part II 44
Slide 46: 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 Basics
Slide 47: 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 with?
Slide 48: 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? SEB B
Slide 49: Adjustments To The Income
Adjustments To The Income Common sense guides us through most of the adjustments. If a business has acknowledged an expense, but the expense was caused by an extraordinary event such a fire or flood, is that expense likely to continue and remain an expense in the future? SEB Basics Part II 48
Slide 50: Form 1065 Balance Sheet Review
Form 1065 Balance Sheet Review SEB Basics Part II 49
Slide 51: Fannie Mae’s 1088
Fannie Mae’s 1088 SEB Basics Part II 50
Slide 52: IRS Form 1040- Individual Tax Return
IRS Form 1040- Individual Tax Return SEB Basics Part II 51
Slide 53: What Taxable Activities Has Your Borrower Filed?
What Taxable Activities Has Your Borrower Filed? This return shows three different types of income report: • W2 • Taxable Interest and • Schedule C • Schedule E The presence of a schedule prompts the mortgage file reviewer to investigate the activity posted. Let’s review Schedule E as that may indic
Slide 54: Schedule 1
Schedule 1 Let’s look at the E… SEB Basics Part II 53
Slide 55: 1040 Schedule E
1040 Schedule E The Schedule E indicates that the borrower has involvement with a Partnership & a S Corp The only way to determine the percentage of ownership is to review the K1. If the percentage of ownership is 25% or greater the borrower is considered Self Employed and a review of the Business R
Slide 56: The Partnership (1065) K1
The Partnership (1065) K1 The K1 indicates the borrower’s percentage of ownership is 35%. To determine the ownership percentage use the Ending Capital %. SEB Basics Part II 55
Slide 57: The Partnership (1120S) K1
The Partnership (1120S) K1 The K1 indicates the borrower’s percentage of ownership is 100%. SEB Basics Part II 56
Slide 58: Genworth Underwriting Guidelines
Genworth Underwriting Guidelines
Slide 59: Genworth Rate Express®
Genworth Rate Express® NA & 800 444.5664 |G | Q SENWVOIL ae ry Mortgage Insurance UNDERWRITING & GUIDES | LOS & CONNECTIONS | GENWORTH TOOLKIT | TRAINING OUR BLOG | ABOUT US Rate Express ITIONS THAT MATTER Genworth Mortgage Insurance Rate Cards GenRATE ga YOU year! ttf,.: Quote Sweepstakes Resources
Slide 60: LOS Connections
LOS Connections NA & 800 444.5664 |G | Q Genworth == Ayre Mortgage Insurance mR Search Q S caaiecal @ VIEW ACCOUNT MI & RATES | UNDERWRITING & GUIDES LOS & CONNECTIONS | GENWORTH TOOLKIT | TRAINING OUR BLOG ABOUT US YOU-CENTRIC SOLUTIONS THAT MAT submit on Our Site Genworth Mortgage Insurance LOS Co
Slide 61: Training Tools and Information
Training Tools and Information
Slide 62: Training Tools and Information
Training Tools and Information 61
Slide 63: Additional MI Site Information
Additional MI Site Information
Slide 64: Your Genworth Resources
Your Genworth Resources ActionCenter®: 800 444.5664 Your Local Genworth Regional Underwriter Your Genworth Sales Representative
Slide 65: 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