Yes, it’s 2015 and you read that correctly.
FHA has instituted a guideline for self employed borrowers that require that they give the lender the two years tax returns AND a profit and loss statement that is for YTD (year to date).
That YTD statement on needs to be produced by the borrower from their own records. It does not have to be reviewed, compiled or audited by the CPA of the company.
FHA also asks for no back up, no QC and the safeguard that this is the correct income. So, the self employed borrower can go into their accounting software and make sure the numbers match.
Loan officers around the country will be telling these borrowers that the FHA guideline is requiring that their P and L be in line with the previous income. This is reminiscent of the times when they used to tell borrowers how much they needed to qualify for a stated income loan.
And, what about the people in retail that make it big in the later part of the year? How do they substantiate first quarter income that is less?
Does the FHA not realize that they are begging for fraud? The only good news is that the economy is good and incomes should go up.
FHA and the conventional lenders have required self employed people to fully document their income because of Dodd-Frank. This has brought in a lot of tax income to the federal, state and local income coffers that they did not have before. But, now they are penalizing these people and forcing the fraud on them.
Even after a foreclosure a few years from now, how are they going to get the Quickbooks file unless the Feds prosecute individuals criminally for fraud. Unlikely to happen, so why ask for it.
Mr. Commissioner how about an affidavit that they are making about the same this year. How about realistic, sensible underwriting? Let’s give that a try!