Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Dec 10, (00:00):
Bank
statement loans are a loan which
(00:03):
uses the borrower's businesspersonal or commingled, which
means combining both.
bank statements to calculate themonthly income.
We can use 12 or 24 months worthof bank statements.
Uh, bank statement loans are forself employed borrowers only.
Please do be aware that, um, wehave, uh, different options.
(00:28):
We have, um, bank statementloans where we can also combine,
uh, other income types that theborrower or co borrower may
have, like W 2 income, profitand loss, asset utilization.
or 1099s.
(00:49):
So, who are the eligibleborrowers and transactions for a
bank statement loan?
You know, again, I mentionedself employed borrowers with
minimum two years in business.
However, we do have exceptionsfor this.
Um, the borrower can be one yearin business, for example, if
they were previously employedperforming the same job duties
(01:11):
as a W 2 employee.
We're talking examples like anelectrician.
That is licensed could have beenW 2 and now he's 1099 or just
totally self employed.
We could have a doctor or wecould have a nurse.
Those are just three commonexamples of individuals that we
could approve them having onlybeen one year in business, as
(01:36):
long as they were previouslyperforming the same job duties
as a W 2 employee.
Now obviously eligible borrowersfor these transactions are U.
S.
citizens, permanent residentaliens.
non permanent resident alienswith a work authorization
document or an ITIN borrower.
(01:59):
Please note that uh, foreignnational borrowers are not
eligible uh, as uh, to do a bankstatement loans because foreign
national borrowers do not derivetheir income if they're actually
being qualified as a foreignnational borrower cannot derive
their income from the U.
S.
(02:19):
Uh, the maximum LTV on any bankstatement loan is going to be 90
percent LTV.
That's going to be for apurchase on a primary, uh,
maximum cash out, maybe as highas 85 percent LTV, but most of
the options I'm seeing rightnow, cap you at 80 written term,
refined, definitely max 85percent LTV.
(02:42):
We have delayed financingtransactions.
That's where a borrower, uh,buys a property cash.
And within the first six monthswants to do a refinance to, uh,
recuperate the, whatever moneythey put out on the transaction.
That's called delayed financing.
And then we also have secondmortgage options through our
(03:04):
HELOM option, which is a fixedrate second mortgage that'll go
up to a max 85 percent CLTB whenit's a primary owner occupied
transaction for a HELOM.
So, what about program options,right?
(03:25):
Be, do be aware that all non QMprograms have guideline
variations that are specific tothat option, right?
So, you cannot generalize andsay, for a bank statement loan,
can you do such and such thing?
Because it's really going todepend on what the guidelines
(03:47):
state.
So most, uh, you know, you canuse, like I mentioned, business
bank statements or personal bankstatements or commingled.
If you're using business bankstatements, uh, you're going to
start with at least a 50 percentexpense factor.
Now again, do be aware, like yousee there on the photo fixed
(04:08):
expense ratio.
That's actually from theguidelines from one of our
conduits where if, for example,you have a business that it's a
service related business withno, uh, employees other than
yourself, the expense factor forthat, uh, transaction would only
(04:30):
be 20%.
So you would be able to capture80% of the deposits.
If that same business had one tofive employees, the expense
factor increases to 40%, whichmeans you would be able to
capture 60 percent of thedeposits.
So the expense factor, uh, canbe, um, um, modified with a CPA
(04:55):
letter.
So if, for example, you do havethose one to five employees, But
the accountant can document inthe letter that your expense
factor is actually 30 or 25percent, then we can use a
higher percentage of thedeposits.
That's increased.
That's to increase the profitwith a CPA letter.
(05:16):
And like I mentioned, someprogram options have the expense
factor table.
Like what I just showed you.
And that's what you have toconsider when you're structuring
the deal.
That's why it's so important toask the customer to complete the
business narrative, which is thedocument that they answer that
states the structure of theirbusiness, how many employees do
(05:38):
they have a location?
Do they pay rent?
All that kind of stuff that'sgoing to help determine their
overhead.
Now, when you use personal bankstatements, we are allowed to
use a hundred percent.
Of the business relateddeposits, but keep in mind that
the only way to use 100 percentof the business related deposits
when using personal bankstatements is when we also have
(06:01):
business bank statements.
According to the guidelines,they're going to need anywhere
from 2 to 3 months worth ofbusiness bank statements to
document the expenses that arecovered by the business.
If the borrower providespersonal bank statements.
And does not have any businessbank statements, then you will
need to apply whatever is thecorrect expense factor for that
(06:23):
business to the bank statementdeposits.
Normally, we don't include anexpense factor when using
personal bank statements, but ifthe borrower does not have
business bank statements, thenthat will be the case.
You have to apply the expensefactor because there's no
business bank statements whenusing personal bank statements.
(06:45):
Now, you can combine businessand personal, that's called
commingled, for like differentmonths.
However, please note that if youare using commingled bank
statements, for one month youuse the business bank
statements, another month youuse the personal bank statement
for whatever reason, dependingon how the deposits were
received, then you're going tohave to apply the same expense
(07:09):
factor that you would to thebusiness bank statements as
well.
To the personal bank statements.
So going up to our table there,if you have a product related
business with zero employees,and we're submitting to the
investor where I obtained thistable, your expense factor would
be 40%.
And you would be able to use 60percent of the deposit.
(07:32):
So, very important that we allunderstand, um, when an expense
factor is to be applied,especially when using personal
bank statements.
So, what are some of thepotential issues why that we
could have In a bank statementloan and what could be some of
(07:52):
the solutions, right?
Well, the patent, the most ofthe solutions, the solution to
most of these issues is I'lljust tell you ahead of time is
going to be a profit and lossloan.
However, most profit and lossloans do require two to three
months bank statements to beproduced.
To document the income, um, nowhow much of the income you got
(08:16):
to document depends on theguidelines, right?
Some of our, one of ourguidelines state you got to
document at least 75 percent ofthe income stated on the P& L.
With a current bank statement.
So what are some of the issuesthat we have for bank statement
loans?
Well, some of the issues we'regoing to have is that the
(08:36):
borrower cannot document theneeded business history, right?
They, they self file so theydon't have an accountant readily
available to provide a thirdparty verification letter.
Maybe they're in a businesswhere they do not have a
separate business license.
Maybe they're a sole proprietor,so no corporate docs or articles
(09:00):
of, uh, incorporation orarticles of formation are
available.
So, I mean, those woulddefinitely be, uh, some issues.
Uh, no, if you cannot documentthe need of business history,
For a bank statement loan,you're probably not going to be
able to document the needed, um,business history for a P& L
(09:21):
loan.
So that is first and foremostwhen trying to document that
your borrower is self employed.
Be on the lookout for thepotential obstacles there so you
can see what you would need todo to be able to provide
documentation that the borroweris actually self employed.
Another potential issue withbank statement loans is
(09:42):
declining deposit trends, right?
You're seeing the monthlydeposit.
That's why we don't like to gomore than 12 months.
back on a bank statement loanbecause you expose the borrower
to additional fluctuations ofthe deposit trends where we
could end up with decliningdeposit trends.
Uh, then we have large depositsthat cannot be documented.
(10:05):
That's the perfect one to go P&L on.
Um, that's one of our, I mean,favorite reasons to go P& L on a
bank statement loan is when thedeposit trend, we have large
deposits.
that cannot be documented.
We had a deal that went P and Lbecause of that.
The customer only had like fivedeposits in the whole year.
Each deposit was like for over250, 000 to 300, 000.
(10:28):
When we asked the borrower,could he document those deposits
where they came from?
Um, he preferred not to go thatroute, stated it would be very
difficult.
And we ended up closing the dealas a profit and loss because we
identified the issue upfront.
Beware on large deposits.
(10:49):
Beware that guidelines requireall deposits greater than 50
percent of the monthly income tobe documented.
So if you calculate your monthlyincome at 14, 000 for your
borrower, That means any and alldeposits of 7, 000 or above need
to get documented, right?
Copy of the item deposited, copyof an invoice or a contract or
(11:12):
something to document a largedeposit.
Uh, irregular deposit trends isanother issue for bank
statements, right?
Some months you got deposits andthen other times it may go a
couple of months without anydeposits.
We would need to know why isthat part of the business cycle
of the borrower?
Why?
(11:32):
You know, would they not havedeposits on any given month?
So it could be a perfectlyunderstandable reason, but we
just need to know needs to beexplained and possibly provide
documentation.
Now NSFs and overdrafts isanother area of concern.
Now we do have one option thatdoes not necessarily judge the
(11:54):
borrower based on NSFs oroverdrafts, but will require
solid explanations and to provethat it's no longer an NSF or
overdraft.
But usually, in most of thecases, more than three NSFs In a
12 month period will disqualifythe deal and, um, another issue
(12:20):
to be concerned of is, uh, forthe underwriter to increase the
expense ratio due to thebusiness type.
So, if you did not review thattable showing the business type
and the expense factor, and thenyou provide the business
narrative and the underwritersays, wait, he has 2 employees.
(12:42):
And it's a service relatedbusiness.
I needed to make a hit and I'llgo back a minute to that slide.
So if we did have a servicerelated business with two
employees, we'd be getting a 40percent expense factor.
So we could only use 60 percentof the deposits.
So it is something to be awareof that the underwriters will
(13:04):
get proactive or the underwriterreviews the tax, the bank
statements and realizes there'sa lot more expenses on there.
Uh, that.
Would appear then that theexpense factor is higher than
20%.
And they may actually do theircalculations and update the
expense factor due to the, um,income and expenses that's
(13:25):
running through the bankstatement.
So as previously stated, theprofit and loss loan is the
solution to irregular deposits.
high expenses and, and any ofthese other issues that we have
mentioned here.
(13:46):
So actually calculating theincome is, um, can always be an
adventure, right?
But I will let you all know,please use the Investor Bank
Statement Service wheneverpossible.
Most of these, uh, investors arenow making it a requirement.
to have the bank statementsreviewed and the income
(14:08):
calculated by them internallybefore submitting the file
because you have to submit thefile with a copy of the
spreadsheet that you wereprovided.
Most of them will guarantee thatincome.
So if that's a given and that'syour income, now you know what
you're going to deal with.
We should make the structuringof the loan a lot easier.
(14:31):
Now, please note that, um, youknow, we do have like a generic.
Excel spreadsheet that you canuse, uh, for, uh, documenting
the bank statement income, butplease try to use, if you're not
going to have their, theinvestor service complete the
form, um, please make sure that,um, you do use the one that,
(14:58):
that, uh, that we haveinternally to put in all your
deposits.
And I, I will share that in the,Following slide, but basically
what you need to do, you'regoing to input the total of the
deposits in the first column,and then you're going to back
out one at a time.
The non business income deposit.
(15:19):
So if your total deposits forthe month were 10, 000.
But then you had 4 deposits of250 each that were credit card
returns.
You'll put minus 250 in the nextcolumn, then the next one, minus
250, and minus 250, and minus250, so that the system then
will have a total of 1, 000being deducted from the total
(15:40):
deposits, and then you will getthe amount of total deposits.
In the end, so let me just showthat show that to you a minute,
and then we'll go back to thesheet.
So you're seeing right here.
This is month 1.
this is the date of the bankstatement.
This column here is the total ofthe deposits in that account.
(16:03):
And then beginning on this line,we're backing out deposits that
were not applicable.
Right.
So in this particular scenariohere, I'm backed out one of 870
and one of 34 and 58 cents.
So you would do that for all thestatements for all the months.
And in the end, you'll have afigure over here all the way to
(16:25):
the right, which is going to bethe net deposits for the month.
So let me go back tocalculating.
So we're going to use the Excelspreadsheet required for the
investor for the option chosen.
And if not using this, if notusing their scenario desk bank
statement review option.
So I guess what I meant to saythere is if you're going to load
(16:47):
them up on a spreadsheet.
Try to see first if the investorwhere you're sending the loan
to, if you, if you, if forwhatever reason you're not using
their service or if you sent itto their service, but you want
to document it on your own aswell to compare, then make sure
that you see if they have theirown branded spreadsheet.
Most of them do.
(17:08):
That's branded to them withwhatever adjustments they want
to do and then use that form.
If not, you can use our formthat we have.
Um, so.
You're going to input totaldeposits and back out non
business, uh, uh, incomedeposits.
What are we referring to thatthese would be these non
business income deposits?
(17:29):
Uh, basically we're talkingabout things like transfers from
other accounts of theirs thatare not business income, like
they just decided to transfermoney into the account to cover
some expenses, uh, credits.
From credit card companies, forexample, you know, uh, credit,
credit item and unverifiablelarge deposits.
(17:52):
So a large deposit, any depositthat's 50 percent or greater
than the monthly income.
And if any of these largedeposits are not verified, uh,
satisfactorily, then, um, we'lljust have to back it out from
the amount.
Uh, be aware of the expensefactor ratio restrictions and
the guidelines for the optionchosen already covered that a
(18:14):
couple of times.
And very importantly.
Make sure you compensate for theborrower's proportionate share
of the, of the business.
So let's say the expense factoris already 50 50 for this, for
this deal, but they, on top ofthat are only 25 percent owner
in the company.
(18:34):
So once you get the 50 percentoff the 50 percent amount, Um,
which is, you know, the amountyou're going to use, right?
You're giving them 50 percent ofthe, uh, deposits as income, and
then they are 25 percent ownerof the business.
You're going to get that grossamount that you got, which is 50
percent of the gross deposits ofthe acceptable deposits after
(18:58):
any items backed up, and thenyou're going to multiply it
times 20%, which 25%, excuse me,which is their proportionate
share of the business.
To, um, get to the monthlyincome for that borrow.
I'm using one right now where Igot to multiply it times 51%,
but we're still at like 25, 000a month in income, which is
(19:20):
pretty good.
So you're seeing how thecalculations work here.
The most important part, Iguess, is, you know, review the
guidelines for the option thatyou're choosing.
To make sure that you'refollowing their guidelines, uh,
regarding, you know, expensefactor, uh, co mingled bank
(19:43):
statements, because not, youknow, I say it's possible to use
co mingled bank statements, butnot every, not all of our
conduits allow co mingled bankstatements, which means you
could have a September, October,November from the, from the,
from the personal, then, uh,December, January from the
business, and then, uh, Uh,February moving on forward from
(20:05):
the personal, that would be acommingled, uh, scenario where
you have business bankstatements and you have personal
bank statements.
So, that concludes our trainingon this.
I'm going to leave thespreadsheet up there.
I want to see if we have anyquestions.
(20:25):
I see a question that asks, dowe offer HELOC on investment
properties?
Yes, we do offer he locks oninvestment properties.
The LTV obviously is lower on aninvestment property than on a
primary.
We also offer he loans on aninvestment property.
Now, um, it's not as flexible inall of the income streams when
(20:48):
we're going, um, to the, uh,investment property.
On the HELOC, right?
Uh, that's HELOC.
It's pretty much going to befull dock only on those.
There are some out dock optionsthat are now coming out, but do
review the guidelines on thosebecause they're very
restrictive.
(21:10):
So do we have any questions on,uh, bank statement loan
structure?
The most popular non QMorigination, loan origination
type is bank statement.
I'll give it another minute.
See if we get any additionalquestions.
(21:38):
Looks like we are good then withthe questions on structuring
your bank statement loan.
Thank you for attending and Iwill see all of you tomorrow.