Taxes Interpreted Easier

Written By: Glenn Michaels, Op-Ed Writer

Last week I received a file to underwrite where the borrower’s tax return indicated that he earned more than 1.6 million in income. 

The Mortgage Loan Officer and the mortgage loan processor calculated the ratios based on the same income. The ratios were 2% over 4% and it was a slam dunk far as they were concerned.

Both the Mortgage Loan Officer and Mortgage Loan Processor did not utilize Fannie Mae’s form numbered 1084 to determine the borrower’s income. 

The Loan Prospector (LP) findings only required one year of tax returns and we had the 2014 taxes since the 2015 taxes are on extension. 

Using the 1084 form, the borrower’s income contained a 1.5 million Capital Gain. The income now calculates to negative income due to the large Capital Gain since this income is not recurring in nature. 

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As an underwriter that tries to make deals, I requested another year of tax returns, either 2013 or 2015 and if either year has significant Capital Gain I will average the two years and use the income. If the second year of tax returns do not have Capital Gains the loan file will not be approved.

I must add the borrower invests in numerous real estate , all either through a partnership or by a Limited Liability Cororation with a few Schedule C as well. The borrower has five different Schedule C  Schedules and the same schedule E calculations along with seventeen partnerships and LLP. The tax return for one year was about a 15 inches thick and would normally be challenge to calculate the income.

If you have a borrower with an involved tax return, do not panic. Use the FNMA 1084 to calculate the income when reviewing an involved or complicated tax return.  The 1083 form was changed recently to reflect the changes in the tax code.

Some of the loan operating systems have the 1084 in their system. If you can point and shoot with the mouse the line in the form actually tells you what line on the borrower’s tax form to obtain the numbers to determine the income.

If your loan operating system contains the 1084 form then it should not matter how complicated the borrower’s tax returns are. The form is two pages long if you calculate using a manual calculation of the income or if is done using the loan operating system.

If my loan officer and/or mortgage loan processor had utilized the 1084 form I would not have received the loan file as it would have clearly indicated that another year of tax returns were necessary to determine the borrower’s income.  In addition although LP only requested one year of taxes, in this case two years are necessary.

About The Author

Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter ( As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.