Course 2 Borrower Mortgage Credit and Financial Statement Analysis

Question 1

What are the types of financial statements required from the borrower and principals?

Answer 1

Balance Sheet
Income Statement
Cash Flow Statement
Individual Personal Statements

Question 2

What does the balance sheet tell the underwriter?

Answer 2

A firm’s financial position (assets, liabilities, and stockholder’s equity

Question 3

What does the Income Statement tell the underwriter?

Answer 3

aka Profit and Loss Statement, reports income and expenses, net operating income or a loss and profitability over a period of time.

Question 4

What does the Cash Flow Statement tell the underwriter?

Answer 4

Reports how cash is generated and used; reflects a firm’s liquidity

Question 5

What does a Individual Personal Statement tell the underwriter?

Answer 5

Reports personally held assets and liabilities (debts), sources of personal income and expenses; reflects an individual’s net worth and net cash.

Question 6

What does the balance sheet contain?

Answer 6

Consists of Assets and Liabilities, current and non-current and owners or stockholder’s equity or net worth

Question 7

What is the Net Worth Calculation?

Answer 7

Net Worth = Owner’s Equity = Total Assets - Total Liabilities

Question 8

What is the purpose of the REO schedule?

Answer 8

The REO schedule helps determine if the principals have any distressed real estate that could materially impact their financial position. The schedule does not include vacation homes unless the home is rented out nor does the schedule include personal residences.