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FNMA template income calculation is blank (failing liquidity; K-1 excluded)

When using the Fannie Mae workbook, it will test for liquidity. The LoanBeam software checks for Liquidity by reviewing Schedule L from Business tax returns. If LoanBeam cannot test Assets vs. Liabilities, the K-1 income is excluded. There are three reasons for failing the liquidity test:

1. The Schedule L was blank 

2. The Schedule L was not provided.

3. The Schedule l was provided, and it shows the borrower's ratio is below <1 (meaning the borrowers have more significant liabilities than assets)

NOTE: Income is STILL calculated, even if the borrower fails liquidity.  Please click on the S CORP tab and scroll down to line# 21 to review the income that has already been calculated.

If you want to include the K-1 income and have verified that it is usable (via your internal guidelines), you can override the system.  

- To override the system and include the K1 income, click on the blue cell next to Basis for Annual Income and select the drop-down that says K-1,2,3 to use the K-1 income.

How to calculate Liquidity:

Current Ratio (assets)

Current Assets (this is the sum of lines 1, 2 & 3 on Schedule L of the 1065 or 1120S divided by Current Liabilities (this is the sum of lines 16, 17 & 18 on Schedule L of the 1065 or 1120S)

The acceptable ratio is 1:1 or higher.

1. Cash (Line 1d)
2. Accounts Receivables (Line 2b -(d))
3. Inventories (Line 3 -(d))
4. U.S Gov't Securities (Line 4)
5. Tax-exempt securities (Line 5)
6. Other Current Assets (Line 6d) 

Quick Ratio (Liabilities)

Quick Assets (sum of lines 1 and 2) divided by Current Liabilities (sum of lines 16, 17, and 18).

The acceptable ratio is 1:1 or higher.

16. Accounts payable
17. Mortgage, notes, and bonds payable in less than one year
18 Other current liabilities

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  • 11-Apr-2024