Cipher1 - Overview

Sound underwriting practice requires lenders to evaluate a self-employed/multiple- income borrower's cash flow to determine income stability. This is most often accomplished through the analysis of Federal Income Returns provided by the self-employed entrepreneur, a person who has 25% ownership or more of a business, partnership or corporation as well as persons deriving their income from multiple sources.

Over the years the lending community has vacillated in its application of this necessary practice by attempting to substitute credit or assets for income oversight. Analysis of personal and business income tax returns is time consuming, tedious and error prone due in part to the lack of trained personnel. Further, it is difficult, complicated, and expensive. Improper, incomplete or the absence of analysis have been key factors in reducing loan quality and have been a prime factor in substantial loan losses.

In today's lending environment, investors scrupulously validate and evaluate a borrower's income stream. This presents additional hurdles, especially when it comes to self-employed income analysis. The Cipher1 Income Analysis software provides the solution to analyzing a borrower's cash flow and income from all sources. Reports from personal and business tax returns are created on the individual borrower to provide easy analysis for originators, processors, underwriters, as well as quality assurance and management.

What makes Cipher1 unique? The Cipher1 tax analysis program is designed for easy input recognition. The input fields mimic Federal forms thereby allowing those unfamiliar with the intricacies of tax returns to quickly complete industry adjusted standard reports ready for underwriter review. The user is guided through the applicable returns and forms by an intuitive 'Tasks List' which generates only those income schedules necessary to complete a particular return. This process ensures completeness and our quality control feature, "Underwriter Review Requested," notes potential errors and makes helpful comments.

Most industry accepted 'add backs' such as depreciation, amortization, depletion, 'one time' losses are automatically added to cash flow.

Cipher1 allows the underwriter to make adjustments necessary to stabilize income separately from the Cipher Summary Report cash-flow report. The adjustments are reflected automatically to the FANNIE MAE form 1084 which Cipher1 completes, again, automatically.

The cost savings in improved accuracy and time saved provided by Cipher is enormous. The average time spent by an underwriter reviewing a self-employed borrower's tax returns can range from a couple of hours to a day or more. No matter the complexity of a return, Cipher can reduce the time to minutes and substantially improve accuracy. Further, a third party such as management or quality control reviewing the same set of tax returns will be able to verify the results in minutes because of Cipher's summary and associated reports.

The Mortgage Bankers Association's estimate for the cost of originating a loan is somewhere around $2611/loan. Most of that expense is associated with processing and underwriting. Many applications are unnecessarily rejected after much of that cost has been incurred because many of today's personnel do not have the training and experience to adequately analyze tax returns. Further, mistakes are made and applications can be unfairly rejected or improperly approved. Whether it be an upset client or a loan buyback, either way, unnecessary loss is the result.

When Freddie Mac's personnel completed their review of Cipher, they remarked that Cipher was as much a training tool as and analytical tool. Cipher's Copyrighted process keeps users focused and leads them through the return so that nothing is overlooked.

Cipher1 Reports - In its Cipher Summary Report, Cipher1 makes it possible to review cash-flow for three tax years side by side. All income or (loss) is found on the first page of the report. The Underwriter can immediately determine all sources of the borrower's income.

Cash-flow reports include Interest/Dividend (Schedule B), Sole Proprietorships (Schedule C), Capital Gain/Loss (Schedule D), Rents and Royalties (Schedule E), and Farm Income (Schedule F). A 2106 Unreimbursed Business Expense worksheet is also created when triggered.

Business worksheets include analysis of Partnership (1065) and S Corporation (1120S) and their respective Schedule K-1's. A separate 1120, corporate analysis worksheet is not automatically generated, however it is available from the TOOL BAR.

Additional worksheets include Misc. Income, Sales from Business Assets (4797) and Installment sales (6252).

All of the pertinent income associated with completing the Fannie Mae Form 1084 is derived from these schedules. Cipher1 automatically compiles and associates this income to accurately complete the 1084. AUTOMATICALLY!


Salient Facts:

  • Cipher1 has been tested and vetted by Fannie and Freddie.
  • 1999-2010 Cipher1 Copyright Registration.
  • Cipher1 is application based.
  • Present Markets include credit unions, community banks and mortgage bankers/brokers.


Future Enhancements:

  • Web based programming
  • Optical Recognition (OCR)
  • Validation Report between Cipher Reports and 4506-T


Other Services

Cipher Data Resources, Inc provides secure IRS Form 4506-T 'Request for Transcript' processing services for the lending industry with professional speed and accuracy. This service of providing arms length third party income verification can be a costly and cumbersome task for lenders due to the intricacies of dealing with the IRS and its constantly changing policies. Cipher has been providing this service since 1999.

Cipher Data's income from providing 4506-T services to mortgage companies and Bank from California to Maine is based on volume and ranges in price from $9.50 to $15.45 plus IRS Fees of $2.25 per tax year. The 4506-T business is serviced and managed on an outside consulting basis by Suzanne Mosher. Suzanne also consults for Questsoft of Laguna Hills CA a provider of HMDA services to over 1000 banks and mortgage companies.