Many lenders in recent years have offered “stated income” and other limited-documentation mortgages aimed especially at self-employed applicants.

Dubbed “liar loans” by industry critics, stated-income mortgage programs allow applicants to bypass standard underwriting requirements for W-2s or copies of personal and corporate income tax records.

The 4506-T form authorizes the lender or the investor providing the money for the mortgage to obtain transcripts from the IRS summarizing income and tax data for as many as four years.

Until now, the process of faxing in 4506-T requests to the IRS and obtaining transcripts has been paper-driven and non-electronic.

But now, with the IRS promising to provide electronic transcript tax data within one to two business days in an electronic format, more lenders are likely to run income checks before closing — even on loans to applicants who are not self-employed or using stated-income programs.

Typically lenders want to see two years of returns, so the IRS policy change means costs will jump by $9 per loan application.

Though lenders will be able to deal directly online with the IRS, most are expected to continue working through third-party vendors such as Veri-tax, who can handle large volumes of requests per month, but at a higher cost.

For example, some large wholesale lenders have required borrowers to sign the forms, but not date them or indicate the tax years to be checked.

With income checks likely to be faster and more frequent in the new electronic format, it will be more important than ever for home mortgage applicants to follow the IRS instructions on Form 4506 to a “T.”

Even if the loan officer insists that it’s the mortgage company’s standard procedure — or worse, a precondition for obtaining the loan itself — never sign an incomplete 4506-T. (Read More)

Source: Washington Post

Tags: Mortgage Tips