The Scoop on Tax Transcripts & 4506-T's - Required Prior to Closing by the Agencies?
It
seems that lenders have had a more difficult time obtaining tax
information from the IRS this year. I collected the tax-related updates
over the last 2-3 months so you can see how lenders reacted - as always
check with the actual lender or investor for specifics! And don't ask me to write to your CEO about removing overlays that certain lenders have that are different than the agencies!
Remember
that the IRS has blamed slow tax transcript turn times on budget cuts.
The IRS sent this notice out a while back - it seems their computers are
running slower since they are getting paid less? "As you may be aware,
the IRS is operating at the lowest level of funding since 2008, and the
lowest since 1998 when inflation is considered. All areas of the IRS are
affected by the difficult choices these budget cuts have forced us to
make. We recognize the importance of providing timely IVES (Income
Verification Express Service) to you and your customers. We will
continue to expedite IVES service and make every effort to handle your
requests as quickly as possible. However, you may experience a longer
turnaround time than in the past. Thank you in advance for working with
us as we work through this change."
Earlier this year Freddie Mac responded to inquiries in which a few instances of requests submitted through IRS Form 4506-T, Request for Transcript of Tax Return,
are being returned with a rejection code entitled "Limitations." The
IRS' reasons for rejecting requests with this particular code are to
combat identity fraud and prevent unauthorized access to taxpayer
information. IRS Form 4506-T anomalies may indicate red flags such as
the accuracy of a borrower's income and tax documentation and/or the
Social Security number used to qualify for a loan. Freddie is reminding lenders to treat these red flags as seriously as you would any other fraud red flag. Review the recently updated Single-Family mortgage fraud mitigation best practices document
to help you spot what to look for, how to report fraud or suspected
fraud to Freddie Mac, and what steps you can take to help prevent fraud.
I received this note: "Am I correct that the tax transcripts are not required by FNMA prior to closing?
If I am correct, this is an overlay that every investor has chosen to
require. We have pulled thousands and have only found one instance of
fraud - 12 years ago. In my opinion the industry needs to abandon this
phantom search for fraud and eliminate this stupid process. We have
reps and warrants in place for these issues. Underwriting should be
using this as a tool and not as a requirement on every loan. I have had
two borrowers that had to go to our local IRS office and stand in line
for 2 hours to obtain these meaningless forms. When will a major
investor wake up and see this as an opportunity to gain market share?
Let me underwrite my loans and if I feel the need for a 4506 I will
order it, and let's remember reps & warrants."
Checking with Fannie, it is correct that Fannie Mae does not require tax transcripts prior to closing. Anyone interested can look at the FAQs on its website, which are a good companion to the document cited. "Fannie
Mae requires that lenders obtain a completed and signed IRS Form 4506-T
from all borrowers during the underwriting process. The lender has the
discretion to determine at what point in the process it is obtained,
understanding that the form is only valid for 120 days from the date of
the borrower's completion/signature. Some lenders may submit the Form
4506-T to the IRS in order to document borrower income, but the intent
of this policy is to validate the income documentation provided by the
borrower and used in the underwriting process. Fannie Mae does not
require lenders to execute Form 4506-T with the IRS prior to closing,
but does require that it be included as part of the lender's post-closing quality control processes.
If the lender chooses to execute Form 4506-T with the IRS prior to
closing, the transcripts received must be used to validate the income
documentation used in the underwriting process."
Due to recent IRS Policy changes, third party requests for IRS transcripts may be blocked or rejected. As a result, NYCB
has developed several methods to approach these situations when
encountered. Additional conditions or requests for information or
documentation may apply.
Delays
in obtaining IRS Transcripts have prompted NYCB Mortgage to provide
temporary guidance to meet its underwriting requirement. This policy is
effective for all transactions immediately and until further notice.
Ordering the transcript requests using the Gemstone portal for all
transactions is required. Its vendor will process them as quickly as
possible. Client ordered IRS Transcripts will be accepted for
underwriting. However, Gemstone ordered transcripts will still be
required and NYCB will re-validate the income provided for underwriting
purposes upon receipt of the Gemstone ordered transcripts, even if
received post-funding or post-purchase.
Due to delays at the IRS, information from Flagstar
is posted on its Wholesale website. Flagstar will continue to post
updates with new information or resolution as it is received. Flagstar's
requirement this year regarding loans requiring tax returns and does
not close on or before April 15, 2015, 2014 tax returns or a valid
extension will be required in the file.
For all USDA Rural Housing loans that require transcripts, PennyMac
is aligning with USDA Rural Housing's Single Family Housing Origination
Update emailed June 18, 2015, regarding tax transcript rejections from
the IRS. Click here to read the full announcement.
PennyMac posted an announcement regarding Tax Transcript Requirement and Increase of IRS Rejection. Read all about it in PennyMac's IRS Transcript Announcement.
Envoy Mortgage
Correspondent Lending Division (CLD) has announced that full 1040 tax
transcripts will no longer be required for borrowers who only use W-2
income to qualify. For borrowers with qualifying income of exclusively
W-2 income, the most recent year's W-2 IRS transcript will be the only
requirement (a full 1040 tax transcript will not be required). The AUS
findings must substantiate the use of W-2 income only.
Peoples Bank
has revised its procedure regarding IRS rejection of some requests for
Tax Transcripts. When the Rejection Code is "10" or "Limitations", the
loan file must contain a copy of the Rejection Notice from the IRS. The
reason for rejection must read "10" or "Limitations". A rejection
notice that reads "no record found" or "data mismatch" is not
acceptable. Additional required documentation is as follows: Signed
4506-T for each tax year; bank statement or copy of check to evidence
that the tax payment had been made or the refund has been received for
each tax year and must match the amount on the 1040 3; if no payment or
refund is indicated on the 1040, provide a copy of the most recent two
years tax returns, stamped by the IRS; last two years tax returns,
earning trends must be stable or increasing with consistency. Some
Guests may be able to obtain the tax transcripts from the IRS by
mail. They will need to go through the IRS Identity Protection
Specialized Unit - 800-908-4490. Documentation that the transcripts were obtained from the IRS is required and the tax transcripts must match the tax returns.
According to Ditech Mortgage Corp.,
the IRS is rejecting tax transcripts requested by third parties for
reasons of possible identity theft or misuse of tax transcripts.
Messaging received from the IRS may state the following: "Due to
limitations, the IRS is unable to process this request. The IRS will
mail a notification to the borrower to explain the reason; please
contact your borrower." In these instances, the IRS will not issue the
tax transcripts directly to the lender. The borrower must obtain their
tax transcripts directly from the IRS and provide them to the lender.
The borrower will use the IRS "Get Transcript" application to obtain
their tax transcripts. However, the IRS "Get Transcript" application has
been shut down temporarily due to unauthorized access to tax payer
information through this application.
Turning
to rates, remember that the bond markets are closed tomorrow. And
Wednesday Treasuries gave back more ground as the economic data released
showed continued momentum in the U.S. economic recovery. Fixed income
securities have given back over 70% of Sunday night's flight-to-quality
rally in every maturity as investors continue to use rallies as selling
opportunities. Greece failed to make its 1.55 bln euro payment to the
IMF, and as the commentary noted the ADP Employment Change for June rose
to 237K from an upwardly-revised 203K in May. That was the best month
for job creation (according to this metrics) since December 2014. And
the ISM Manufacturing Index increased from May. Construction Spending
climbed 0.8% in May. Greece is slated to hold a referendum on Sunday to
decide whether or not the country should agree to the official
creditors' most recent demands.
But
that was yesterday. Today we've had a slew of employment data. The
Unemployment Rate fell to 5.3%, and Nonfarm Payrolls were +223k, with
back month revisions dropping 60k in jobs off the prior two months.
Hourly earnings were unchanged, and May was revised lower. Weekly
Initial Jobless Claims were +10k to 281k. As
an indication of the overall bond market we closed the 10-year at 2.42%
Wednesday and this morning, ahead of the 3-day bond market holiday and
after the employment data, we're at 2.40% and agency MBS prices are better by about .250-.375.
"Well,
another day went by yesterday and I didn't use Algebra 1A." And one
doesn't typically need algebra to look at a graph of rates for the last
35 years and see that the vast majority of people in the financial
services sector have never been in a rising rate environment. And that
includes Realtors. Speaking of real estate agents, how about this agent's video - a take-off on a Taylor Swift song? It's pretty darned good.
Jobs and Announcements
In job news, if you're an originator in the San Francisco area, General Mortgage Capital Corporation is looking for experienced loan officers
who have both BRE license and NMLS ID. "We have four offices:
Burlingame, Cupertino, Newark, and SF, our LO numbers have increased
100% in the last 12 months, and our 2015 production has already
surpassed all of 2014.
We have full time processors, in-house underwriting, doc drawing, and
funding to support our loan officers throughout the entire loan process.
What you need to do is bring in a completed application with all
documents and our processors will do the rest. We pride ourselves on
having a well-designed compliance system to meet all regulatory
requirements, and all tech support and office supplies are free to our
agents. Successful business needs a successful partner: please call
President Charles Zhao for confidential interview."
"Given
the economic crisis in Greece, rates have improved about 30bps and the
uncertainty there will keep 30yr rates at or below 4%. And with this,
production volume has been steady making the case for a strong
environment for Production and Company Acquisitions. Dr. Rick Roque
has been actively involved in several acquisitions of midsize and large
mortgage banks over the last 12 months in various regions
- California, the Mid West and the North East. 'Small production groups
doing $5-$10M per month and more - even up to $40-$50M per month
(ranging from $120M - $600M annually) are doing great today', says Dr.
Roque, 'but their future is very uncertain in a rising rate environment
with compliance costs increasing, poor underwriting execution/
fulfillment support, and the lack of control in their pricing - I can
help provide them with a much better option to help them grow with much
more control and support.'" If you are interested in a confidential discussion, contact Dr. Rick Roque, or 408.914.5895.
And
heading to Tulsa Town, congratulations are due Glenn Brunker. BOK
Financial (NASDAQ: BOKF), a $30 billion regional financial services
company based in Tulsa, Okla., has named Glenn to lead BOK Financial Mortgage.
Brunker most recently served in an executive leadership role in
mortgage banking at Fifth Third Bancorp, a $140 billion financial
services company headquartered in Cincinnati.