Are there lenders that do not require a signed 4506-T? 

Looking to refinance a Fannie-owned conforming loan.  LTV < 80% and 800+ FICO.  Can document and qualify on W2 income alone.  Have additional income and assets but prefer not to disclose.  Hence, do not wish to disclose transcript of tax returns.  This is a privacy issue, not an income qualification issue. 

Assuming Fannie does not require a 4506-T, are there lenders that also will not require it?   

If not, what are the alternatives for borrowers who can easily qualify for a loan, but wish to retain some measure of financial privacy.  Besides paying off the existing mortgage with cash, of course.  :-)   Any suggestions? 

Thanks.  Very helpful board.  You guys/girls do a great job. 

You may have a lender or account executive say a 4506 is not required however in the 11th hour or at closing the 4506 signature is required.

Why is the client aprehensive on signing the 4506T?  The form is used to verify if the lender chooses to make sure the tax returns furnished to the lender are the same as the returns filed with the IRS.

You may get a portfolio lender or small bank to waive this requirement however the rate and program may not be as competitive.

Every lender will require you to fill out a 4506-T as far as I know so there's really no alternatives.

As Dana said, the lender may tell you that they won't be using the form, but they may still end up doing it before the loan is closed.  As far as I know there aren't any alternatives to getting qualified for the loan scenario you've described without signing that form.

Not sure why they would be wary to disclose the tax returns to a bank if they had already disclosed them to the IRS.  The underwriter who is working on the file will be the only one reviewing the documentation on the loan and than once the loan is closed it goes into their closed files and the only thing the bank will be worried about from then on is receiving your payment. 

Tell the borrower to stop being so paranoid and just sign the form.  If for some reason the borrower had income that was not disclosed to the IRS than there is no danger of something coming up as a result of pulling the tax returns again. 

Thanks for the responses

Bain said: “Why is the client aprehensive on signing the 4506T?  The form is used to verify if the lender chooses to make sure the tax returns furnished to the lender are the same as the returns filed with the IRS.”

The lenders contacted do not require tax returns for the loan app.   The 4506-T authorizes release of a variety of information depending on box checked.   Tax returns, transcript of tax return, verification of nonfiling, W2, 1099, etc..  If lender wanted to compare W2 provided to lender with W2 provided to IRS, that’s one thing.  Lenders seem to want the transcript for the tax return.  The 4506-T, if executed, would provide the lender and whomever else is authorized to review the file (servicer, assignees, note purchasers) to obtain tax return transcripts.  Again, it’s a privacy issue. 

“You may get a portfolio lender or small bank to waive this requirement however the rate and program may not be as competitive.”

Thanks. 

Westy said:

“Not sure why they would be wary to disclose the tax returns to a bank if they had already disclosed them to the IRS.   The underwriter who is working on the file will be the only one reviewing the documentation on the loan and than once the loan is closed it goes into their closed files and the only thing the bank will be worried about from then on is receiving your payment. 

Again it’s a privacy issue.  Tax returns are required by law.  Providing tax returns to a bank is not.  The IRS has substantial penalties for unauthorized disclosure of tax returns.  An agent may be fired simply for unauthorized viewing of a tax return.  Can’t say the same for a lender, servicer, assignee, or note purchaser.  Also, the underwriter is not the only person authorized to review the documentation.  As a practical matter you might be right.  But it depends on whether the note and servicing rights are sold.  If you know a lender that will agree in writing to not assign the note or servicing rights let me know.   

 “Tell the borrower to stop being so paranoid and just sign the form.  If for some reason the borrower had income that was not disclosed to the IRS than there is no danger of something coming up as a result of pulling the tax returns again. 

The borrower discloses all required income and pays enough taxes, thank you. :-)  Again, it’s a privacy issue.  People draw their own lines.

the 4506 does not pull the whole tax return but it will show if there are write offs and then they will ask for the full tax return. Are you sure he even filed his taxes. this should be no big deal to him. They are checking taxes on the majority of files now. Call his bluff!!!!!!!!

Your only option would be a local bank or credit union that may not require the documentation or the 4506/ 4506T.  One thing to realize is that the 4506T only authorizes a transcript, not the actual return.  It retains most of te privacy issues raised.  Also, there are many safeguards to your privacy and you could certainly research the banking laws to see what is required of professionals in this industry in that regard.

Having worked in this industry for a long time, I can tell you that there are few people that would even raise an eyebrow to anything they would even see on the tax returns.  We are concerned with the income qualifications, plain and simple.  The reason that they may want to see the transcripts is to ensure that the W-2 income is not offset by other losses.

While there is no law requiring the disclosure of tax returns; there is no law against requiring it as part of the qualification process.  Unfortunately, if you want or need the money, you have to play by the rules of the institution that is lending it to you.

Privacy concern???  I suppose providing social, date of birth, paystubs, W-2's, etc...is not a privacy concern???

Fannie and Freddie require the 4506-T...if you/they don't want to sign it, then you don't have to get a loan...go to a private lender charging 8,9,10%...

Even if you find a lender that doesn't require it for closing, it's probably going to be in your loan package at closing and will be a prior to funding condition if not signed.  Even in the sub-prime and non-conforming days 4506T's were required to be signed.  Lenders never pulled them, but they are ALWAYS going to be there for investors to pull if they want to double check or smell fraud on the file.

BTW, this file smells of fraud anyway.  What's the deal with pulling a 4506T anyway.  It's just a verification to make sure things match.  If you are a W-2 employee, then the lender is just going to make sure what you're giving the lender matches what the IRS has on file.  One of three things will happen when you pull the 4506T...

1. The IRS W-2 won't match what the borrower sent you, ie. fraud.

2. He hasn't filed his taxes and thinks he's going to pull one over on the lender.

3. Everything matches and he can get himself a loan.

Thanks for your perspective, Kent.  

Kent said:

“One thing to realize is that the 4506T only authorizes a transcript, not the actual return.  It retains most of te privacy issues raised.”

Yes, the transcript is less revealing, but only slightly.  The transcript will not include supporting documentation and backup (e.g., list of all sales on Sch. D).  The figures for each line on the 1040 and each line of all accompanying schedules are included in the transcript, though. 

“The reason that they may want to see the transcripts is to ensure that the W-2 income is not offset by other losses.”

Good point on potential offsetting losses (Sch. C, Sch. D, partnership, etc.).  I didn’t think of that. 

Kent, akaagassi said: “Fannie and Freddie require the 4506-T...”

My understanding is that Fannie does not require a signed 4506-T for all loans.  Maybe I’m mistaken.  Kent (or anyone else), can you verify that Fannie requires a 4506-T for the type of loan I described?  How about DU Refi Plus?  My question also assumed that Fannie did not require it.   If Fannie does require it, then, as Kent noted, the options are more limited. 

Akaagassi said:

“Privacy concern???  I suppose providing social, date of birth, paystubs, W-2's, etc...is not a privacy concern???”

Of course they are.  The point of the question, though, was a desire to reduce the amount of financial information disclosed, if possible.  C’mon, just because some financial information is required does not make other financial information any less private.  When you go to the dentist for the first time for a filling and dutifully complete the medical condition checklist I’m sure you disclose on the “other medical conditions” line your scorching case of genital herpes, right?  :-) 

Seriously, there are people who prefer to keep private as much of their financial information as possible.  Let’s say you have 250K in total income.  Suppose you have 150K in W2 income and need 100K to qualify for the loan.  Some people prefer to put 150K on the loan app and leave it at that.  This is truthful, correct, and perfectly legal.  Your income is 150K.  Your income is also more than 150K.   It’s a nice position to be in.  I suspect many borrowers are not.  Do people actually calculate the present value of an accrued pension or itemize their assets in the “other assets” column on the loan doc.  “Honey, how much is that cookie jar Aunt Jean gave us as wedding gift?”  “I don’t know, dear, it may be a collectible.  I’ll check eBay.”  :-).  And, there are also privacy considerations of others.  Say one spouse can qualify on his/her income alone.  Pulling the tax transcript reveals the spouse’s information on a joint tax return. 

“if you/they don't want to sign it, then you don't have to get a loan...go to a private lender charging 8,9,10%...

The question was a serious one.  I’m aware of the consequences.  

Supreme 882 said:

“if you find a lender that doesn't require it for closing, it's probably going to be in your loan package at closing and will be a prior to funding condition if not signed.  Even in the sub-prime and non-conforming days 4506T's were required to be signed.  Lenders never pulled them, but they are ALWAYS going to be there for investors to pull if they want to double check or smell fraud on the file.”

The lender on my purchase loan did not require a 4506-T.  That was 3 years ago.  Lenders have since tightened requirements.  I know lenders now require 4506-Ts.  That’s why I asked are there any lenders that do not.  I’m operating under the assumption that if a lender tells me a 4506-T is not required, I can rely on that representation. 

BTW, this file smells of fraud anyway.  What's the deal with pulling a 4506T anyway.  It's just a verification to make sure things match.  If you are a W-2 employee, then the lender is just going to make sure what you're giving the lender matches what the IRS has on file.  One of three things will happen when you pull the 4506T...

1. The IRS W-2 won't match what the borrower sent you, ie. fraud.

2. He hasn't filed his taxes and thinks he's going to pull one over on the lender.

3. Everything matches and he can get himself a loan

Trust me, it’s not fraud.  Even if you don’t trust me, assume for the sake of argument that it’s not fraud for your responses.  I understand your (and others’) suspicions and they’re probably not unwarranted given the nonsense that has gone these past few years in housing.  But take the facts as given; do not change the assumed facts for your responses.   

 What a HOT topic! Paul, I have come across this situation many times in the past since I work for a lender that makes me get a 4506-T when I send out the disclosures. By my understanding, Fannie and Freddie do not require a 4506 for underwriting purposes. It is at the lenders discretion to have this as a part of the lending process. Some of them will have you sign at closing, very few will not ask for them at all these days.

 I understand your concern about your privacy; I am very much the same way with my personal finances. But in this case, it seems that you are stuck between a rock and a hard place. It's either; get a good deal and sign the 4506 or take a higher rate with a portfolio lender for the sake of privacy. Every loan is now full-documentation and for these lenders to cover their butt during these financial times; does it make sense to have every loan they fund to be available to be sold or transferred to another company? Right now, I think so for many reasons and I'm sure you can deduct many of those reasons without anyone spelling it out to you.

 You seem to know what you are going. So, with all these posts, it looks like you were asking two things: Are 4506-T's required by Fannie/Freddie? No, but most likely required by the lender. Do I know of anyone that will not require the 4506 and put it in writing? No, not a single one. Maybe someone else here does??

Sorry about the fraud thing.  Just tring to point out reasons why people get worried about those 4506T's.  I had a self-employed guy who had not filed taxes in three years come back with no transcripts, what a surprise.

Anyway, I think you can probably see from what people have posted that options are limited at best without a 4506T.  FYI - my company is a lender, we pull a 4506T on every borrower.  I asked my processor and underwriter on this just to double check...For borrower's with a W-2, the request is not going to come back as a transcript of your tax returns.  The 4506T in that case is used to verify the amount on the W-2 and that they have been submitted to the IRS.  Basically, just making sure we've got the right guy, gross amount and employer.  You won't have to worry about any of the information on your personal tax returns coming into play with the lender, they won't receive any of that information, as long as you are just using W-2's to qualify income.  Only if you used your tax returns to qualify the loan would any lender request a transcript of your returns.  Since privacy was the issue, I hope that helps a little, your tax returns will remain private.

Thanks for the responses Troy and Scott.

Troy said:

So, with all these posts, it looks like you were asking two things: Are 4506-T's required by Fannie/Freddie? No, but most likely required by the lender. Do I know of anyone that will not require the 4506 and put it in writing? No, not a single one. Maybe someone else here does??

1) Thanks.  That's my understanding.  Lender discretion on the 4506-T.  Fannie has some loan types where it requires a 4506-T, but not mine.   

2) It doesn't have to be formally in writing.  I'm just looking for a lender that says it will not require a 4506-T and follow through.  On my purchase loan,  the 4506-T was in the docs at closing.  A phone call to the mortgage banker and it was tossed.  I assumed it was just an oversight.  

Scott said:

Anyway, I think you can probably see from what people have posted that options are limited at best without a 4506T.  FYI - my company is a lender, we pull a 4506T on every borrower.  I asked my processor and underwriter on this just to double check...For borrower's with a W-2, the request is not going to come back as a transcript of your tax returns.  The 4506T in that case is used to verify the amount on the W-2 and that they have been submitted to the IRS.  Basically, just making sure we've got the right guy, gross amount and employer.  You won't have to worry about any of the information on your personal tax returns coming into play with the lender, they won't receive any of that information, as long as you are just using W-2's to qualify income.  Only if you used your tax returns to qualify the loan would any lender request a transcript of your returns.  Since privacy was the issue, I hope that helps a little, your tax returns will remain private.

That's interesting.  So, your company will require only that box 8 is checked on the 4506-T for borrowers with a W2?  You can go to the IRS website and pull up form 4506-T to see what I mean.  I have found lenders require box 6(a) at a minimum.   I had asked a rep at Chase if its 4506-T request could be limited to the W2 (box 8), but Chase wanted the transcript.  Chase didn't require my tax returns up front, but executing the 4506-T for the transcripts effectively accomplishes the same result.  So, even though my returns would not be used to qualify, Chase wants the right to pull them.  In recent discussions with lenders this was the typical response.  If your company's process is as you describe, would you mind sharing publicly or privately which lender?  It seems a reasonable compromise.

I've been following this conversation and it has been interesting to say the least. Since I just returned from 3 straight 12 hour days to complete my continuing education I can add the following.

Because of 1st payment defaults and defaults in general, the government now requires by law as part of a provision for the SAFE ACT that a bank, lender, loan officer etc. confirms to the best of their ability that a borrower can repay the mortgage. This includes verifying income thru w2's, pay stubs, tax returns. The 4506T comes into play because for a few reasons. First, it is used to verify that the income documentation is true, accurate, and not fraudulent. Secondly, it is included in every file for every securitized mortgage even if the lender doesn't pull it so that in the event their is a 1st payment default, the lender/servicer can require the company and/or the originator to buyback the mortgage. Finally, the 4506T is required so that during an auditing process if the file is pulled and flagged for predatory factors i.e high costs, high rate, high rate adjustments, the 4506T can be pulled and used in conjunction to support the claim of the loan being predatory.

Finally, we require and pull a 4506T on every file for those reason as well. If we only use W2's to support income than we only request w2's for the prior 2 years from the IRS. If we use tax returns to verify income than we only request 1040's from the past 2 years.

With all that being said, while Fannie and Freddie don't explicitly require a 4506T the risk to the lender and originator is far to great these days for the 4506T not to be pulled and included in the file. The only lenders that I have had experience with not requiring a 4506T are hard money lenders and portfolio lenders charging 8%+ interest rates.

Paul Smith:

Can document and qualify on W2 income alone.

my guess is that the issue you are trying to avoid is showing some other source of income that you would rather not be required to show...such as rental losses, biz losses, farm income (oh that's right, then the u/w will think they're lending on a FARM)

If you are an owner, pass on the deal, an omission of a material fact is FRAUD, plain and simple, and you are probably knee-deep in it already.  If you are an LO, do your boss a favor and start working on your next deal, because if you do omit material information, your lender relationship gets cancelled, there is now a MARI report out on you and your firm, and you just got fired.

as for the sake of argument, that this is not fraud, it would sure be hard to prove you didn't hide anything if your client stubs his toe and doesn't make a payment on the mortgage. 

Put the income on the 1003 and mark it "not used to qualify".  

Paul Smith:

Kent, akaagassi said: “Fannie and Freddie require the 4506-T...”

My understanding is that Fannie does not require a signed 4506-T for all loans.  Maybe I’m mistaken.  Kent (or anyone else), can you verify that Fannie requires a 4506-T for the type of loan I described?  How about DU Refi Plus?  My question also assumed that Fannie did not require it.   If Fannie does require it, then, as Kent noted, the options are more limited. 

Sorry, I hadn't noticed the question until now.  I am not sure that Fannie and Freddie require it specifically, but I don't know of a lender offering their products that doesn't require it; so it really doesn't matter if it is a GSE requirement or not.  The lenders won't alter their requirements and are allowed to have stricter requirements than the GSEs.

Paul, I have submitted and have been approved for the loan with rate locked.  My approval is based on my w2 and bussiness income from SCorp.  4506t was one of the first forms signed and submitted.  My business tax returns were mailed about 18 days ago to IRS but my personal taxes were electronically filed and we had extensions so everything was done by the book.  The issue is that the broker is now telling me that all the lenders are requiring that the 4506t be pulled and they did last week but since the returns were mailed 18 days ago IRS confirmed the personal returns but was not able to confirm the business returns.  I am also working with a bank directly and they are telling me that 4506t has to be signed but it doesn't have to be pulled unless the loan is audited and even then it is an after math and will not happen before the closing and thus should not delay the closing.  Since the purchase is a bank property if I don't close in time there are heavy panelties associated. 

So now with all that can someone tell me the truth, are all lenders required to pull 4506t prior to closing? or is it just the broker scenario?  Any help will be greatly appreciated. 

Ahmed Rasool:

So now with all that can someone tell me the truth, are all lenders required to pull 4506t prior to closing?

So a good handful or so professionals have chimed in and all are saying that the lender requires the 4506-T, yet you don't believe any of them???  I'm not so sure that anyone can help you if you don't believe any of the professionals on this forum.

Brian, please don't get me wrong.  I am not questioning anyone on this board.  I understand from all the posting on this forum is that lenders will require 4506t signed but are they required to pull this and are they required to pull this before closing.

The answers to your questions are yes, and yes. The term "required" can be debatable but the liability for them not to is far to great in todays lending world. See my previous post for a more detailed explination.

so, arasool, you are Paul's client in question?  In that case all you need to do is prove that you "filed"  Your CPA can give you proof of E-Filing, you can show the cancelled check if you paid IRS anything.  I've used both of those methods to verify that 2008 was indeed filed.  If you are just concerned about the timing there are ways around that.  But starting from scratch and looking for new lenders that don't require a 4506T? That is a wild goose chase.