thank you so much that is very helpful.

Curt, NO I am not Paul's client.  I found this forum by doing a Google search for the 4506t requirement.  Since I was getting two different responses from two different people I wanted to search it myself and be prepared.  In any case it is truly the timing issue.  I have no problem with the lender pulling the 4506t.  In fact they already did the issue is they did not get the business returns cleared because IRS is taking longer since it was not filed electronically.  And I don't know how long it will take for IRS to process.  The lender received the copies from my accountant and since I have been in business for the past few years and have been using the same accountant getting a letter from the accountant that should not be a problem.  But the lender/broker is not asking for that instead they are saying we have to wait till the verification comes through.  This may take 7 days or 15 days.  I it takes 7 days I am ok but if it were to take 15 days, I am going to lose my locked rate plus I will be paying penalties to the selling bank for delaying the closing which may account in few thousand dollars.  I just wanted to do my checks and balances and be prepared to make the decision.

arasool:

IRS is taking longer since it was not filed electronically

wow, did they use a typewriter too?  My business taxes are E-filed, and so far I have not had a self employed customer that uses a CPA that did NOT E-file, that is a surprise.    A letter may help.  If you actually owed taxes, paid it, and have a cancelled check to prove it, you should be golden and the lender will probably waive the requirement for now.  They'll still pull it I'm sure, just not make it a prior to closing.  God help you if the 4506T does not show the same info - I'm sure it will though.  Actually had a client where it didn't once.  Went back to the CPA, they had done 2 returns, filed the wrong one - it was a difference of $189 bucks in writeoffs, but holy cow, the underwriter had a field day with that one!

Curt, thank you so much for your assistance.

My understading is that if you can get the stamp from the IRS that you have filed, that should be good since the 4506 said your taxes have not been filed. Ask your CPA about that.

FYI: 4506-T is now a FannieMae Requirement on all loans.

I just received a FannieMae Announcement from one of my wholesale lenders.  The Announcement 09-19 Dated June 08, 2009 states that FannieMae is now changing the policy to obtain a completed and signed Form 4506-T from all borrowers at both application and closing.  Furthermore, FannieMae is requiring lenders to add the execution of Form 4506-T with the IRS to their written quality control plan. 

Thanks for that info, Kim. Looks like that new guideline starts 9/1/09.

Kim Livingston:

FYI: 4506-T is now a FannieMae Requirement on all loans.

I just received a FannieMae Announcement from one of my wholesale lenders.  The Announcement 09-19 Dated June 08, 2009 states that FannieMae is now changing the policy to obtain a completed and signed Form 4506-T from all borrowers at both application and closing.  Furthermore, FannieMae is requiring lenders to add the execution of Form 4506-T with the IRS to their written quality control plan. 

oh, the irony

What about when you are trying to do a loan modification?  They usually make you sign a 4506, don't they?  Are there any Schedules (A,B,C,D) that are  included in the 4506 T?  What would they be looking for besides your income on the 4506?

Thanks everybody.  To close the loop:

Thanks Mike King.  That’s the type of informed response I was looking for.  Appreciate it. 

Curt said:

“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)

You’re guess is partly correct.  I am trying to avoid disclosing income that is in excess of the income necessary to qualify for the loan.  But I told you that, so there’s really no need to guess.  I told you specifically that I had more income than is necessary to qualify for the loan.  “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.”   

Everything after the ellipses is an incorrect guess.  By “additional income,” I meant, um, additional income.  Not losses.  I gave the following example: “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.”  I’ll be even clearer.  It’s additional W2 income as well as additional other income.  C’mon, don’t many people here earn more income than necessary to qualify for a loan?  Why is this so hard to believe?  BTW, one can have farm income without living on a farm.  Ask Scottie Pippen. : - )

Curt said:

“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.”

What is there to hide?  If a borrower’s income is less than the amount listed on the loan app. (i.e., here, the W2 amount), then the borrower committed fraud.  In the suit for failure to pay on the note, the tax returns would be subpoenad, no?  And, if it’s not fraud—as I’ve told you to assume—then the tax returns will set you free.  : - )  BTW, you don’t have to prove you didn’t hide anything.  Someone else has to prove that you did.  Just sayin’ y’all.

Thanks for the info Kim.  

Now, let’s get the 30 year back under 5.   

Regarding this post

Curt said:

“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)

Farm income can really cause a hang up (positive or negative income) Happened to me on a deal. Farm income showed up after 4506 was returned. Then had to show returns and then prove that the property was not income producting, what percentage of property was used as a farm, etc. Lenders are more cautious than ever.

Positive rental income will cause underwriters to question if additional real estate was disclosed and what kind of potential loses would be there.

Times have changed and if people expect a bank to lend them $100's of thousands to them that they need to be open regarding their finances.

If an investor is looking at investing in a business they want to know everything regarding the business and how solid the company is. I would not invest money in a business if when asking the business information regarding their profits etc they told me they want to keep it private for personal reasons.

Eric Suit:

Times have changed and if people expect a bank to lend them $100's of thousands to them that they need to be open regarding their finances.

Couldn't have said it better myself.  That was my point.

Eric said:

"Times have changed and if people expect a bank to lend them $100's of thousands to them that they need to be open regarding their finances."

The question of course is how open.  Do you (or anyone) disagree with the premise that if a lender is willing to qualify someone based on 100K of W2 income alone (again debts are disclosed on the loan app.) than an additional 50Kof income that is not part of that underwriting decision should be disclosed?  Even if that income is a spouse whose income is not used to qualify for the loan and would not be on the note?  If so, why?  I’m looking for more than just that the lender would like as much information as possible.  The underwriter evaluates the borrower at a point in time. The lender made the decision based on a certain amount of income at that point in time.  Things can change afterwards, correct?  Are you suggesting that a homeowner should be required to re-qualify each year for his or her “investment.”  Yeah, good luck with that.  There are covenants the default of which allows the lender to accelerate the note, but they’re not tied to income. 

The lender will get a security interest (first in line!) in the property (that has been appraised at or more than the loan amount) and a personal guarantee on the note.  As we both know, most (if not the vast majority) of SFH conforming loans are sold to (or guaranteed by) the GSEs and securitized.  Unless I’m mistaken, after a certain period of time the loan sold to a GSE is non-recourse to the lender, right?  I mean, are you suggesting that lenders should be guaranteeing the future income stream of the borrowers to the GSEs?

“Positive rental income will cause underwriters to question if additional real estate was disclosed and what kind of potential loses would be there.”

Why?  If the rental income is not used to qualify why does it matter?  I mean do lenders zero out listed assets cash (cash, securities, the equity value in the home, etc.) in the underwriting decision?  The potential loss there is everything, right?  I mean is there some greater risk probability of loss on rental income than cash or securities?  I’m not following. 

“If an investor is looking at investing in a business they want to know everything regarding the business and how solid the company is. I would not invest money in a business if when asking the business information regarding their profits etc they told me they want to keep it private for personal reasons.”

 Your analogy to investing in a business is inapt.  A SFH is not a business.  In deciding whether to invest in any business you are ultimately trying to determine the present value of the future cash flows of the business.  If there are cash flows generated by my house, let me know where to find them.  Profits schmofits.  I’ve looked around, but all I see is a money pit. : - )  If, by business, you mean “me,” then I’ve already told you that I qualify for the loan on W2 income alone.  Are you saying that the lender is being duplicitous when it says that the 4506-T is used to verify the income on the loan app?  Are you saying that the lender is really looking to determine if there is additional income?  For what purpose?  To somehow make it feel warm and snuggly on the approval that it’s willing to make based on less income?

If you want a business analogy, the analogy would be this:  I start a business.  The business is home appreciation.  (Boy, has it been a loser so far!).  I capitalize that business with my house.  I’m willing to grant the lender a secured interest in that house in exchange for a loan to pay off the lender that provided the seed money to buy the house.  In addition, since the business’ only asset—the house—is not throwing off cash flow (recall, we’re in the business of capital appreciation not income) I tell (well, actually, swear under the penalty of law) the lender that I’ll devote sufficient additional capital to the business to ensure that the monthly P&I on its note are paid until retired.  I tell the lender that I have 100K of income that I generate from another business, Paul’s Pool Cleaning Service.  The lender kicks the tires on that business, reviews my P&L, looks at the balance sheet, checks the BBB website, and agrees that 100K is more than sufficient for a person of my good financial standing to service the loan.  At closing, we exchange niceties and leave as follows: I’ve got a new note and gave up a security interest in the business and the new lender has a note coupled with the security interest. 

On your theory, the lender should be able to demand to see the financials of a separate business I run—Paul’s Big Return Asset Management Company, Inc.  Doubtful.  When you talk about investing in a business, I’ll assume it’s a private company.  We can agree that public companies are subject to different disclosure rules because they are public companies.  I am not a public company.  Now, when you seek to invest in a private company you get (if the company accommodates you) to look at that company’s financials.  That’s it.  As much as you’d like (me too, for that matter), you don’t get to see the financials of the companies that do business with Paul’s Pool Service et al., namely the source of Paul’s revenues.  Even assume a separate company guaranteed Paul’s Pool Cleaning Service’s debt.  Here, too, you don’t get to see the financials of the second company (unless it’s willing to accommodate you) to determine its financial wherewithal and put a value on that guarantee.  You make a decision to invest based on the first company’s financials.  Do you have a different understanding?

What’s more, before you get a peek at the books of a private company you’ll have to sign a confidentially agreement.  Right?  So, if you know a lender that’ll sign a confidentiality agreement with stiff penalties for unauthorized disclosure of my tax returns, let me know.  I have one already prepared.  I’ll bring it along with my tax returns.  : - ).  

OK, if you’ve read this far here’s one for you independent mortgage brokers.  Why isn’t a mortgage broker that’s affiliated with a federally-chartered lender required to disclose YSP.  Better lobbyists?

I understand a lot of your arguments, but it seems like you're enjoying debating why this rule should be changed.  Yes, there are a lot of rules for home financing that i don't agree with and that i think are over the top and unnecessary.  But the matter of fact is that you need to disclose all your income, even if you qualify with less.  Find a way to help your borrower sure, but you're not going to change the rules on this forum.  It's not a person's natural born right to own a home, if they want to have someone lend them the money then they have to play by the rules, just like everybody else. 

Geesh, let's end this thread already!

Paul Smith:

Eric said:

 

"Times have changed and if people expect a bank to lend them $100's of thousands to them that they need to be open regarding their finances."

 

The question of course is how open. 

the answer all depends on what loan product you expect to qualify for.... the better the rate/term the more transparent you are expected to be.  It's very plain and simple:  increased risk = increased rate.  You can't have your cake and eat it too!!    If you don't want to disclose everything, go to your local bank or hard money lender...or use your own funds.   

if you want in the game, play by the rules.

Paul, the world and the lenders are not out to get you or turn you into the IRS.  Disclose the tax returns, do your refi, and move on.  We know you're talking about yourself.

problem is that even if your lender goes to the local IRS office with your consent/authoriztion form, IRS will tell them they have no record, as IRS is backed up approx 4-6 weeks.  I know as I had a file submitted and the lender came back and said the 4506T did not show 09 taxes filed (clients tax check was cashed 4/9/09) ultimately underwriting signed off on the file with a copy of the cancelled check....especially as the only income was w-2.

Louis

Scott said:

“I understand a lot of your arguments, but it seems like you're enjoying debating why this rule should be changed.  Yes, there are a lot of rules for home financing that i don't agree with and that i think are over the top and unnecessary.  But the matter of fact is that you need to disclose all your income, even if you qualify with less.  Find a way to help your borrower sure, but you're not going to change the rules on this forum.  It's not a person's natural born right to own a home, if they want to have someone lend them the money then they have to play by the rules, just like everybody else.”

There’s not one rule, as this thread shows.  Also, as a couple of posters indicated (Scott and Mike King), some lenders will only require box 8 of the 4506-T if the borrower chooses to qualify on W2 income alone.  I’ve agreed that’s a reasonable compromise.  But they didn’t identify the lender(s).  Can you?  That’s more helpful than platitudes.  If you’ve followed the discussion--and I know you have—do you think you’ve advanced the discussion any?

“Geesh, let’s end this thread already!”

Why?  No one is forcing you to read it or comment on it.  It will end when it ends.  I initially asked a factual question and hoped for factual responses.  I wasn’t seeking opinions, but that’s what I got from most responders.  I explained the reason (privacy) upfront, yet I still got responses like yours saying that it must be fraud.  If you can’t accept the premise, then we can’t have a fruitful discussion. 

Paul, the world and the lenders are not out to get you or turn you into the IRS.  Disclose the tax returns, do your refi, and move on.  We know you're talking about yourself.

 I asked the original question without personalizing it to try to avoid the “boy, you must be trying to get one over on the lender” responses.  Unfortunately, it didn’t work.  What tipped you off?  The repeated use of the words “I” and “my” in my responses? 

Kim said:

“the answer all depends on what loan product you expect to qualify for.... the better the rate/term the more transparent you are expected to be.  It's very plain and simple:  increased risk = increased rate.  You can't have your cake and eat it too!!    If you don't want to disclose everything, go to your local bank or hard money lender...or use your own funds.   

if you want in the game, play by the rules”

OK.  Put some numbers on it.  I’ve given you information in the initial post.  If you need more information, just assume that I would qualify for the best rate based on all metrics.  What would a hypothetical local bank charge over and above a competitive, “full disclosure”  lender for a 30 year fixed?  Approximately.  .25, .5, 1 point?  I really don’t know, that’s why I’m asking.  My point is that there's not an increased risk.  The lender can verify the W2 through the employer or the IRS, by seeking only the W2 (not the tax return transcript), as Scott and Mike king indicated.  Additional income serves to reduce the risk, not increase it.  But we can agree to disagree.  As I indicated in the original post, it’s a refinance.  So, if I don’t wish to disclose, I can do nothing. 

Louis said:

“problem is that even if your lender goes to the local IRS office with your consent/authoriztion form, IRS will tell them they have no record, as IRS is backed up approx 4-6 weeks.  I know as I had a file submitted and the lender came back and said the 4506T did not show 09 taxes filed (clients tax check was cashed 4/9/09) ultimately underwriting signed off on the file with a copy of the cancelled check....especially as the only income was w-2.”

I assume you mean 2008 taxes.  Lenders do not typically go to the local IRS office.  They usually pull the 4506-T electronically, and oftentimes it’s actually done by a vendor for a fee. 

No conventional Lenders will fund your loan without a 4506-t being executed.  Try Private money.

Paul Smith:

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. 

Paul Smith:

My point is that there's not an increased risk. 

That's where you got it wrong - lack of transparency equals increased risk.  If something is standard on every single loan that a lender does, and you are asking them to not do it, then it throws up the red flag and says something is going on here - whether there is or not...

Doesn't matter if you simply don't want to disclose additional income - the lender has no idea what it is that you do not wish to disclose, therefore increased risk - markets / investors do not like uncertainty...

[you're just about as much of a trip as that shady broker from BO that openly talked about adding YSP a day before closing on people]