New Mortgage Income Verification Rules Take Effect Today

Interesting article in the Washington Post:  As IRS Income Verification Gets Tighter, Other Issues Emerge, by Kenneth R. Harney:

Starting [today], it's going to get much riskier to fib about your income when you apply for a home mortgage. That's because the IRS is overhauling a key income verification tool used by lenders -- making it faster and easier to pull up electronically the confidential income tax information of borrowers. "It could be huge" in spotting fraud upfront, before it's too late, said Mike Summers, vice president of Veri-tax.com, a Tustin, Calif.-based firm that services 3,000-plus large and small mortgage lenders nationwide. Fraud in mortgage applications is now a multibillion-dollar-a-year problem, according to the FBI, and falsified income tax filings are an important contributing factor....

Form 4506-T ... 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. The form must be signed by the borrower and can be used only during the 60-day period following the date of signing. Until now, the process of faxing in 4506-T requests to the IRS and obtaining transcripts has been paper-driven and non-electronic. That has made income verifications slow and difficult to fit into lenders' highly automated loan-underwriting systems. Most lenders have used 4506-T forms as a way to perform quality-control checks on pools of closed mortgages. 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....

The only downside from a lending industry perspective: Rather than providing transcripts at no cost as in the past, the IRS now plans to charge a flat $4.50 for each tax year covered in a 4506-T request. 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.