Do We Really Need to Get 4506Ts & Transcripts?

0 0

This is a question that I hear quite often when auditing loans. The argument is that “the guidelines” don’t require them. I say better be safe than sorry. The “guidelines” do say the lender is required to re-verify the income used to qualify the loan. How else can you re-verify self-employment income other than with tax transcripts? Letters from the accountant? That may not be such a good idea.

If a lender chooses to not obtain a 4506T for a self-employed borrower and approve a loan based strictly on copies of the tax returns submitted, they may be surprised to find that what was submitted is not reflective of the applicant’s income. It may be inflated. I know you may find that hard to believe but some people will lie about their income to get a loan. Really!

Ask the lenders that provided financing to George Barnard, a former co-owner of Capital Financial Mortgage Corporation.  Mr. Barnard obtained several mortgages using false tax returns with the aid of his accountant.  Oh no, say it ain’t so.

Read the saga of George Barnard (Fraud). He is now under indictment by federal authorities for multiple counts of wire fraud, bank fraud, and filing false tax returns. Nice guy and we wonder why mortgage lenders get a bad name.

So the next time someone asks if you really need to get a signed 4506T, or why you need to obtain tax transcripts to re-verify self-employed income, remember the saga of George Bernard. His lenders trusted him. Why would he lie? Look how much money he was making (reporting).

Trust but verify my friends. If fraud were easy to detect, it wouldn’t exist.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.