The topic of tax seems to be a buzz these days. The annual tax filing deadline came and went last week, but not without some noise surrounding it. In January, the Internal Revenue Service (IRS) warned delays in taxpayer refunds were likely, as the agency navigates heavy 2020 rework volume and staffing shortages. Other IRS services were also marked at risk for similar delays.
It was not surprising then, to hear that the IRS services which produce taxpayer’s transcripts were seeing longer than normal turn-times. Inside Mortgage Finance recently reported that the IRS delays are pushing originators to limit or temporarily drop their transcript requirements to protect application turn-times.
While this tactic may speed up the origination process in the short-term, it puts lenders at great long-term financial and reputational risk. A problem exacerbated by rising interest rates and waning refinance market. Purchase transactions are more complex by nature and have a greater chance for fraud. Add in the complexities that come with underwriting the self-employed borrower and you up the risk ante even further.
Verifying borrower-provided income documents with certified IRS tax transcript data is a sensible and cost-effective solution for mitigating exposure. But how does a lender still take advantage of the IRS verification without delaying their application process?
First, fill it out the first time! Lenders can speed up the process by ensuring a clean version of Form 4506-C, is used to order transcripts. What makes these forms “clean?” Our pre-check validation service for tax transcript orders, LoanBeam® Transcripts, finds that the following are commonly made submission errors:
- Erroneous marks on the form (e.g., lining through an entry and handwriting the replacement)
- Incorrect or incomplete dates for the IRS data requested
- Incorrect address – the application and transcript address should match!
- Required fields left incomplete
Free of these, the IRS can more quickly get your transcript requests fulfilled.
Second, you can leverage LoanBeam Transcripts along with LoanBeam Tax, in Freddie Mac® AIM for Self Employed offering to achieve rep and warrant relief. This offering expands rep and warrant eligibility beyond just the self-employed income calculation and into the data feeding the calculation. This announcement was effective on April 15th, the proverbial “Tax Day,” and discussed in this LoanLogics® press release.
With the self-employed segment growing within our industry and a purchase market here to stay, I encourage lenders to opt for this add-on service to accelerate efficiency and reduce risk.