May 21, 2018
We just finished “tax season” last month, with its usual gyrations. But one thing is year around, and that’s a tax form usually included in the mortgage process. Orion’s brokers know that an IRS Form 4506-T is required by almost every lender as part of a mortgage application package, and every conforming loan for Fannie Mae and Freddie Mac. As part of loan approval, Orion must review the transcripts that are generated by the 4506 as a piece of fraud protection for the mortgage industry.
Our brokers know that signing the form allows us to obtain a copy of the client’s most recently filed federal income taxes, which is received in the form of a line by transcript that mirrors the federal filing to ensure that the income tax returns were provided the IRS. If the loan does not require submission of full tax returns, the transcripts confirm that a borrower does not have any other jobs, own any interest in a company or entity that may generate profits or losses, or any real estate not disclosed on the application.
Lenders are required to obtain the transcripts for the most recent year of filed taxes. A loan submission in January would require 2016 taxes as the 2017 taxes would not be filed yet. Starting in the month of March 2017 taxes, if filed, will be required. This creates a complication if a client opened escrow close to the filing of their taxes. It generally takes up to five weeks for the IRS to process a new tax return that is filed electronically and then generate the transcripts requested using Form 4506.
Because of this, clients in the process of buying a home, or refinancing a current property, are encouraged to file an extension for 2017 taxes so we can obtain the 2016 transcripts in about a week and still be on pace to close on time.
Obtaining a 4506 can also detect a fraudulent return using the client’s social security information. If transcripts come back that do not match their returns in any way, this is direct evidence that someone filed tax returns using their social security information. The 4506 process alerts Orion and you to this fraud that may have been hidden until the following year's taxes are filed. Your Orion AE can answer any questions you have on this.