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[Checking It Twice] IRS Form 4506-T For Good Reason

As a testament to the overcorrection in mortgage underwriting mentality [1], Kenneth Harney in his The Nation’s Housing column writes about the IRS Form 4506-T [2] that

authorizes a loan officer or mortgage investor to get electronic transcripts from the Internal Revenue Service covering multiple years of your federal income tax filings.

A transcript is pulled at mortgage application and at closing as an attempt by Fannie Mae to reduce mortgage fraud.

One has to ask themselves, why should this be a new process? I remember during the credit boom, no one seemed to care whether someone had the income they claimed they did, after all, real estate always went up and defaults would not be a problem.

Of course with other issues, like toxic mortgage titles [1], a petty thing like actually proving borrower income [sarcasm] now seems kind of important.

At issue is proof of ownership at the time of a foreclosure sale. During the housing boom, millions of mortgages were bundled into bonds and sold to investors, a process that resulted in lengthy and twisted paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held the mortgage.

Its a lesson learned – problems at the end of the mortgage process (foreclosure) make it imperative and obvious to reduce the probability of later default at the beginning of the mortgage process. Hence a credit crunch.