Automated income verification adds confidence to complex mortgage-lending process
Solution helps improve income verification process for mortgage lenders and borrowers
Want evidence that we learn from our mistakes? Look no further than the income verification process now used by mortgage lenders. Beefing up requirements for income documentation has helped reduce fraud and increase confidence in a borrower’s ability to repay a home loan. It’s a big improvement over the income verification process in place before the 2008 financial crisis that primarily relied on borrower stated information.
The downside: stricter income requirements can add extra steps to a mortgage lending process that already could take up to 50 days from start to finish. But that problem has solutions, including streamlined data collection and process automation.
Tax transcripts are essential, but 4506-T requests are not simple
An essential step in verifying a mortgage loan applicant’s total income is by using tax transcripts along with wage and income statements. The industry best practice is to obtain trusted, verified copies of these tax documents from the Internal Revenue Service (IRS) using a taxpayer consent form. The IRS Form 4506-T is critical in retrieving tax transcripts for originating, modifying, or other proof of income-related loan activities and providing a complete picture of all household income — salary, wages and investment income.
However the IRS is very particular about how a lender can ask for a person’s tax transcript. If the Form 4506-T is incomplete, illegible, or invalid, the IRS will reject the request, but keep the IRS tax year processing fees. So, getting these requests right the first time not only saves money through shorter processing times, increased productivity and improved customer service, but can also lead to direct savings on avoidable fees.
IRS Income verification solution boosts acceptance of IRS Form 4506-T requests
Equifax has developed its proprietary IRS Income verification solution that helps reduce lenders’ overall rejection rate for 4506-T requests by about 18%1 and speeds up the whole process. The technology-enabled Equifax solution works by proactively identifying avoidable errors before requests go to the IRS. Here’s how:
Quality checks: Equifax audits lenders’ 4506-T requests using a 12-point quality check that gauges completeness, legibility and adherence to IRS formatting requirements, before submitting the order to the IRS. Every request is generally assessed within 15 minutes of submission, and returned back to the lender if any errors are identified. On average, for every 20,000 4506-T requests submitted by a lender, the Equifax quality check process returns 1,500 forms for correction and saves the lender approximately $6,000 in IRS fees2.
Auto-filled request forms: The IRS Income Verification solution from Equifax includes an auto-populated 4506-T request form, which pulls data from the lender’s order and inserts it into appropriate sections of the form. That means far fewer errors than in a manually filled-in form process. An auto-populated form aligned with system order data is far more likely to pass the Equifax quality checks, as well as sail through the IRS process.
E-signatures: Equifax’s secure, IRS-compliant, technology-enabled eSignature Capture service allows a loan applicant to provide a signature at any time and from anywhere to complete the 4506-T request process. It reduces the signature turnaround time — speeding up the whole process and reducing faxing, mailing and other logistical hassles for prospective borrowers and lenders.
In addition, the IRS Income verification from Equifax provides a summary report of key taxpayer data elements, optional income variance reporting, and order process tracking, so lenders and borrowers always know where things stand.
Today’s verification of income requirements significantly improves upon past mortgage-lending practices, but they can still slow down the borrowing process. The IRS income verification from Equifax injects speed, simplicity and reliability into the process, which can lead to savings for lenders and better overall customer service.
Jeff Knott is Assistant Vice President of Product Management at Equifax.
1 Average based on all orders submitted in 2014.
2 Based on Equifax analysis. Results may vary based on actual data and situation.
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