Important Information about IRS Tax Transcripts for Income Verification

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This is always a confusing time of year as we all scramble to figure out who filed their taxes when and how, how soon we can get copies of transcripts, how to verify someone really did file and what exact documentation our lenders will require and accept in various qualifying situations.

I’d compiled a growing list of questions on this topic myself since the beginning of the year so I thought it important to take time out of my day to get answers straight from the Internal Revenue Service. I think you may find the following list of Q&A helpful to you as you review your loan situations and direct your borrowers on how to get you the information you need for their application as efficiently as painlessly as possible.

1. Once a taxpayer electronically files his/her 2009 tax return, approximately how long does it take before the taxpayer can obtain copies of his/her tax transcripts directly from the IRS?

3 Weeks. The consumer can call 1-800-829-0922 to check to see if their transcript is available and request it directly from IRS at no cost. However, they must allow 10 days to receive it.

2. If the taxpayer mails their return, approximately how long should they expect to need to wait until they can obtain a copy of their transcript directly from the IRS?

6-8 weeks and times may extend longer after April 15th. The consumer can call 1-800-829-0922 to check to see if their transcript is available and request it directly from IRS at no cost. However, they must allow 10 days to receive it.

3. Can taxpayer file their tax returns by visiting a local IRS office? And if so, will they get some sort of receipt as evidence they’ve filed their return with the IRS?

Yes and Yes.

4. Can taxpayers get copies of their tax transcripts by visiting their local IRS office in person?

Yes but only IF their return has been processed through the system (meaning still subject to the 3 week average expected turn time from date of electronic filing or 6-8 week turn time for mailed filings). However, once the transcript is available, keep in mind that if the borrower can get it at the local IRS office, it will save the added 10 day waiting period for mail time from requesting from the IRS 800 number.

5. How can we direct taxpayers to find their local IRS office location information?

Go to http://www.irs.gov/localcontacts/index.html, scroll down the page to the U.S. map and click on the state.

6. How does the taxpayer go about requesting copies of transcripts directly from the IRS? Is there a charge?

They can request their transcripts directly from IRS at no charge by calling one of the following numbers:

- 1-800-829-0922
- 1-800-829-1040 and listen to menu to select prompts to get to proper menu
- Visit local IRS office to request directly on site
The IRS does charge $57 if the consumer requests a copy of his/her actual return (not the same as a transcript).

7. Can you explain the different types of “products” that can be requested using the 4506-T and what purpose each might be used for?

- Return Transcript: includes most of the line items of a tax return as filed with the IRS. A tax return transcript does not reflect changes made to the account after the return is processed. Transcripts are only available for the following returns: Form 1040 series, Form 1065, Form 1120, Form 1120A, Form 1120H, Form 1120L, and Form 1120S. Return transcripts are available for the current year and returns processed during the prior 3 processing years. Note: Transcripts will not show amount of tax owed or paid, outstanding balance or IF an amended return has been filed.

- Account Transcript: contains information on the financial status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns. Note: Verifies outstanding taxes owed, account status, payments made, penalties, interest and fees etc. This is what you may need if there is any concern that a borrower may have a large amount of outstanding tax liability with IRS

- Record of Account, which is a combination of line item information and later adjustments to the account. Note: Ideally THIS is what we should require rather than just transcripts because this actually shows line item filing information PLUS includes information on amendment filings. THIS is what we would want to require in any case where the tax return copy provided by the borrower doesn’t match up to the transcript we receive.

- Verification of Non-Filing: Proof from the IRS that the borrower did not file a return for the year. Current year requests are only available after June 15th. There are no availability restrictions on prior year requests. Note: We would need to require this product to verify that a particular individual was perhaps not required to file and therefore did not.

- Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. A transcript that includes data from these information returns. State or local information is not included with the Form W-2 information. The IRS may be able to provide this transcript information for up to 10 years. Information for the current year is generally not available until the year after it is filed with the IRS. For example, W-2 information for 2007, filed in 2008, will not be available from the IRS until 2009.

So ideally, for a borrower who has recently filed tax returns for 2009 income that is for instance, required for qualifying such as may be a the case for some self-employed borrower situations, the most efficient way to obtain transcripts right now is to direct the borrower to check with the IRS periodically to determine when transcripts are indeed available. Then, if possible, have the borrower go to the local IRS office in person to request and obtain the transcripts on site. This will help avoid the additional 10 day or so waiting period for the IRS mailing process. This method also costs the borrower no fee for obtaining the transcripts.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

FHA Changes-An Active Start to the New Year

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

So many changes happening so far in the New Year I thought it would be helpful to put them down in chronological order to help us all keep track! It’s looking like it will be a very active year for FHA program and guideline changes. Here is what we need to be aware of thus far:

December 16

I mention this one only because with people being so busy over the holidays, wanted to make sure nobody missed it! Mortgagee Letter 2009-52 stated HUD’s FHA Short Sales and Short Payoff Policy effective 12/16/2009.

January 1

RESPA revisions are effective on and after this date for all loan types which as we are all now well aware brings forth a completely new way of reflecting loan fees, charges and revenues. Be sure to visit HUD’s RESPA page which provides a lot of great resources to answer the questions you may have regarding the new rules. Mortgagee Letter 2009-53 also added some last minute clarifications for FHA.

January 1

2010 FHA Maximum Loan Limits announced in Mortgagee Letter 2009-50 become effective for loans with credit approval dates on and after 01/01/2010.

January 1

FHA appraisals for ALL cases assigned on and after this date will be valid for 120 days which is a change from prior FHA appraisal validity periods of 180 days for existing construction and 12 months for proposed and under construction cases. This change is announced in Mortgagee Letter 2009-30.

January 1

Mortgagee Letter 2009-29 stated that effective for cases assigned on and after this date, Mortgagees are expected to complete requested case transfers as well as transfer valid appraisals that have been completed for the property to the requesting lender. The announcement expands to state that the receiving lender may request a 2nd FHA Appraisal in particular cases where material deficiencies are noted in the transferred appraisal, when the appraiser who completed the first appraisal is ineligible as per the receiving lender’s exclusionary list, or when lack of receipt of the first appraisal in a timely manner would have a negative affect on the borrower’s circumstances. Reason for obtaining a 2nd appraisal must be explained and documented in the case binder and copies of BOTH appraisals must be saved in the case binder.

Be sure to check out the FAQs re: Mortgagee Letter 2009-29 at HUD’s new Lenders Page!

January 21

Effective with Mortgagee Letter 2010-03, HUD will systematically review all Direct Endorsement (DE) underwriting mortgagees’ defaults (loans 90 or more days’ delinquent) and claim rates on loans during the initial 24 months from the date of the commencement of the amortization. HUD, at its option, will exercise its authority to terminate the underwriting authority (Authority) of DE mortgagees with excessive default and claim rates. The Department will be publishing a list of Mortgagees which have had their Authority terminated in the Federal Register and on HUD’s website starting February 1st.

January 31

This is the last day that non-HUD approved condominium properties may be assigned FHA case numbers to be processed as spot loan approvals. Effective February 1, all condominium properties must be located in projects approved by HUD (HRAP) or by eligible lenders with full DE authority (DELRAP). Details on condominium project requirements and approval options can be found in Mortgagee Letter 2009-46B and Mortgagee Letter 2009-46A.

You’ll find HUD’s Condo FAQs at http://www.hud.gov/offices/hsg/sfh/condo/faqs_condo.pdf.

February 1

HUD implements the most recently signed waiver of 90 day seller ownership requirements for FHA loans that meet the criteria described in the waiver at http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf. This waiver is effective for cases assigned 02/01/2010-02/01/2011 unless otherwise amended by HUD and applies to all re-sales; not exclusive to foreclosure properties.

February 15

HUD adopts a stance similar to that of HVCC in that for cases assigned on and after this date, Mortgagees are expected to have processes and procedures in place to certify appraiser independence. As per Mortgagee Letter 2009-28, the original effective date of these requirements was set for January 1st but HUD issued an extension for implementation of the rules until 02/15/2010. The big change for lenders is the following:
FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan.

You’ll find a number of helpful resources on this topic at HUD’s newly organized Lender’s Page: http://portal.hud.gov/portal/page/portal/HUD/groups/lenders. There you can access a copy of the announcement of extension for implementation and FAQs regarding ML 2009-28.

February 15

HUD adopts the ability to re-certify property value by using Fannie Mae Form 1004D. The effective date
was originally slated for January 1 but was extended by HUD out to 02/15/2010. Details regarding the terms of use for FNMA 1004D are reflected in Mortgagee Letter 2009-51. Details regarding delayed implementation of the Mortgagee Letter content can be found at http://www.hud.gov/offices/hsg/sfh/appr/delayed.cfm.

April 5

For cases assigned on and after this date, up-front mortgage insurance premiums change from the current structure to 2.25% for ALL standard FHA purchases and refinances. Details on the increase to MIP are reflected in Mortgagee Letter 2010-02.

In a press release issued on Wednesday, January 20th HUD also communicated the following which are expected to be formally released in the very near future:

- New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

- Interested party contributions will be limited to 3% which is a change to the current 6% allowance. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Big News- Big Changes from HUD for FHA Lending!

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

It’s been a BIG news week for FHA and is about to get even bigger with the anticipation of a number of Mortgagee Letters to be issued January 21st which will communicate further significant tightening of FHA qualifying calculations and guideline requirements.

Temporary Flipping Waiver

On Friday, January 15th, HUD released their most recent Waiver of Requirements of 24 CFR 203.37a(b)2. The waiver, which is in regards to time restrictions for property sales, applies only to FHA forward mortgages, not HECMs, and is effective 02/01/2010-02/01/2011.

As copied from the Code of Federal Regulations, here is that exact portion of the Code that is being waived:

a(b) Time restrictions on re-sales—(1) General. The eligibility of a property for a mortgage insured by FHA is dependent on the time that has elapsed between the date the seller acquired the property (based upon the date of settlement) and the date of execution of the sales contract that will result in the FHA mortgage insurance (the re-sale date). The mortgagee shall obtain documentation verifying compliance with the time restrictions described in this paragraph and must submit this documentation to HUD as part of the application for mortgage insurance, in accordance with §203.255(b).

(2) Re-sales occurring 90 days or less following acquisition. If the re-sale date is 90 days or less following the date of acquisition by the seller, the property is not eligible for a mortgage to be insured by FHA.

However, to summarize, the HUD announcement goes on to state the following conditions for the 90 day time-restraint waiver to be effective on a specific transaction:

- The transaction must be at arms length; meaning there cannot be any identity of interest between any of the interested parties to the transaction. This means that the lender must perform due-diligence to determine there are no undisclosed relations of interest which should include the following:

- LLCs, partnerships, corporations, etc. must be fully investigated to determine exactly who holds interest in the business. No party with interest in the business should be related to any other party participating in the transaction.

- 12-24 month minimum chain of title from the title company should be reviewed carefully to establish that there are no patterns of flipping between interested parties, that the owner of record listed in title is the same seller represented as the seller on the sales contract and is also the same owner of record listed in any public property tax record. You should never rely on the transfer records based on the prior 36 month history listed in the appraisal alone but should rather obtain the chain of title directly from the title company.

- Marketing history in regards to the sale of the property should be carefully reviewed to determine that it was marketed for sale openly via MLS, Sheriff Sale, Auction, FSBO, etc. If the marketing of the property cannot be determined through public means, be cautious!

- Sales prices for recent transfers of the subject property must be verified and if the proposed transaction contains a sales price that represents a 20% or greater increase from the prior sale price of the property, the lender must justify the increase in price/value using any of the following methods:

- Obtain specific documentation from the seller for improvements made to the property between the seller’s acquisition date and proposed sale of the property. This would include copies of paid invoices or receipts from contractors, builders, suppliers etc. with a complete list of the upgrades, repairs and/or improvements made

- Obtain a 2nd appraisal to justify the property sale price/value and recent improvements/repairs/upgrades made to the property

- Obtain a property inspection report from a state-licensed/certified inspector that is to be given to the buyer prior to closing and which must include:

- Inspection of the foundation, floor, ceiling, walls and roof;
- Inspection of the exterior siding, doors, windows, balconies, decks, walkways, driveway
- Inspection of the roofing, plumbing, electric, heating and air systems;
- Inspection of the interior of the property including insulation and ventilation systems, fireplaces, fuel-burning appliances

The waiver ONLY waives the 90 day timing restraint requirement IF the conditions listed above are met. Don’t forget that all other requirements set forth in Mortgagee Letter 2006-14 apply for all other properties acquired for up to one year from the seller’s acquisition date. In those situations, when the sales price increases 100% or greater, 2nd appraisal and other potential documentation requirements must be applied.

I will pass on more information next week in regards to the upcoming MIP rate hikes, minimum fico score requirements, minimum downpayment requirements and reduction to maximum allowed seller concessions. Those changes will have major affects on FHA qualifying in the near future!

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)