Dreaded IRS Form 4506 and Mortgage Refi
Ask Kate about the dreaded IRS Form 4506: Kate, The lender offered us a no appraisal, no proof of income mortgage refi. They said we wouldn't need to provide income tax returns. But now the lender says, "The law requires that you sign an IRS form 4506-T because in case something goes wrong with the loan, our auditors will need to see it."
Is this true?
Also, the market value on our home is 474K, but the Schedule of Real Estate Owned values it at $422,504.
Is this important?
On the first phone call with the lender, he said we "had" to pay $400.00 to "get this offer" -- BEFORE we saw the good faith estimate (GFE).
Is this legal?
If we decide not to do the loan, can we get a refund less the credit report fee? Thanks!!
Kate Answers: Dreaded IRS Form 4506 During Mortgage Refi
Dear Gret, Is your reaction a slow burn or sudden explosion?
Many stated-income borrowers feel betrayed or angry when mortgage lenders require a 4506 or 4506-T after being told that tax returns were not necessary. Then it's insult upon injury to be instructed to leave it undated.
What Is IRS Form 4506
The IRS form 4506 authorizes a copy of your tax returns to be released. The 4506-T can disclose certain information, for example... yep you guessed, wage and income information.
What's The Purpose of IRS Form 4506
Lenders will tell you all day long that the 4506 stops mortgage fraud and lowers their risk. On the contrary, for years I worked at an S & L that specialized in stated income loans. I can't speak to the matter of fraud but I can tell you our default rate was exceedingly low, yet this form was never required.
What was the difference? Robust economy, low unemployment, affordable loan terms, 20% down payments and sensible credit requirements.
In my not so humble opinion, requiring the IRS form 4506 is heavy handed. But we're back to my famous golden rule.
"He who holds the gold makes the rules."
In other words, short of consulting an attorney, you most likely will not get your mortgage refi without signing the form.
Schedule of Real Estate Owned
Yes, you are correct that the appraised value should be reflected on your mortgage application's schedule of real estate. But you may be seeing another dollar amount if underwriting cut back the appraiser's opinion of value. (Sigh... another story for a different day.)
Good Faith Estimates, HUD and RESPA
Is it legal to say, "Gimme $400 before you know the rest of the charges?" HUH? It's only Monday morning and I'm getting steamed.
I can't say it any better than our government's U.S. Department of Housing and Urban Development (HUD) in the Real Estate Settlement Procedures Act (RESPA) so I'm going to give you a direct quote:
This may be the largest and most important loan you get during your lifetime. You should be aware of certain rights before you enter into any loan agreement.
You have the RIGHT to shop for the best loan for you and compare the charges of different mortgage brokers and lenders.
You have the RIGHT to be informed about the total cost of your loan including the interest rate, points and other fees.
You have the RIGHT to ask for a Good Faith Estimate of all loan and settlement charges before you agree to the loan and pay any fees.
You have the RIGHT to know what fees are not refundable if you decide to cancel the loan agreement.
You have the RIGHT to ask your mortgage broker to explain exactly what the mortgage broker will do for you.
You have the RIGHT to know how much the mortgage broker is getting paid by you and the lender for your loan.
You have the RIGHT to ask questions about charges and loan terms that you do not understand.
You have the RIGHT to a credit decision that is not based on your race, color, religion, national origin, sex, marital status, age, or whether any income is from public assistance.
You have the RIGHT to know the reason if your loan was turned down.
You have a RIGHT to ask for the HUD settlement cost booklet "Shopping for Your Home Loan"."
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