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Yes, the 4506-T should be part of your “frictionless” digital strategy.

Curtis R. Knuth | CEO

Thursday, February 26, 2020 | 8:00am EST

Within the mortgage industry, requests for tax transcripts are down, considerably down. This is a year-long trend, and updated underwriting requirements are further contributing to the decline. Tax transcripts provide a nearly full financial picture of the borrower (save current income), and yet our industry continues to underutilize the considerable data available within IRS tax transcripts.  Additionally, the 4506-T provides for a simple click to sign/order process.

The current use case for 4506-T/ IRS Tax Transcripts is "to validate borrower supplied paystubs and financial documents that the consumer provides". It’s a weak use case for ordering transcripts. Additionally, there’s a significant process deviation of when/ when not to order tax transcripts. This process deviation also extends to redundant documentation/ verification requirements for differing loan programs. For example, a Streamline FHA Loan or VA Loan will likely not require transcripts. Add in self-employment, or employment by an immediate family member, and transcripts are likely required. There are too many deviations in the process, i.e., "friction".

At application, all lenders seek a frictionless process for their applicants. Provide some out of wallet information, click here-and-here scenarios– and we’re done. But wait. Aren’t we still asking borrowers to provide paystubs and tax returns? Why? That’s not frictionless!

Point of sale systems can present the fields of the 4506-T along with electronic consent to execute the form (e-signature). Instantly, the request goes to the IRS through a service provider like NCS. That’s frictionless. It meets borrowers where they are. They’re not forced to remember the password for their H&R Block or ADP account. They’re not rummaging through tote boxes mixed with financial documents and their child’s report cards for physical copies.

Additionally, S1’s Income+ can determine monthly income instantly using standardized rule sets and messaging once the IRS returns the transcripts and employers complete the VOE.

The mortgage industry must forego using tax transcripts as a simple verifier of borrower provided financial information. Tax transcripts should be viewed as the frictionless, complete, and auditable source for borrower financial data. It is the most viable and preferred method for a full picture of the borrower’s income and financial data. Please drop me a line and let me know your thoughts.


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