Form 4506: Not Just for Stated Income Loans Anymore

I like to check out how my readers found me via the terms that were entered into a search engine (such as Google or Yahoo).  Earlier this week, someone asked:

Why did I have to sign a form 4506?

Form 4506 and 4506T allows the lender to request a transcript of your previous filed tax returns from the IRS.  In years past when “stated income” loans were more available, may have been used to make sure that the income that was on the loan application was in line with what was actually filed.  Borrowers did have the option of obtaining a mortgage that did not utilize a 4506 at a slightly higher fee with some lenders.  A 4506 was also sometimes used if the borrower was self employed and tax returns were being used as supporting documentation, the 4506 was used to make sure that the returns were legit (not fraudulent).  Some mortgage companies have 4506 forms with all their loans in the event of an audit for quality control.

In the wake of record levels of mortgage fraud>, expect to see Form 4506 included with your mortgage documents.  Not only do mortgage companies (where you complete your application) perform quality control checks by pulling a certain amount files (auditing 1 out of every 10, for example), the lender (or where the mortgage is sold to) is performing the same audit.

Just because you have been asked to sign Form 4506 does not necessarily mean that your Loan Originator has placed you in a stated income mortgage.  For starters, if your loan originator was able to even find a “stated” program, the rate would be significantly higher than conventional markets.   With all the fraud during the first quarter of 2008, lenders requiring a Form 4506 on all mortgage loans is just another sign of our times.