Sorohan, Mike


The Mortgage Bankers Association, in a letter to the Internal Revenue Service, asked that the IRS allow use of electronic signatures for IRS Form 4506, Request for Copy of Tax Return.

MBA asserted that allowing eSignatures would reduce processing time for new mortgage applications, reduce borrower fraud, improve investor confidence in the underwriting of loans and help restore the long-term viability of the secondary market for mortgage loans.

“One of the key sources of mortgage fraud is borrowers exaggerating the income that they put on their loan applications. One way mortgage lenders can quickly confirm the veracity of a borrower’s true earnings is to confirm total earnings reported to the IRS,” MBA wrote. “This serves as a detective control for mortgage lenders.  The act of requesting that a taxpayer sign a Form 4506 also serves as a preventive control, making applicants more diligent in reporting income on the loan application.”

MBA noted that mortgage fraud perpetrated against residential mortgage bankers has grown “exponentially” over the past several years with significant consequences to lenders and consumers. 

“Mortgage fraud is particularly costly to mortgage lenders due to the fact that, when fraud is, discovered lenders are generally held fully accountable for the costs of such fraud through repurchase requests from investors or other actions,” MBA said. “This cost ultimately raises the cost of borrowing for all consumers, because the fraud and repurchase risk gets priced into new mortgages.”

As a result, MBA said, many mortgage companies request that all applicants fill out and sign Form 4506.

MBA said over the past 15 years, but particularly in recent years, lenders have trended toward automation of loan applications and underwriting processes.  Most lenders now have automated processes that allow applicants to apply online and to supply information to the lender in an electronic fashion, with much  processing is done by lenders using online processing and underwriting tools, including ordering appraisals, credit reports and verifiying deposit balances.

“This automation benefits the consumer by making it easier to provide needed data to the lender, cutting the application to closing timetable and reducing the costs incurred by the lender which are ultimately paid by the consumer,” MBA said.

Additionally, MBA said most mortgage lenders that have automated loan application processes already make use of electronic signatures for most other forms and consumer/lender interaction. These control mechanisms conform with the Electronic Signatures in Global and National Commerce Act passed by Congress and signed into law in 2000. 

“Accordingly, controls utilized to protect the consumer and confidential data include encryption of data sent over the Internet, tamper evident seals of e-signed documents, two-factor identity verification and other controls required under the ESIGN Act and industry custom,” MBA said. “MBA’s members would use such controls in the e-signature process and transmission for Form 4506.”