Curing Loan-A-Phobia Blog

The 4506T is a form that allows us to request tax transcripts from the IRS to match up to the tax returns the loan applicant has provided.

Here's the problem:

Traditionally, the 4506T form was only put to use if the file got pulled for an audit somewhere down the line. NOW, however, all the lenders in the secondary market are requiring the 4506T be executed with the IRS and the tax transcripts submitted with the file.

As you can well imagine, knowing what a well oiled and efficient machine the IRS is (NOT) - this new requirement is creating a cluster-you-know-what.

We cannot fund the loan until this information is returned from the IRS.

Just thought you should know.

I want to clear up what I think may be some confusion about what happens with a mortgage loan and how the “secondary” market works.

The secondary market is where mortgage loans and servicing rights are bought and sold between mortgage originators, mortgage aggregators (securitizers) and investors. The secondary mortgage market is extremely large and liquid.

· As a Mortgage Banker, we fund the loans out of our warehouse line – it’s like a line of credit that gets replenished when we sell/deliver the loan to the lender on the “secondary market.”

· When it’s time for me to lock a loan, I shop with all the lenders we work with to see who is selling the cheapest money that day.

· When I lock the rate, we are committing to deliver that loan to the lender within a certain time period at that price.

· A 30 day lock to us and the buyer is really about a 45 day lock to the lender. This gives us time after the closing for the title company to do their thing and send our closing department the loan package, our closers to do their thing and then send it on to the lender or “secondary” for purchase. And for the secondary lender to actually purchase it from us.

· Once the loan is purchased by the secondary lender, our warehouse line is replenished and we go on making more loans.

· IF, for some reason, the secondary lender refuses to purchase the loan, we are stuck with it on our warehouse line and we are now in the loan servicing industry instead of the loan origination industry. This is what happened to GMAC and the other lenders that closed last year. IF, the secondary lenders don’t outright refuse it, but they don’t purchase it during the lock period, it still costs us to extend the lock.

· Our in-house underwriters cannot take these chances, nor can any other underwriters since we all want to stay in business.

This is just ONE of the reasons we are seeing delays in underwriting right now across the country. It’s also why the underwriters are being so “nit-picky” about everything. We ALL want to stay in business. Personally, I’m ok with them being this way because I had several friends that worked for GMAC and were at closing tables waiting for funding that never came and commissions that were never paid (even on loans that had funded the previous 2 weeks) when GMAC closed down. Not to mention their active pipeline that went elsewhere for their loans.