By: Nancy Steadman
The mortgage application process can be arduous for both lenders and loan applicants. There are several factors that can delay a mortgage, ranging from inaccurate information to missing paperwork. The documentation aspect of the mortgage process is particularly time-consuming, with consumers being required to provide a wealth of information and lenders being unable to fully evaluate the application until it is complete. A new Internal Revenue Service rule that will soon go into effect may make one leg of this process easier.
Beginning on January 7, 2013, the IRS will begin accepting electronically-signed 4506-T and 4506-EZ documents, commonly recognized as the income verification forms that are necessary for any mortgage loan or modification application. The new rule is expected to significantly cut down the amount of time it takes to process a mortgage, and taking the paper requirement out of the transaction may also save banks and credit unions money on documentation costs.
These forms are essentially used to verify consumer income and ensure they have the financial means to meet their mortgage obligations should they be extended financing. While these forms apply for various types of loans, they are used primarily for mortgage lending.
One step closer to electronic processing of mortgage applications?
Some bank consultants say this may be a first step toward allowing other types of electronic documents to play a bigger role in the mortgage lending sector.
"This will be a real boon for lenders and for consumers, this has been a real bottleneck," Christine Pratt, a senior analyst at Aite Group, told American Banker. "Income verification has always caused considerable pain in the effort to remove manual steps from the mortgage process. This is certainly a very strong step in the direction of making electronic processing more of a reality."
Given the renewed focus on compliance, and the potentially costly new mortgage rules that were created as a result, electronic processing may be a cost-effective alternative for those financial institutions that will be impacted the most by increased regulatory costs, such as community banks and credit unions. While the new IRS rules will not require special software or make any breakthroughs in mortgage technology, it may prompt more lawmakers to consider new electronic strategies for facilitating the mortgage process and lowering costs.