Magazine article Mortgage Banking

eSignatures Go Live with IRS

Magazine article Mortgage Banking

eSignatures Go Live with IRS

Article excerpt

LENDERS, MORTGAGE VENDORS--AND CONSUMERS--are forecast to embrace a new industry initiative that streamlines the process of obtaining income verification. Beginning Jan. 7, 2013, the Internal Revenue Service (IRS) is accepting electronic signatures on Form 4506-T, a document that requests borrower income tax return information for lenders. [paragraph] The IRS' Income Verification Express Service (IVES) has been the conduit for tax data to lenders up until now. IVES plays an integral role in the underwriting process, by allowing lenders to confirm a borrower's income as reported on his or her tax returns.

Lenders begin the process by having applicants fill out Form 4506-T, which authorizes the IRS to disclose a transcript of their return to a third party. Information then is delivered to a secure electronic mailbox that is accessed by the mortgage firm.

Borrowers now can place an electronic signature on an emailed Form 4506-T, says Cecil Bowman, senior vice president for government and industry at National Credit-reporting System Inc. (NCS), Egg Harbor City, New Jersey.

IRS data "is the Holy Grail" when it comes to verifying an applicant's income, Bowman notes.

Industry leadership

More than two years of effort went into achieving this goal, says Rick Hill, the Mortgage Bankers Association's (MBA's) associate vice president for industry technology. "IRS deserves a lot of credit for listening and being responsive to the needs of the industry and consumers," observes Hill.

Yet he credits Bowman for spearheading the effort. "Cecil responded to the call for leadership," Hill says, "stepping up to chair the newly created MBA IRS 4506-T Workgroup."

One major benefit Bowman brought to the MBA project was 35 years of service with IRS. He retired from the IRS in 2006 after serving as information technology project manager there, and soon took his talents to the mortgage industry.

Bowman's background made him ideally suited to champion the eSignature project; yet success was far from assured when he began working on the task two years ago. "It was amazing that we were able to convince them to do the right thing for the mortgage industry and for consumers," Bowman says.

Hill recalls that Bowman assembled workgroup members whose varied skills could deal with the technical and legal issues surrounding eSignatures. Most importantly, Bowman's time at the agency "opened doors with the IRS," contends Hill, "allowing for a free exchange of ideas" between mortgage leaders and IRS managers.

Working with the IRS involved educating the agency on how the mortgage industry operates, Hill says. Lending executives and IRS officials have "different vernaculars," he adds.

MBA focused on eSignatures for income verification after its Residential Technology Forum (RESTECH) "determined this was their highest priority," Hill says. He explains that lenders have discovered the Form 4506-T--when distributed in paper form--often is misplaced during the loan process.

Lenders previously had to fax or mail the form to prospective borrowers they're communicating with by phone or email. Consumers then must sign the paper and send it back before underwriting can begin. Often documents get lost at some point in this process, says Hill. Additionally, the IRS rejects 8 percent of paper 4506-T forms because they're either illegible or filled out incorrectly, he says.

Under the new program, guidance is provided for authenticating a consumer's identity and for gaining applicant consent. Additionally, the IRS stipulates an annual independent audit of firms using the program. The IRS also has issued rules for archiving and retaining e-signed forms.

Successful pilot

Being in "a unique position" due to his time at the agency allowed Bowman to discuss the possibility of allowing eSignatures on Form 4506-T with IRS officials, he says. …

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