Mortgage Documentation

New Rules for Mortgage Transfers – Are You Confused Yet

With all the media buzz about Fannie Mae and Freddie Mac reform on Capitol Hill today, you may have missed an important press release from the Federal Reserve that will affect all homeowners with a mortgage. The press release was the issuance of a final rule amending Regulation Z about the notification of mortgage loan sales or transfers.

What exactly is Regulation Z?

Regulation Z, also known as the Truth in Lending, seeks to promote the informed use of consumer credit by requiring disclosures about its costs and terms. It seems that the government solution to every issue is the big “D” word. That’s right, more disclosures.

Stop! Do you know who owns your mortgage loan right now?

Unlike the Servicing Disclosure Statement that discloses who will be collecting your payments, the new rules for mortgage transfers will help disclose the legal owners of your mortgage.

The Federal Reserve is determined to make sure that every homeowner who has a home loan (i.e. first mortgage, home equity loans and/or home equity lines of credit) on their primary residence to receive proper notification. Within 30 days of the sale or transference of your home loan, the new company who has acquired your home loan must disclose…

• New Owner’s Identity, Address and Telephone Number
• Date the Loan was Transferred
• Contact Information of the Agent Authorized to Act on Behalf of the Owner

Why would you want to know who owns your mortgage?

The Federal Reserve believes it would be in the your best interest to know the actual owners of your home loan who can handle certain issues, including payment disputes and loan modifications.

Sounds great in theory. Unfortunately, the owner of the mortgage may or may not be the servicer of the home loan. A Chinese company, for instance, may own your mortgage but your loan payments are paid to Chase.

Who do you call when you have issues or questions about your mortgage?

If you’re like the vast majority of homeowners you only deal with your loan servicer. At the end of the day, you as the homeowner simply want to know to whom do you send your payment.

Another discrepancy with the new disclosure for mortgage transfer is the fact that it DOES NOT apply to loans on second homes, vacation homes, investment properties nor business properties.

Regardless of who owns or services your home loan, the terms of the recorded note cannot change. If you would like the personal touch through the home buying process and mounds of new disclosures, contact us.

Mortgage Documentation

Why Is Your Mortgage Approval Contingent On Form 4506-T

If you are in need of a mortgage, there is one document that could stop you in your tracks. It is IRS Form 4506-T.

What exactly is Form 4506-T?

Form 4506-T, aka. Request for Transcript of Tax Return, allows lending institutions to validate your income by confirming with the Internal Revenue Service (IRS) that you are a lawful tax payer.

For decades, prospective home buyers in Portage Indiana only had to provide their pay stubs, W-2′s and tax returns as proof of their income. Today the aforementioned documentation is just the minimum.

Uncle Sam due to his large role in residential financing (i.e. Fannie Mae, Freddie Mac and FHA) now wants to make sure that you have paid and will continue to pay your taxes.

So what’s the problem you ask?

The problem arises from the very safeguard that Congress mandated. Banks are required and forced to use Form 4506-T in order to validate every one’s income.

The form itself has not changed much over the years. How it is completed to the satisfactory nature of the IRS has though. They even go so far as to put the following disclaimer at the top of the form:

“Request may be rejected if the form is incomplete or illegible.”

Requests for transcripts are rejected by the IRS on a daily basis. The most common errors are illegible handwriting and non-compliant signature dates. A simple typographical error could cause a rejection and the IRS is not required to tell you the source of the rejection.

Most consumers and real estate professionals are not aware of the significance of Form 4506-T as it was used sparingly for loan audits in years past. Now that every loan requires it to be executed, the IRS themselves have become a bottle neck.

Even if you have electronically filed and made an electronic payment of outstanding taxes, the IRS may not be able to validate your tax returns.

How could that be?

Unfortunately, the processing side doesn’t know what the validation side is doing. The two systems are not fully integrated. This is how your mortgage approval and home loan transaction could be delayed.