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By Steve Grant
President
Credit Plus Inc.
A Look at Tax-Verification Reports
Verifying stated income through IRS records often fights fraud and fosters relationships
the mortgage industry’s rules have
changed. But that doesn’t mean you
can’t still play to win. By leveraging
the latest technology — including tax-return-verification reports — and by
teaming with lenders, mortgage brokers can fight fraud, strengthen their
business and improve relationships.
Tax-return-verification reports validate borrowers’ information by crosschecking it with data validated through
the Internal Revenue Service (IRS).
These reports compare income-related
lines of borrowers’ tax returns with the
same lines on file at the IRS and highlight any discrepancies. The reports
also can verify borrower-provided Social Security information and provide
cash-flow analyses that complete underwriter calculations with IRS-vali-dated data.
The use of tax-return verifications
helps assure lenders that original IRS
figures haven’t been manipulated. And
accurate information gives lenders
more confidence when making loans.
Brokers have seen growth in lender
requests for these verifications. By providing these reports, brokers can help
fight fraud and foster teamwork in the
mortgage process.
The FBI reports suspicious-activity
reports (SARs) related to mortgage
fraud increased 36 percent to a total
of 63,713 during fiscal year 2008. The
FBI’s mortgage-fraud caseload has
more than tripled in the past three
years, from more than 800 cases
to more than 2,400. Although the
monetary loss from mortgage fraud
is unknown, the FBI reports 7 percent of mortgage SARs filed in fiscal
year 2008 indicated a specific dollar
loss. Those losses totaled more than
$1.5 billion.
Of all the ways potential buyers can
commit mortgage fraud, 28 percent
of reported fraud cases in 2008 included fraud on tax returns and financial statements, up from 17 percent in
2007, according to the Mortgage Asset
Research Institute.
Mortgage fraud can be classified in
two ways:
Fraud for profit 1.
Fraud for property 2.
Fraud for profit typically involves industry professionals who inflate home
values, overstate income and assets,
steal identities, and create fake properties and buyers to secure loans. Fraud
for property includes buyers who misrepresent themselves and their financial qualifications to get a loan for which
they may not have qualified other wise.
To combat both classifications of
mortgage fraud, new legislation has
taken effect, and more is on the way.
For example, the Secure and Fair Enforcement for Mortgage Licensing Act of
2008 requires mortgage companies to
screen loan officers. The screening includes criminal history and background
checks. Employment-screening technology is playing a key role in helping meet
these requirements.
Some lenders already require tax-verification reports with loan applications,
and some companies that offer such
reports have seen large increases in
orders since 2008. As this trend continues, more brokers and lenders could
discover the value of these verifications, including faster loan approvals
and increased loan quality.
The only thing required to obtain tax-return verifications is authorization
from the potential borrowers for whom
the reports are sought. Some companies offer reports in an electronic format, saving time, resources and money.
Reports often can be provided in less
than 48 hours.
Brokers can help lenders approve
their loan submissions more quickly by
combining technology and teamwork.
Tax-verification reports offer a way to
do both and to fight fraud. •
Steve Grant is president of Credit Plus Inc.,
a leader in credit-information services since
1928. Reach him at beyondbundled@credit
plus.com or by calling (800) 258-3488.
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