An effective date for the Internal Revenue Service’s acceptance of electronic signatures on the 4506-T forms that used to check the integrity of borrowers’ submitted tax information has been set for Jan. 7.
The move finally closes a missing link in the ability to e-sign origination documents.
“People have wanted it,” Ken Moyle, chief legal officer at industry vendor DocuSign, told this publication. “It’s the only paper signature left in the mortgage origination process.”
The lack of IRS e-signature acceptance for the 4506-T, he said, “has been the common lament of people who put these deals together.”
Moyle, who also is the chair of the Electronic Signature and Records Association, said over the past several years gradually the moves needed to sign various origination forms have fallen into place.
“The IRS has been the last one to say, ‘We will accept electronic signatures on this very important form,’” he said, noting that the process took some time because the document is a key one when it comes to fraud prevention.
“They just want to do this right,” he said. “Ultimately, the issue was that they had zero tolerance for identity theft and fraud. So they needed to be very sure of the system and the processes they were using would be at least as good as the paper processes.”
Moyle, whose company’s system was used in the pilot to test the process, said there is a set of specific requirements that the IRS has recently released for the electronic signatures on this form.
“There are certain requirements and mechanisms that they want to see submitting companies use. For example, there are certain types of authentication that they will accept, that they recommended.”
There also are requirements for record retention, auditing and testing of procedures by third parties and an audit trail, Moyle said.
“Specific types of information has to be captured,” he said.
When asked about what the industry and vendors might need to do to gear up for e-signatures on 4506-T forms, Moyle said, “We know we’re ready. I think IRS has been very fair balancing their needs against the technology out there. The industry might need some slight tweaks to processes to prepare.”
The efficiencies gained in allowing e-signatures will be worth any tweaks made to implement them, he said, when asked about this.
“The fact that mortgage originators and brokers can actually capture this information—the consent of taxpayer [to check the tax information], electronically—has streamlined the process tremendously,” said Moyle, noting that there is “no question” that there will be efficiencies that will outweigh any implementation burden.
When asked if there is a particular type of e-signature, such as a click-sign versus one done using a electronic pen and pad, that the IRS’s criteria support, he said the goal was not for a “specific kind of e-signature” but more that there be a “heightened level of assurance” of the integrity when it comes to the e-signatures for this form.
He said the required controls “should be standard for electronic signatures and records” as they are in keeping with the kinds of best practices groups like ESRA back.
“ESRA deserves a big shout-out on this one,” Moyle added.