After the conclusion of a successful pilot program, the Internal Revenue Service is planning to roll out the production version of its electronic signature capabilities for Form 4506-T by the end of 2012, according to officials who detailed the plans during at the Mortgage Bankers Association’s Technology Conference in Phoenix.
National Mortgage News was the only independent publication present at what were the IRS’s first public comments about the 4506-T e-sign initiative. The form, also called the “Request for Transcript of Tax Return,” is a crucial income verification tool for mortgage lenders and other credit-based lenders, but is the only document in the initial disclosure package of government-sponsored enterprise mortgages that must be ink, or wet, signed.
That discrepancy has long been a burden for lenders and an impediment to widespread e-signature adoption in the mortgage industry. Currently, the borrower wet signs the form and returns it to the lender or third-party 4506-T vendor, who has to fax it to the IRS. Critics have long bemoaned that taxpayers can e-sign their tax returns, but can’t e-sign the form to get a copy of that information.
Paul Mamo, IRS deputy director of submission processing, acknowledged that the program is a long time coming since the passing of the federal Electronic Signatures in Global and National Commerce Act in 2000.
“I know the ESIGN Act has been around for 12 years and here we are just now talking about E-sign for transcripts,” Mamo said, adding, “I wish we had been there a few years ago, but I’m confident we’re going to be able to roll this out by the end of the year.”
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Kingstown, R.I.-based Embrace Home Loans was one of the lenders that participated in the pilot. Al Dussinger, Embrace’s executive vice president and chief technology officer, praised the initiative.
“Out of anything I’ve implemented over the past 20 years, nothing has gone this well,” he told the audience. When the lender sends documents for wet signature, borrowers miss as many as 10% of the signature lines, despite large visual cues on the papers. “All of that goes away with e-sign,” Dussinger said, adding that Embrace’s retail channel was able to get disclosure packages completed in about an hour, a significant reduction in time from the paper-based process.
In addition to the announcing a tentative date for the e-sign program, IRS officials detailed plans on a second pilot program for an e-transcript initiative, an entirely new, automated process that would eliminate the need for borrowers to sign a 4506-T form entirely.
The e-transcript process is intended to be an additional option, rather than a replacement, for the wet- and e-signed 4506-T. The process would require borrowers to create an account on an IRS website using personally identifiable information the IRS has from the tax returns. From there, borrowers will be able to request transcripts be electronically delivered to the lender of their choice.
A proof of concept will launch this summer with 10 technology vendors and a group of 20 mortgage lenders that span the breadth of the industry, including nondepository mortgage bankers, credit unions, community banks and a megalender, said Jim Weaver, IRS online services director of product management. According to technology vendors familiar with the pilot, Chase Home Lending is the large lender participating in the program. Wells Fargo has also helped with the e-transcript development, but won’t join the test program until later.
With e-transcript, after a request is made, the data is automatically delivered to lenders within minutes, rather than the current two-day turnaround time. But one concern brought up during the presentation was that the e-transcript process requires the borrower to independently take action to move a loan application forward, which could slow down processing times or lead to higher fallout rates when borrowers forget or simply don’t request the transcript. Weaver acknowledged that change doesn’t come instantly, but that initiatives like the e-transcript are important steps forward.
“How are we ever going to get to an electronic world if we don’t actually ask people to go and do it electronically?” Weaver asked.
In addition to increased speed and efficiency in providing lenders with tax information, the IRS believes the new processes will improve taxpayer security and privacy. Stronger authentication measure in the e-sign and e-transcript process help deter fraudsters.
“Here’s the crazy thing: we get wet signatures, but it could be [a borrower’s] 12-year-old signing it. I don’t know. We don’t have handwriting experts looking at these things,” Mamo said. “So we think this is going to be a better way of doing this.
“We think these requirements will protect the government and consumers and we think that these will be satisfactory” to the industry, he added.
