IRS continues repair of income verification system after mortgage industry panic

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WASHINGTON — The IRS has taken corrective actions to speed up its income verification system, avoiding a possibly crippling slowdown for the mortgage industry.

But issues related to recent changes with the system, which prompted widespread outcry from mortgage and banking groups, have not been fully resolved.

"I have been advised that the system is working well enough to keep up with current volumes," said Anne Canfield, executive director of the Consumer Mortgage Coalition. "However, this level of performance may not be good enough as we get deeper into the 2018 home-buying season.”

Verification application volumes have been light over the holiday season, which has allowed the IRS and industry to test possible fixes and solutions, according to Rick Hill, vice president for industry technology at the Mortgage Bankers Association.

"But we are going to have to be vigilant in January,” he said. “The changes that have been implemented have fixed many of the issues. But it is unclear if the changes will be able to handle the higher post-holiday volumes.”

"Hiccups are still occurring,” Hill said.

“Some higher-volume vendors have indicated that the short-term fixes are working," he said. "But it is not what it needs to be long-term."

Lenders began to notice a slowdown in the IRS income verification process in mid-December that the industry later learned resulted from changes the IRS made in order to make the system more secure.

During a Dec. 18 conference call with industry groups, IRS officials said they were working to fix the problems and reduce processing times.

Since then, IRS officials have set up a working group to keep industry groups up to date on the status of the repairs, changes to the verification system and to discuss Income Verification Express System issues going forward, Canfield said.

Lenders depend on IVES to verify the incomes of mortgage applicants and other borrowers to prevent fraud.

Several years ago the turnaround time for IRS verification requests was about two business days. But today, thanks to higher volumes and reduced IRS resources, the normal turnaround time is four to five days. During crunch times for IRS, such as the April tax season, income verifications can take up to10 days.

Canfield said that the IRS is considering "truncating" certain personally identifiable information in the verification transcript. "Depending on their approach, this could also have adverse ripple effects," she said, and slow down the processing of verifications.

The IRS has not responded to request for comment.

Meanwhile, mortgage lenders remain concerned about the IRS verification system.

“CHLA appreciates IRS’ efforts to fix and speed up its income verification system,” said Scott Olson, executive director of the Community Home Lenders Association. “We also understand the IRS has a herculean job in quickly making changes to adapt to the enactment of tax reform — but we urge the IRS to make this particular issue a priority, so that the system can keep up with potentially increased loan volume as we head into spring.”

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