WASHINGTON — Mortgage lenders are bracing for big delays in the processing of mortgage applications, citing a problem at the Internal Revenue Service.
The agency made changes to its authentication system, which verifies tax returns provided by mortgage applicants, on Dec. 8. The system, known as the Income Verification Express System or IVES, is designed to ensure the tax returns are not fraudulent.
But mortgage groups claim that problems with the system surfaced on Dec. 13, less than a week after the IRS made changes to it.
"The bottom line is that mortgage closings are going to be delayed by many, many months," said Anne Canfield, executive director of the Consumer Mortgage Coalition. The "ripple effect of having closings delayed significantly will be extremely harmful to consumers, the industry and the economy.”
The IRS has not confirmed the issues and did not return efforts to contact it for comment.
Industry groups, including the American Bankers Association, Mortgage Bankers Association, National Association of Federally-Insured Credit Unions and the National Association of Home Builders, are also urging the IRS to act quickly to resolve the situation.
"Without an immediate resolution, we believe that the IRS change will begin affecting consumers’ ability to borrow funds to purchase homes," the groups wrote in a joint industry letter sent to IRS on Friday.
In an interview Saturday, Canfield said that because of the issue, loan processors must verify the incomes of mortgage applicants by comparing paper documents.
"It is looking like a train wreck," she said.
Canfield said industry leaders are hoping to set up a conference call with the IRS commissioner early next week — possibly Monday — to try to resolve this issue.
"One possible solution would be to roll back the recent implementation and allocate sufficient time for the IRS and affected parties to evaluate and test proposed changes," Canfield said.