The recent government shut down has
left thousands of purchase and refinance loan transactions high and dry as some
lenders are unable to fund loans without 4506-T income tax verification from
the IRS and Social Security number verifications. These verifications are
standard guideline requirements and many banks have been unwilling to fund
loans without them. As the congressional deadlock continues, a growing number
of lending channels has emerged that are able to commit to funding their loans
without the verifications. And as time goes on, more and more lenders are
likely to feel the pain of lost opportunity and enter the fray.
Thus far, the greatest flexibility in addressing
the government shutdown funding hurdle has been found in conventional, FHA, and
VA loans. Jumbo loans (those above the High Balance conforming limit of
$625,500 that applies to many Bay Area counties) are typically more stringent
with their underwriting requirements. Although some jumbo investors are willing
to fund without the 4506-T and Social Security verifications, many will eschew
applications with 2012 extensions filed later this year. The reason for their apprehension
is due to the increased lag time and exposure they would have for files with
extension filings. Normally, verifications from the IRS and Social Security
Administration are provided within 48 hours. Depending on how long the
government shutdown continues, there could be a considerable backlog of 4506-T
processing requests. Verifications on tax filings made in April could take several
weeks to process and those for delayed filings that have yet to be processed would
likely take much longer. The bottom line: any loan involving jumbo financing should
be handled with greater care.
Although an increasing number of lenders will be able to work around government shutdown issues in the coming weeks, and added ounce of caution is advised when working through any loan. Here is a short list of other scenarios that warrant increased scrutiny:
- Loans for borrowers with more than 4 financed properties.
- Borrowers with mid FICO credit scores below 700.
- Loans with Red Flags associated with the borrower’s social security number.
- Low FICO loans with borrowers showing multiple social security numbers.