Danny Salas

Strategies For Processing 2011’s Income Tax Returns

(Originally written for 2010 taxes, but still applicable and helpful!)

4506-T Form Processing Needs To Be Particular

Requirements for 2011 IRS Transcripts

When filling out an application package, you’ll notice a form called the 4506-T.  This form enables a lender to obtain an electronic print-out of the Federal 1040 Tax Returns that have been filed with the IRS.  If the tax returns provided do not match the computer’s electronic print-out, line-by-line, than the loan may not fund.

Why Buyers should physically take their 2011 Returns to the Local IRS Office

E-filing could be an eight to 12 week wait, before a buyer’s loan may fund, causing Escrows not to close on time!

What If The Print Out Is NOT Available Yet?

Generally speaking, if the electronic print out was not available, than you couldn’t use that year’s income, from the 1040’s.  If 2009 was not a particularly good year, and you need 2011’s income to make certain that your qualifying ratios work, for the home of your dreams…than there’s a dilema.  Answer:

For loans underwritten before April 15, 2011, if the borrower has filed their 2010 tax returns, and the tax transcripts are not yet available, the tax transcript request will be returned from the IRS and reflect “No Record Found”, the following must be provided:

• 2011 Tax Transcript showing “No record or return filed”; and,
• Copy of the 2011 Tax Return, and,
• For Salaried Borrowers: a 2009 and 2010 tax transcript, current paystub and 2011 W-2;
• For Self Employed Borrowers: a 2009 and 2010 transcript, and 2011 1040’s stamped received by local IRS office along with 2009 and 2010 tax returns.

Don’t worry about the transcripts.  Access Real Estate Lending’s Processing Team takes care of ordering and processing the forms, using the 4506-T form, through an IRS portal.

Common Scenario question:

Self Employed borrower has filed their 2011 returns (no transcripts available yet) and they need the 2011 income to qualify for the loan. (Yes) We can drop 2009 income and use 20010 and 2011 provided the 2011 increase is “reasonable.” In order to do this, we must have copies of 2010 tax returns STAMPED received by the local IRS office. Unfortunately the copy of Electronic filing of 2010 returns is not acceptable, a copy, of the 2011 returns, must be a stamped copy, from IRS office.

We will provide further direction the closer we get to April 15, 2012. At that time we can give guidance when borrowers are filing extensions and what will be required. This policy is subject to change as we receive direction from our investors.

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Chico, CA Interest Rates Market Report – Economic Influences – November 18, 2010

Why Are Rates Skyrocketing?

There are a couple of things occurring.  QEII is taking effect on the market, and deflating the value of the dollar, worldwide.  The U.S. is doing the exact same thing, it has ridiculed other countries of doing, in the past.  Quatitative Easing II is the government’s stimulus program to actually cause inflation (interest rates’ worst nemesis), in order to spur economic life, into an increasingly dead economy.

The second main issue is, again, Europe.  This time, it is Ireland.  Ireland’s financial banking system is at the brink of complete collapse.  Therefore, as we’ve seen in the past with other European Countries, the European Central Bank (ECU) and the International Monetary Fund (IMF), have stepped in and offered a deal to Ireland, that they may not be able to refuse.

Why would Ireland Refuse Help?

Pride!  Simply, put…Pride, Austerity, and higher taxes.  Ireland has the lowest tax rate of any European country.  And the concern is, that if they accept this assistance, they’ll have to raise taxes and perhaps cause the unrest that Greece had to endure, through their financial fiasco.  In economics, austerity is when a government reduces its spending and/or increases user fees to pay back creditors.  Austerity is usually required when a government’s fiscal deficit spending is felt to be unsustainable.

Safe-Haven Treasuries, Not As Safe

Investors Moving Money

During the uncertainty in Europe, investors tend to move their money into the safe-haven of U.S. Bonds, Treasuries, and Mortgage-Backed Securities.  However, with a plan on the table to revitalize Ireland’s financial stability, that safe haven is less attractive, and therefore, money pours out of these places, and into Stocks, Bonds, Gold, Oil, etc.  This causes rates to increase.

Hold Your Horses

Europe is still not out of trouble.  Greece, Portugal, Spain, and Italy, are all beginning to show signs, again, of financial trouble.  Their banking systems may need more bailout help, as they already have experienced.  If this rears its ugly head again, we could see these same investors shuffle money back into the safe-haven of U.S. Bonds and Mortgage-Backed Securities…causing rates to move downwardly again.

Watch Europe Carefully…Rates Could Benefit

Locking In

If you haven’t done so, already.  You’re not working with the right mortgage banker.  However, if you or your client, just had your application taken…I’d hold out and watch what happens with Greece, Portugal, Spain, and Italy.  We may have a small rebound, after suffering HUGE losses, this past two weeks.

Related Must Reads

Past European Troubles
Greece’s 1st Financial Rescue Program
Portugal’s Past Troubles

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Chico, CA Interest Rates Market Report – Economic Influences – October 15, 2010

The members of the Federal Open Market Committee, for the first time in a long time, have come out publicly in disagreement on what the next step for helping the ailing economy should be.  The FOMC Meeting minutes clearly show that there is disagreement on how the next phase of government stimulus / quantitative easing should be implemented.  Some members feel that more data needs to be accumulated before action is taken while others are saying that action needs to be taken sooner than later.  Regardless it appears highly likely that some type of action will be taken by the November elections. (Can’t imagine why that might occur, can you?)

Mortgage rates are hitting record lows and with the prospect of more government stimulus, the expectation is that rates will fall even further.  As of last week the national average for the 30 year fixed rate was 4.21%.  Mortgage applications for last week saw a surprising decline of 8.5% fir purchase applications.  No real explanation has been offered as to the cause of the slowdown however some people speculate that the barrage of news regarding the suspensions of foreclosures may have pushed buyers to the sidelines.  Additionally, some transactions that were started were also halted due to the foreclosure filing mess.  Refinance applications are going strong as they represent 83% of all mortgage applications for the past week.

Economic reports outside of housing continue to show no real direction for the economy.  The positive news reported this week was that inflation on the wholesale and retail levels are not a concern at all.  On the flip side however is that talk is starting to surface that the level of inflation is becoming almost to low which can be an indication that we may enter a deflationary economy.

On the surface some may say, “Hey if prices are going to drop, that is great news for me”.  However what happens in a deflationary economy is that if consumers recognize that prices are falling, then they will start to keep their money in their wallets and wait for lower prices.  If people start to hold off on purchases, then the whole recession cycle starts all over again.

Before anyone reading this begins to panic, it is important for you to know that last month retail sales came in higher than expected.  So at least for right now, consumers are spending money and that concerns about deflation, at least on the consumer level does not exist.

Employment still continues to be a drag on the economy.  First time jobless claims came in higher than expected and actually rose by 13,000 from the previous week.  This is the first increase in jobless claims in a month.  Continuing jobless claims continue to drop and some government officials are trying to leverage this news for political gain.  The truth of the matter is that the only reason why continuing jobless claims are declining is because more and more people are dropping off the unemployment rolls as their benefits run out and that no more extensions are available.

One of the ironic reports this week is Consumer Sentiment.  This report came in worse than expected and showed that people are becoming more concerned about the future of the economy.  The irony is in that Retail Sales continue to improve which is not what one would expect to occur if people are not optimistic.

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Appraiser Independence Requirements

Replacing Home Valuation Code of Conduct Code

On or around October 21, 2010  Federal Housing Finance Agency (FHFA), Freddie Mac and Fannie Mae will will have created and executed new appraiser independence requirements to follow the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).  Until the change is released in the upcoming Selling Guide announcement, existing  provisions of the HVCC will still apply.

The Change

The revised requirements will continue to help us ensure that the highest standard of appraisal reliability and appraiser independence are retained. It will also maintain the spirit and intent of HVCC, and continue to provide important protections for mortgage investors, home buyers, and the housing market.

During this process, Freddie Mac has been recieving information and other valuable input from key industry participants.

For more information, visit the Home Valuation Code of Conduct Web pages on FreddieMac.com.

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