The Changing Face of 4506T’s and Lock Periods

This is a guest post written by Clarion Mortgage CEO, David Marr. Originally distributed as an internal email to LO’s, it has been reformatted to read as a general market commentary without addressing specific bank or loan scenarios.

Yesterday not the first of many complaints came to me regarding an important issue that will only increase going forward.  This is an industry issue and will soon become the norm.  An LO submitted a loan to a bank, got a full approval with the condition of a 4506-T.  The borrower was FULL DOC W-2, $180,000 per year no brainer.  The bank ordered the the tax transcripts via the 4506T on 12/26 and, once received, the LO got a new condition on 1/6 requiring 2 years tax returns, thus killing the lock.

This example illustrates that the industry is moving toward 100% 4506T usage on all files.  Incidents of fraud are surprisingly UP! as borrowers are pursuing false documentation to solve their loan needs now that Stated Income programs are gone.  In the next 3 months, we believe submitting pulled taxed returns will be a requirement from all investors as borrower/originator credibility continues to be questioned.  But that’s irrelevant now.  In order to save time and save your locks, it makes sense to provide pulled tax returns and present them in the file.

The Process is Evolving

The problem is LO’s won’t be able to sign up with the various companies that pull the tax returns as if it’s a credit report.  So Clarion will have to do it.  Different banks require different vendors for this process.  We’re going to investigate the whole process, staff up, and take it off your plate as quickly as we can in order to save some of your deals.  Expect an email on this soon.

Regarding locks, every day I get emails requesting help with some investor, asking for a free extension because of long underwriting times, pleading for a funding exception due to the lock expiring before the 5 days Clarion must have in order to comply with our warehouse line. BE PRUDENT and lock a long time.  More than you think is necessary. Underwriting and condition times are only going to get longer.  Conditions aren’t going to get any less frustrating.  And Clarion is less and less likely to grant an exception as the margin for error becomes less and less.  The industry is SIGNIFICANTLY less forgiving than in past years.  And Clarion has to respond accordingly.  Unfortunately, that’s the way it is.

Moving Forward

As we’ve been saying for quite a long time now, the industry has changed.  The LO must be more of a professional than just a salesperson.  A professional knows more than just loan programs.  Yes, the mortgage professional must navigate the underwriting process and get the loan to funding, but more so now the professional must understand the forces in the business that require a new level of agility.

Longer locks, tighter compliance, understanding the constraints of everyone’s business processes are examples of how the industry’s changes affect the LO.  Successful LO’s look to these challenges as opportunities to grow as a person and become more valuable to the marketplace and not see them as hassles in the way of the good life.  Coming to a mortgage company near you are changes to ordering appraisals, the new GFE, potential national registration, and more costs to explain to your customer.  I don’t think it’s ever easy to grow, but those that tough it out and do grow; it’s the road less traveled.  And that will make all the difference.

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