Where readers ask, and we (the community) try to answer (in the comments below, so don’t be shy):
“For the past 12 months, all our attempts to refi to lower the rate to 5.25 or better have fallen short. Many times, it starts great – then stops short when reaching the line that says I don’t work regardless of any other financial info. (2 borrowers = 2 jobs for more than 24 months each)
We have found a broker that is ok to attempt a refi – but he’s asking for “Copies of 2007 and 2008 W2’s and 1040 Federal Tax Returns (all pages and schedules)”
Although I understand where this request comes from (and I agree that lax practices created the current mess) I’m extremely concerned about giving our most intimate and private information away.
From my point of view, there is absolutely no justification for disclosing to a loan officer:
– all details of all the medical bills.
– all details of fertility treatment, adoption, abortion and other family expenses and whatever items that can be listed.
– all details about your nanny and other children care expenses.
– all details about your religious life – who you gave to, and how much
– all details about your political life – who you supported and how much
– all details about your off shore bank accounts, details about your children college accounts, and other private stashes of money,
– a complete copy of your foreign tax returns
-etc.
The broker was adamant that banks are not accepting 1040 with ANY data missing, pages missing, lines blacked out….
If I understood correctly, an application including the authorization for the release of the Feds records (4506-T) – but missing OUR voluntary copy of the tax return won’t be accepted either (something we would have – somehow – agreed to).
The broker wouldn’t even understand why I agree to disclose this info to our accountant and to the Feds – and refuse to give it to several banks/lenders.
And so we get to my questions….
1. What is the legal ground for such a request – and is there a way to work with that type of requirement?
2. What are the legal protections against misuse of information – like personal retaliation (someone [posting] your info online or somewhere else?) – or even plain discrimination (loan officer doesn’t appreciate your political support on prop 8, or refuses to loan to an HIV positive couple?)
3. How much is my information worth? Where is the threshold when the savings is more important than my privacy?
Any information you or your readers can provide would be much appreciated.
Sincerely,
[A Regular Reader]”
Your asking something of the bank first, “Can you loan me a ton of money for less than we are paying for it now?” And, they are saying yes we can but prove to us you qualify. You aren’t forced to deal with them, you can just keep paying what your paying and keep your privacy to your accountant, hospital, insurance provider, federal government, and state government.
Sorry sparky-b, but I think you have it all wrong. Those are VERY legitimate questions the reader is asking..and I see absolutely no reason why a bank needs so much personal and private information. I think it’s sleazy of them to ask that much. The criteria should be income/assets/debts and thats IT. many of us have come to widely mistrust almost any bank because of this type of practice.
Noearch, that’s what they are asking for (income/assets/debts). They just want to see it clearly in a tax return. So they know you didn’t just max your credit cards and put it in your savings account, or borrow it from your aunt last week. The banks who are giving out loans are being scutinized by the gov’t to make sure any new loans are good. If they didn’t need the info. they wouldn’t ask for it, but they do. The borrower on the other hand doesn’t need a re-fi, they just want it.
As a self employed person I get more scutinized than that. I liked it better the old stated income way myself, but this is the state of lending.
look you don’t get to set what the bank asks for unfortunately, we tried that before and it didn’t work. As everyone else has already noted you are not forced to refi and they are not forced to lend to you.
ok, I agree in principle with that, but that does NOT give a bank or lending institution the right to unethical practices…like asking to see info about medical issues, religious donations,political affiliations,etc.
Why shouldn’t the borrower be allowed to blank out those areas on the 1040 tax form? just because that info is on the tax return does not mean the bank needs to see it to qualify the person for a loan or re-fi.
interesting debate. how does it look like for first time borrowers? Anybody here applying for a primary mortgage right now? what is your lander asking/did ask?
and i don’t get the “not blacking out” thing…. what does it prove, or what does it not prove?
I think I need to read my own tax return with those questions in mind – page by page, line by line.
———–
on the 4506 T form. What is that form?
I find this:
http://wiki.answers.com/Q/What_is_form_4506-T_and_when_is_it_used
anybody has seen one before? what is different between the IRS printout and the 1040?
Political donations aren’t tax deductible, so that’s a bit of a red herring.
Regarding the requirement you include all your tax return schedules, the bank is trying to assess the likelihood that you will be able to pay back your loan. This is more than income/assets/debts. Expenses are also material to the evaluation. They’d be irresponsible not to try to ascertain the cost of your day-to-day life: childcare, education, medical or anything else. If any of these elements comprises a larger-than-standard portion of your income, they need to evaluate your application and your ability to pay in that light.
If I make $200,000 and regularly have medical costs of $40K annually, I am a very different borrower than if I have only non-deductible medical expenses (less than 7% of income), and the difference in the amount of mortgage I could afford would be nearly $100,000.
As for how much the information is worth, that’s a totally personal decision. It clearly comes through in your post that this really bothers you, so my advice would be to think about whether you are 25 basis points of uncomfortable (or 50bp, or whatever you believe you can save). If your employer offered you an annual raise of this amount, in exchange for your providing this information, would you take it?
Alex, your reader should read this page
http://www.sfchronicle.us/cgi-bin/article.cgi?f=/c/a/2009/10/11/REAJ1A1H1A.DTL
it’s a Chron (local) article from october 11th (recent).
And it also raises abuse risks .. altho it doesn’t provide any detail, nor solutions beside reading twice before signing anything.
Weird, I’ve never been asked that kind of personal stuff before and I’ve bought multiple properties.
Maybe the lender is just trying to hit on you?!
@Financial Samurai
If I understand the question properly, the broker/bank isn’t asking these questions directly. Instead, they are asking for complete tax returns, which happen to include such information.
Your bank has some strict regulations regarding your financial information. If you’re going through your current bank, the information you give them probably falls under those protections.
If you’re going with a new bank, however, you may have less protections.
Things get even worse when you’re dealing with a broker. I’m not sure if they have any regulation that dictates how they handle financial information.
Even if they do, the current sentiment is that brokers’/banks’ violation of regulations is part of the reason behind the subprime fiasco. How much can you really trust them? After the Great Depression, people didn’t trust bankers for a generation. Perhaps we’ll see something similar this time.
Unfortunately, I’m not sure there’s anything you can do. Ultimately, the banks/brokers have a lot more power in the negotiation than you do. And, the individual you are dealing with likely doesn’t have the authority to waive documentation requirements, especially in the current climate.
Perhaps you can work with a broker and tell them that you’re not willing to give these kinds of information. Ask them to shop around for a bank that doesn’t require it. You may be forced to pay a premium in terms of your interest rate, though.
RS Form 4506-T allows lenders to verify that the tax return copy (stating w-2 wages, investment income, sole proprietorship income, capital gains, rental property income, s corp, partnership, LLC and or trust income) match was filed with the IRS. Prior to banks requiring borrower signatures on this form; borrowers would inflate income numbers to qualify for loans that their IRS filed income would not allow them to qualify. This is only one small example of how Banks/Federal regulators are slow to find a solution to fraud. It will take many years for the banks/regulators to undo the mess that has been unfolding for the past few years.
The current environment is full documentation required; meaning every penny of income, assets and existing outstanding debt is verified. If a borrower wishes to refinance their existing mortgage or apply for a 1st time mortgage, be prepared for the overwhelming documentation requested by your lender.
As for privacy concerns, every bank employee must sign a document, with penalty of termination; to state that we will safeguard all customer and prospective customer “sensitive” information. Bank’s are under Federal Regulations to ensure that their employees comply with those regulations, with fear of substantial penalties and damages for loss of sensitive information. As a long time bank employee, I am not familiar with any such regulations governing mortgage brokers; so I can’t speak to the safety measures used by brokers.
The bottom line is, if you want a new loan in this current environment; be prepared to provide documentation.
…and to the person wanting a new loan or re-fi, be prepared to question everything the bank asks you and tell them that all of this information is STRICTLY PRIVATE.
the reason is for fraud prevention do you know how many people create one tax return to send to the bank and then they have a totally differnt one that they file with the irs. thats all its about. thats for the 4506 form as for tax returns all pages there is alot on your tax returns besides your income and the banks want to make sure you really can afford to pay them back. for instance if you have multiple properties or if your self employed and your expenses out weigh your income. like they said your asking for alot of money with not giving them the info. would you lend someone a majority of your money without asking them how they will pay you back and then making sure what they say is true.
I know this is old, but bottom line…. If you don’t trust your lender enough to give them complete, unredacted, tax returns…. What the hell are you doing giving them a priority security interest, and right of foreclosure, in what is likely your largest financial asset… your home. Think about that for a minute… you say “I don’t trust them with this information”…. okay….. so you damn sure shouldn’t trust them with YOUR HOME! You should pay off your mortgage, and own your home free and clear.