IRS to accept electronic signatures on 4506-T form

Today, five days after President Obama signed the fiscal cliff legislation into law via autopen, the Internal Revenue Service (IRS) will begin accepting electronic signatures on the common mortgage origination document, Form 4506-T.

This is the beginning of an electronic trend for the 2013 mortgage market. The acceptance of electronic signatures on the request form will reduce paperwork requirements for lenders and borrowers, and should speed up the process for closing or modifying a loan, according to the Mortgage Bankers Association (MBA).

“The current process for requesting a borrower’s tax return transcript is labor intensive and time consuming,” said MBA president and CEO David H. Stevens in a statement on the company’s website. “With this announcement, the IRS is making this process much easier and more efficient. As anyone who has purchased or refinanced a home can attest, the volume of paperwork involved can be quite burdensome. Allowing for electronic signatures will save time and reduce the likelihood of errors or loss of documents. This is a win for consumers and lenders alike.”

4506-T forms were the last remaining documents in the loan origination process that required a handwritten paper signature. The tax return transcript is a requirement for the majority of all mortgage originations and loan modifications. Lenders use the form to verify the income of borrowers.

When signed by a taxpayer, Form 4506-T authorizes the IRS to release transcripts showing previous tax returns, W-2 data, and 1099 information to a third party. This third party can be a lender, employer or even one’s accountant. The great majority of requests for tax transcripts come from home lending institutions, mortgage brokers, and real estate firms serving their clients.

“The actual e-signing of the 4506-T is minimal. This has been the hold out document, so to speak. The excitement is that ‘now I can do my total origination upfront electronically,’” said Kelly Purcell, executive vice president of eSignSystems.

There are a number of electronic signature requirements that will ensure security for those using the newest technology. The IRS has indicated that other forms approved for electronic signature will follow.