Tax Return Verifications (TRV) are used to verify the validity of a borrower's income by referencing tax returns filed with the Internal Revenue Service.
TRVs are used by brokers to streamline the loan approval process, while lenders use TRVs as a fraud prevention and quality assurance tool. Also known as a Form 4506, TRVs are a low-cost method to determine a borrower's income quickly and reliably.
With the increased use of technology, statistics show that fraud is increasing at an alarming rate. According to the FBI, mortgage fraud continues to show an increasing trend nationwide, with more than $30 billion in fraudulent loans processed annually, resulting in billions of dollars of losses to the mortgage industry and increased costs to consumers.
As borrowers become more adept at altering tax returns and income documentation, the lender's exposure to income fraud increases. The most reliable way to verify tax and income information is to obtain tax transcripts directly from the IRS. Known as a Tax Return Verification (TRV) or a Form 4506, these transcripts are used to compare information provided by the borrower with what was actually filed with the IRS.
Lenders typically use the TRV as a fraud prevention tool, as well as performing quality control on funded loans. The TRV is also a convenient method for borrowers to supply income information during the loan application process without having to search for old records that may have been lost or misplaced.
Ordering a TRV
The IRS Form 4506, "Request for Copy of Tax Form," is a document that is completed and signed by the borrower, either during loan application or loan closing. This form is required to be signed by the borrower and is used as an authorization to obtain tax documents that filed by the borrower or business for a particular year or years.
The signed Form 4506 is submitted to the IRS and the documents are searched, retrieved, and sent back to the requestor. This process used to take as long as one to two weeks, severely delaying the funding process. Today, thanks to the application of new technology, tax return verification vendors have been able to speed up the process to within 48 hours or less.