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Big lenders are experiencing success with a new program that links them up with the Internal Revenue Service for the purpose of verifying stated income on mortgage applications. For this program, mostly used in conjunction with self-employed loan applicants, the IRS is asked to verify the stated income. Those that fall significantly short find themselves with two problems. First, the loan may be refused, and second, the IRS may decide an audit is in order.
Among the 31,985 loans for which the IRS was asked to verify income, 1,687 cases revealed substantial misstatements. The experimental program is to run for two years and the turn-around time is just 48 hours. Prior to this program, the verification procedure was done via mail and could take 30 to 60 days.
In some cases, potential borrowers were found to have committed mortgage fraud, tax fraud or both. One individual was found to have omitted $545,000 in partnership income—the unlucky fellow was referred to prosecutors.
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