Open question to lenders and their underwriters - Why are you so dumb???

Private Lending & Conventional Mortgage Advice

Open question to lenders and their underwriters - Why are you so dumb???

Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes

I'm a CPA, serving real estate investors.

This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:

All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.

Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.

In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.

So tell me.. Please, because I'm dying to know. Why are you like this?

Podcast Guest on Show #244

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Patrick Roberts

Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes

Quote from @Linda Weygant:

Quote from @Chris Seveney:

Quote from @Linda Weygant:

I'm a CPA, serving real estate investors.

In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.

So tell me.. Please, because I'm dying to know. Why are you like this?

I believe its a CYA thing for the institutional lenders who are buying these loans and its there requirement.

OK. But WHY is it their requirement?

Because you are dealing with the federal government. The vast majority of loans are Conventional (Fannie/Freddie), FHA, VA, or USDA, and are directly or indirectly subsidized by the federal government. All of the guidelines for these entities are publicly available and are written by the staff of appointees of the agencies that administer them - the FHFA, HUD, VA, etc. All federal bureaucracies.

Most lenders sell their paper to one of these entities, and the guidelines are either A) very specific about the forms that are required and the substitutes that are allowed and not allowed, or B) nearly deliberately vague to the point where the seller (i.e. lender) has to guess at what's required. Sound familiar?

If lender's dont check all the boxes and provide the correct forms when required, they get hit with buybacks, meaning they have to buy the loan back from the aggregator/entity/agency. This is insanely expensive for lenders and, if buybacks get out of control, can literally wipe out the equity capital of a lender, causing insolvency.

If you think a lender is going to risk a $40k or $50k loss because you want provide a different form than what the govt bureaucracy is known to accept, youve got another thing coming. From a solvency standpoint, it's much better to tell the borrower to kick rocks than to roll dice on an untested and/or unproven document. Im not saying this makes sense - Im saying that in the lenders are not incentivized to use common sense - theyre incentivized to use the forms that are proven not to cause losses. In other words, the CRO or UW manager/leader is saying "this other form is probably good enough, but I know for sure that 4868 works and I'm not willing to gamble tens of thousands to test this other document."

Some lenders go over the top with zealous adherence to guidelines and not straying from the known path because they recently got hit with a string of buybacks. For example, an underwriter or risk officer goes out on a limb doing something that seems to be common sense (like accepting a different form from a CPA than one that has always worked), only for the loan to come back to the lender 60-90 days later as a defective asset. Then a memo comes down from management saying the next person who does something like this will be shot on sight because the lender just lost $50k to make someone's life easier by allowing a different form.

For instance, in 2023, FNMA released selling guide announcements that alternative documentation for a 4868 could be accepted. In cases like this, what they will accept as a sufficient alternative is anyone's guess until you've tried something and either it worked or you got burned. No one wants to play the "test and find out" game, they want to play the "I know this form works and I dont get paid any extra to bear the risk of trying this other form" game so they dont take losses.

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Linda Weygant:

I'm a CPA, serving real estate investors.

This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:

All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.

Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.

In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.

So tell me.. Please, because I'm dying to know. Why are you like this?

I believe its a CYA thing for the institutional lenders who are buying these loans and its there requirement.
7e investments53 Reviews
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- Linda WeygantPro Member
  OP
  Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
  1y
  Quote from @Chris Seveney:
  
  Quote from @Linda Weygant:
  
  I'm a CPA, serving real estate investors.
  
  This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:
  
  All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.
  
  Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.
  
  In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.
  
  So tell me.. Please, because I'm dying to know. Why are you like this?
  
  I believe its a CYA thing for the institutional lenders who are buying these loans and its there requirement.
  
  OK. But WHY is it their requirement?
  Podcast Guest on Show #244
  0 Reply
- Patrick Roberts
  Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
  1y
  Quote from @Linda Weygant:
  
  Quote from @Chris Seveney:
  
  Quote from @Linda Weygant:
  
  I'm a CPA, serving real estate investors.
  
  This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:
  
  All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.
  
  Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.
  
  In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.
  
  So tell me.. Please, because I'm dying to know. Why are you like this?
  
  I believe its a CYA thing for the institutional lenders who are buying these loans and its there requirement.
  
  OK. But WHY is it their requirement?
  
  Because you are dealing with the federal government. The vast majority of loans are Conventional (Fannie/Freddie), FHA, VA, or USDA, and are directly or indirectly subsidized by the federal government. All of the guidelines for these entities are publicly available and are written by the staff of appointees of the agencies that administer them - the FHFA, HUD, VA, etc. All federal bureaucracies.
  Most lenders sell their paper to one of these entities, and the guidelines are either A) very specific about the forms that are required and the substitutes that are allowed and not allowed, or B) nearly deliberately vague to the point where the seller (i.e. lender) has to guess at what's required. Sound familiar?
  If lender's dont check all the boxes and provide the correct forms when required, they get hit with buybacks, meaning they have to buy the loan back from the aggregator/entity/agency. This is insanely expensive for lenders and, if buybacks get out of control, can literally wipe out the equity capital of a lender, causing insolvency.
  If you think a lender is going to risk a $40k or $50k loss because you want provide a different form than what the govt bureaucracy is known to accept, youve got another thing coming. From a solvency standpoint, it's much better to tell the borrower to kick rocks than to roll dice on an untested and/or unproven document. Im not saying this makes sense - Im saying that in the lenders are not incentivized to use common sense - theyre incentivized to use the forms that are proven not to cause losses. In other words, the CRO or UW manager/leader is saying "this other form is probably good enough, but I know for sure that 4868 works and I'm not willing to gamble tens of thousands to test this other document."
  Some lenders go over the top with zealous adherence to guidelines and not straying from the known path because they recently got hit with a string of buybacks. For example, an underwriter or risk officer goes out on a limb doing something that seems to be common sense (like accepting a different form from a CPA than one that has always worked), only for the loan to come back to the lender 60-90 days later as a defective asset. Then a memo comes down from management saying the next person who does something like this will be shot on sight because the lender just lost $50k to make someone's life easier by allowing a different form.
  For instance, in 2023, FNMA released selling guide announcements that alternative documentation for a 4868 could be accepted. In cases like this, what they will accept as a sufficient alternative is anyone's guess until you've tried something and either it worked or you got burned. No one wants to play the "test and find out" game, they want to play the "I know this form works and I dont get paid any extra to bear the risk of trying this other form" game so they dont take losses.
  11 Reply
- Linda WeygantPro Member
  OP
  Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
  1y
  Quote from @Patrick Roberts:
  
  Quote from @Linda Weygant:
  
  Quote from @Chris Seveney:
  
  Quote from @Linda Weygant:
  
  I'm a CPA, serving real estate investors.
  
  This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:
  
  All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.
  
  Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.
  
  In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.
  
  So tell me.. Please, because I'm dying to know. Why are you like this?
  
  I believe its a CYA thing for the institutional lenders who are buying these loans and its there requirement.
  
  OK. But WHY is it their requirement?
  
  Because you are dealing with the federal government. The vast majority of loans are Conventional (Fannie/Freddie), FHA, VA, or USDA, and are directly or indirectly subsidized by the federal government. All of the guidelines for these entities are publicly available and are written by the staff of appointees of the agencies that administer them - the FHFA, HUD, VA, etc. All federal bureaucracies.
  Most lenders sell their paper to one of these entities, and the guidelines are either A) very specific about the forms that are required and the substitutes that are allowed and not allowed, or B) nearly deliberately vague to the point where the seller (i.e. lender) has to guess at what's required. Sound familiar?
  If lender's dont check all the boxes and provide the correct forms when required, they get hit with buybacks, meaning they have to buy the loan back from the aggregator/entity/agency. This is insanely expensive for lenders and, if buybacks get out of control, can literally wipe out the equity capital of a lender, causing insolvency.
  If you think a lender is going to risk a $40k or $50k loss because you want provide a different form than what the govt bureaucracy is known to accept, youve got another thing coming. From a solvency standpoint, it's much better to tell the borrower to kick rocks than to roll dice on an untested and/or unproven document. Im not saying this makes sense - Im saying that in the lenders are not incentivized to use common sense - theyre incentivized to use the forms that are proven not to cause losses. In other words, the CRO or UW manager/leader is saying "this other form is probably good enough, but I know for sure that 4868 works and I'm not willing to gamble tens of thousands to test this other document."
  Some lenders go over the top with zealous adherence to guidelines and not straying from the known path because they recently got hit with a string of buybacks. For example, an underwriter or risk officer goes out on a limb doing something that seems to be common sense (like accepting a different form from a CPA than one that has always worked), only for the loan to come back to the lender 60-90 days later as a defective asset. Then a memo comes down from management saying the next person who does something like this will be shot on sight because the lender just lost $50k to make someone's life easier by allowing a different form.
  For instance, in 2023, FNMA released selling guide announcements that alternative documentation for a 4868 could be accepted. In cases like this, what they will accept as a sufficient alternative is anyone's guess until you've tried something and either it worked or you got burned. No one wants to play the "test and find out" game, they want to play the "I know this form works and I dont get paid any extra to bear the risk of trying this other form" game so they dont take losses.
  
  At last, an answer that makes sense to me. It's still stupid, but makes sense. Thanks for taking the time to write out a well thought out and highly explanatory answer. Going forward, when the client asks for proof of extension, I'll just do what we've always done (and we'll keep getting what we've always got).
  They aren't looking for proof of filing. They're looking to check a box. Something I always suspected but thought it was the underwriters being dumb. But now I understand it's the government being dumb, which is always imminently more believable.
  Podcast Guest on Show #244
  0 Reply
- Patrick Roberts
  Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
  1y
  Quote from @Linda Weygant:
  
  Quote from @Patrick Roberts:
  
  Quote from @Linda Weygant:
  
  Quote from @Chris Seveney:
  
  Quote from @Linda Weygant:
  
  I'm a CPA, serving real estate investors.
  
  This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:
  
  All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.
  
  Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.
  
  In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.
  
  So tell me.. Please, because I'm dying to know. Why are you like this?
  
  I believe its a CYA thing for the institutional lenders who are buying these loans and its there requirement.
  
  OK. But WHY is it their requirement?
  
  Because you are dealing with the federal government. The vast majority of loans are Conventional (Fannie/Freddie), FHA, VA, or USDA, and are directly or indirectly subsidized by the federal government. All of the guidelines for these entities are publicly available and are written by the staff of appointees of the agencies that administer them - the FHFA, HUD, VA, etc. All federal bureaucracies.
  Most lenders sell their paper to one of these entities, and the guidelines are either A) very specific about the forms that are required and the substitutes that are allowed and not allowed, or B) nearly deliberately vague to the point where the seller (i.e. lender) has to guess at what's required. Sound familiar?
  If lender's dont check all the boxes and provide the correct forms when required, they get hit with buybacks, meaning they have to buy the loan back from the aggregator/entity/agency. This is insanely expensive for lenders and, if buybacks get out of control, can literally wipe out the equity capital of a lender, causing insolvency.
  If you think a lender is going to risk a $40k or $50k loss because you want provide a different form than what the govt bureaucracy is known to accept, youve got another thing coming. From a solvency standpoint, it's much better to tell the borrower to kick rocks than to roll dice on an untested and/or unproven document. Im not saying this makes sense - Im saying that in the lenders are not incentivized to use common sense - theyre incentivized to use the forms that are proven not to cause losses. In other words, the CRO or UW manager/leader is saying "this other form is probably good enough, but I know for sure that 4868 works and I'm not willing to gamble tens of thousands to test this other document."
  Some lenders go over the top with zealous adherence to guidelines and not straying from the known path because they recently got hit with a string of buybacks. For example, an underwriter or risk officer goes out on a limb doing something that seems to be common sense (like accepting a different form from a CPA than one that has always worked), only for the loan to come back to the lender 60-90 days later as a defective asset. Then a memo comes down from management saying the next person who does something like this will be shot on sight because the lender just lost $50k to make someone's life easier by allowing a different form.
  For instance, in 2023, FNMA released selling guide announcements that alternative documentation for a 4868 could be accepted. In cases like this, what they will accept as a sufficient alternative is anyone's guess until you've tried something and either it worked or you got burned. No one wants to play the "test and find out" game, they want to play the "I know this form works and I dont get paid any extra to bear the risk of trying this other form" game so they dont take losses.
  
  At last, an answer that makes sense to me. It's still stupid, but makes sense. Thanks for taking the time to write out a well thought out and highly explanatory answer. Going forward, when the client asks for proof of extension, I'll just do what we've always done (and we'll keep getting what we've always got).
  They aren't looking for proof of filing. They're looking to check a box. Something I always suspected but thought it was the underwriters being dumb. But now I understand it's the government being dumb, which is always imminently more believable.
  
  A lot of this is lender specific, too. That's what @Brandon Croucier intrinsically meant when he said that it varies by lender and guidelines. This is especially prevalent in small local banks and credit unions. Large, specialized lenders, like non-depository, independent mortgage banks (IMBs) or wholesale lenders typically have the economy of scale, margins, and skilled staff to work through stuff like this - to competently think outside the box. Smaller credit unions and local banks, or some highly bureaucratic lenders, however, are typically the opposite.
  
  Where an IMB or boutique lender has a risk management team who are heavily credentialed and experienced and are very involved in the leadership/boards of the industry associations (like the MBA), small credit unions/banks typically have "Donna" leading the mortgage department, which consists of two underwriters, an assistant, and a bunch of tellers-turned-loan officers. Donna has worked at the credit union for all of her career and has never seen the outside mortgage world to know any different than what she was taught in 1996. They do things the way theyve always done them, including using paper URLAs/application forms and printed rate sheets where they check a rate on a rate sheet and stick it in a folder to lock a rate. But hey, theyve got "great rates", because they dont spend money on the infrastructure - people and technology - to be good at what they do.
  
  So when Donna gets asked to accept a substitute for a 4868, all she knows is that in 1996 she was told to always get the 4868. This is because if the bank or CU needs to unload some of its risk to stay compliant with capital/reserves/risk requirements as market conditions change, they can sell the paper quickly to rebalance.
  
  This is why I always shake my head when people say stuff like "get 15 loan estimates from every lender within 50 miles and pick the lowest cost/best rate/etc". The skill and expertise of the lender matters - a lot. Competent, skilled people and firms will never be the cheapest. This applies to lenders, CPAs, contractors, whatever. You typically dont want the lowest bidder working on things that are important. You want someone who knows what theyre doing and will do it for a fair price.
  
  To tie this back to your original post, this is why you see this problem semi-consistently with variation across time and geography. Its consistent enough to be a problem because probably 20-30% of lenders fall into this category, but not universal to the point where every lender does it, because another segment of lenders is skilled enough to work around these kinds of issues. My guess is that if you drill down enough, you'll find a selection bias that results from a correlated variable, likely the clients themselves. The variable may even be markets like the one we're in now - where everyone is shopping everything to save every dime, pulling more clients to the "cheapest" lenders, causing these kinds of problems to surface at higher than normal frequencies.
  0 Reply
Brandon Croucier
Lender · Lake Havasu City, AZ · Member since 2024 · 700 posts · 285 votes
1y
At the end of the day different investors have different guidelines and requirements .
1 Reply
- Linda WeygantPro Member
  OP
  Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
  1y
  Quote from @Brandon Croucier:
  
  At the end of the day different investors have different guidelines and requirements .
  
  That is a cop out and a non-answer. Tell me what it is about seeing the form 4868 that makes you think your client has a valid extension on file with the IRS. C'mon. You're a professional. You MUST know!!!
  Podcast Guest on Show #244
  1 Reply
- Brandon Croucier
  Lender · Lake Havasu City, AZ · Member since 2024 · 700 posts · 285 votes
  1y
  Quote from @Linda Weygant:
  
  Quote from @Brandon Croucier:
  
  At the end of the day different investors have different guidelines and requirements .
  
  That is a cop out and a non-answer. Tell me what it is about seeing the form 4868 that makes you think your client has a valid extension on file with the IRS. C'mon. You're a professional. You MUST know!!!
  
  Umm, no. Its the truth. Investors buy these loans based on guidelines, if guidelines aren't met, lenders will not be able to sell the loan on the secondary market. Originators and underwriters don't make the rules, we wish we could! You get a lot further in this business just finding a way to get what underwriters need to clear conditions then spending countless days & hours trying to fight it tooth and nail.
  0 Reply
Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Linda Weygant:

I'm a CPA, serving real estate investors.

This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:

All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.

Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.

In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.

So tell me.. Please, because I'm dying to know. Why are you like this?

Which lenders specifically are you referring too (name names)? We are a correspondent with over five lenders and not one has ever asked for this?
7e investments53 Reviews
Website View Page
0 Reply
- Linda WeygantPro Member
  OP
  Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
  1y
  Quote from @Chris Seveney:
  
  Quote from @Linda Weygant:
  
  I'm a CPA, serving real estate investors.
  
  This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:
  
  All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.
  
  Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.
  
  In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.
  
  So tell me.. Please, because I'm dying to know. Why are you like this?
  
  Which lenders specifically are you referring too (name names)? We are a correspondent with over five lenders and not one has ever asked for this?
  
  Unfortunately, I don't know the companies or I definitely would be naming and shaming. All communication uses the client as the middle man as the ethics of the profession prevent me from even acknowledging somebody is a client without a form on file. But my clients are nationwide (I'm a virtual firm) and this comes from clients across the country. Current one that chapped my hide is in KS, but I've had it from CO, CA, AL, GA, NJ, IL and WI in the last year.
  
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- Erik EstradaBusiness Member
  Lender · Member since 2022 · 6k+ posts · 1k+ votes
  1y
  Quote from @Linda Weygant:
  
  Quote from @Chris Seveney:
  
  Quote from @Linda Weygant:
  
  I'm a CPA, serving real estate investors.
  
  This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:
  
  All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.
  
  Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.
  
  In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.
  
  So tell me.. Please, because I'm dying to know. Why are you like this?
  
  Which lenders specifically are you referring too (name names)? We are a correspondent with over five lenders and not one has ever asked for this?
  
  Unfortunately, I don't know the companies or I definitely would be naming and shaming. All communication uses the client as the middle man as the ethics of the profession prevent me from even acknowledging somebody is a client without a form on file. But my clients are nationwide (I'm a virtual firm) and this comes from clients across the country. Current one that chapped my hide is in KS, but I've had it from CO, CA, AL, GA, NJ, IL and WI in the last year.
  
  Bingo!
  The real issue is the lender hiding behind the screen and not having any open communication with you. A lot of the issues stem from miscommunication from Third Party, to Borrower, to Loan Officer, to Underwriter.
  I know some of the forms required can be gruesome and annoying, but like many fellow colleagues have stated, it really just depends on any overlays the lending entity has. The more conservative they are, the more they will ask for.
  [email protected]818-269-7983
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Mike GrudzienPro Member
Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
1y
Some mortgage companies are stuck in the dark ages. And they'll lose little by little. The modern, quick and nimble companies will dance circles around them....
0 Reply
Joe S.Pro Member
Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
1y
Quote from @Linda Weygant:

I'm a CPA, serving real estate investors.

This time of year, clients who are on extension will request proof that they are on extension for their mortgage broker. Because I live in the 21st century, I EFile the extension for my clients and my software receives a confirmation back from the IRS and/or state that there is now a valid extension on file. The proof exists in bits and bytes in my software, but my software can generate a letter that looks like this:

All of the smart people I know would look at that and say "Yep, that's proof of an extension being filed all right. Even gives me the confirmation number. Cool!" HOWEVER, the bright folks in the lending industry say "No - I want the form!". I do get it. Back in the dawn of time, about 15 years ago before EFiling was so prevalent, it used to be that you'd print out a form 4868 and mail it to the IRS to request your extension. The IRS would stamp it as "approved" and mail it back to you and that was your proof that you had a valid extension.

Somehow... SOMEHOW... in this day and age, this is what you guys still want??? Why?? I mean, my software can still generate that form and print it out. But if I do so, it doesn't mean that it was sent to the IRS and it certainly doesn't mean that it was accepted/acknowledged. The IRS no longer stamps the paper copy and sends it back.

In fact, the client could just go online and complete the form using Adobe and give it to you and it would be proof of exactly nothing.

So tell me.. Please, because I'm dying to know. Why are you like this?

Linda, why don’t you tell them what you really think? 😂

0 Reply
Dan Hawtree
Member since 2025 · 24 posts · 10 votes
1y
How dare you question a lender's requests. Did I get that right? Yes, non lending professionals just scratch our heads that each loan is treated like it's the lender's first rodeo. Then you get the righteous indignation from a salesperson.

So I have to ask, is genuflecting sufficient or should we kiss the ring, or offer our first born?

Of course, OP didn't go into the things that really po CPAs: the insessant material misrepresentations. That's diplomacy for fraud. Top two: "We need a letter from your CPA". No you don't. One of two things happening: 1) lender doesn't want to tell customer they don't qualify, so we'll blame it in the CPA. Why? Because you don't want to be the bad guy, and afraid the applicant won't like you? Shocker, they don't like you anyway. 2) Lender thinks they'll trick the COA into basically personally guaranteeing the loan by "requiring" ridiculous representations. If I do write one of these letters it includes a paragraph that underwriting is the lender's responsibility and ghey should get off their back end and fo their job.

Second: "This is the final piece and we need it by....( today, tomorrow)" The closing is in three weeks, you think lender's are the only ones bright enough to know that you are weeks away from issuing a commitment? You'll be back that week, or the day before, because after all, every loan is treated like it's the only one you've done.
1 Reply
- Patrick Roberts
  Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
  1y
  Quote from @Dan Hawtree:
  
  How dare you question a lender's requests. Did I get that right? Yes, non lending professionals just scratch our heads that each loan is treated like it's the lender's first rodeo. Then you get the righteous indignation from a salesperson.
  
  So I have to ask, is genuflecting sufficient or should we kiss the ring, or offer our first born?
  
  Of course, OP didn't go into the things that really po CPAs: the insessant material misrepresentations. That's diplomacy for fraud. Top two: "We need a letter from your CPA". No you don't. One of two things happening: 1) lender doesn't want to tell customer they don't qualify, so we'll blame it in the CPA. Why? Because you don't want to be the bad guy, and afraid the applicant won't like you? Shocker, they don't like you anyway. 2) Lender thinks they'll trick the COA into basically personally guaranteeing the loan by "requiring" ridiculous representations. If I do write one of these letters it includes a paragraph that underwriting is the lender's responsibility and ghey should get off their back end and fo their job.
  
  Second: "This is the final piece and we need it by....( today, tomorrow)" The closing is in three weeks, you think lender's are the only ones bright enough to know that you are weeks away from issuing a commitment? You'll be back that week, or the day before, because after all, every loan is treated like it's the only one you've done.
  
  lol with some self-employed borrowers, the guidelines literally require a letter from the borrower's CPA. Are you really naive enough to think that a lender actually cares about whether your letter says the borrower is creditworthy or that theyre going to rely on some accountant's opinion in risking private capital? No. We have to have your silly letter to put it in the collateral file because some administrative bureaucrat who wrote the guidelines said we do. The underwriting scrub is already complete at that point - that is simply a condition to satisfy the guidelines.
  Don't like taking 5 minutes to write a letter as a service for your client? Take it up with the bureaucrats and get that requirement removed from their guidelines - save us both some time. What also saves time is when some accountant with a mistaken sense of superiority doesnt hold up a client's homebuying process because they feel theyre too good to write a letter.
  0 Reply
- Dan Hawtree
  Member since 2025 · 24 posts · 10 votes
  1y
  @Patrick Roberts First, my apologies. I was only half way done when this post disappeared. So I was surprised to see your reply to my unfinished comment. It was intended to be some good natured humor at the expense of both OP and yourself. Both of you were a little over the top. Granted OP started it. I do get her frustration/irritation, but not as to the tax extension doc. We just send both the efile ack and the 4868/7004. You are obviously correct that nothing is to be gained by blazing a new trail, particularly in the area of conforming mortgages.
  
  Do you really think it "(only) takes 5 minutes" for anyone to write a letter? Particulary one that opens up the author to significant potential liability? I would boldly suggest that rather than relating the request, that you call the CPA, but only after checking the "only 5 minutes" attitude at the door. Personsl experience suggests your response time would be better, with a lot less pushback. The chemistry changes from conflict to collaboration. It saves both you and I valuable time, and who knows, could lead to a referal source.
  
  I will take you to task over the the comment that "in some cases a CPA letter is literally required". State your reference.
  0 Reply
- Dan Hawtree
  Member since 2025 · 24 posts · 10 votes
  1y
  @Dan Hawtree And almost as if on queue, a client just texted me requesting an updated "you are self employed" letter because, well, the last one was dated almost 3 weeks ago.
  
  So an open request for comment from Lenders. What promulgated this request?
  0 Reply
- Patrick Roberts
  Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
  1y
  Quote from @Dan Hawtree:
  
  @Patrick Roberts First, my apologies. I was only half way done when this post disappeared. So I was surprised to see your reply to my unfinished comment. It was intended to be some good natured humor at the expense of both OP and yourself. Both of you were a little over the top. Granted OP started it. I do get her frustration/irritation, but not as to the tax extension doc. We just send both the efile ack and the 4868/7004. You are obviously correct that nothing is to be gained by blazing a new trail, particularly in the area of conforming mortgages.
  
  Do you really think it "(only) takes 5 minutes" for anyone to write a letter? Particulary one that opens up the author to significant potential liability? I would boldly suggest that rather than relating the request, that you call the CPA, but only after checking the "only 5 minutes" attitude at the door. Personsl experience suggests your response time would be better, with a lot less pushback. The chemistry changes from conflict to collaboration. It saves both you and I valuable time, and who knows, could lead to a referal source.
  
  I will take you to task over the the comment that "in some cases a CPA letter is literally required". State your reference.
  https://selling-guide.fanniemae.com/sel/b3-3.1-07/verbal-ver...
  
  This is just one example. FHA, VA, Fannie, Freddie - theyre all different. The most commonplace need for a CPA letter that I come across (and likely the same as what youre experiencing in the comment about needing an updated letter) is to verify the validity and length of self-employment. As an example, we're allowed to use only the most recent year of tax returns (compared with two years and having to average or risking declining income) when the borrower has 5+ years in business. In many cases, the borrower is not using an entity or wasnt for the entire time, and the only way we can validate their time in business is with a CPA letter stating the length. There are obviously many other scenarios - the list goes on.
  
  Something that is growing in frequency is requirements for letters in bank statement loans in the nonqm market, where the guidelines are written by investors who sell into private securitizations. This is a totally different animal, as they are specifically looking for a CPA letter that A) identifies a ratio of operating expenses to revenue for determining income, and B) requests some level of confidence that implies reps and warrants. I can understand the hesitation with this, as it opens a can of worms in both scope and liability, as well as services the client may not have paid for.
  
  Again, these are guidelines from specific investors, so while not stemming from the feds or universal, the originating lender (usually a correspondent and the one who is requesting the letter) still has their hands tied, even if they are delegated. That being said, I would agree with you that judging operating cashflow from revenues and expenses is primarily a credit analysis activity and should be completed by the lender during underwriting, especially in the interest of self-preservation. In many cases, it is - some nonqm lenders internally underwrite and determine the appropriate expense ratio, some have the investor do this, and some solely rely on the cpa letter for an expense ratio. Nonqm is the wild west.
  0 Reply
- Patrick Roberts
  Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
  1y
  Quote from @Dan Hawtree:
  
  @Dan Hawtree And almost as if on queue, a client just texted me requesting an updated "you are self employed" letter because, well, the last one was dated almost 3 weeks ago.
  
  So an open request for comment from Lenders. What promulgated this request?
  
  Given the timing, my guess would be that either the letter went to underwriting, which determined that it didnt have the verbiage/info to satisfy whatever rep and warrant, or that the borrower (or broker) switched lenders and is starting all over with a new lender.
  The typical pathway is underwriting-> conditional approval with a stip for the letter and whatever else->back to underwriting after most/all of the stips are collected and submitted (usually a few days to a couple weeks) for final approval. If the docs dont satisfy the condition, then the underwriter kicks it back for updates. Could be a communication issue, lack of skill/experience, borrower being difficult - hard to say. It could also be that the loan officer/broker/originator saw that a letter would eventually be needed and requested it early on, but then the file evolved and more info was needed that what was requested in the first draft.
  Three weeks is a long time between requests. Most closings are 30 days or less and these kinds of letters dont get stipped for few days into the process, meaning that a long time has elapsed between submissions. If it's purely a date issue, it could be something with the timeline in which the lender sells the paper. Would need more color to get closer to the truth.
  0 Reply
Zach Wain
Scottsdale, AZ · Member since 2019 · 435 posts · 248 votes
1y
@Linda Weygant 100% what Patrick said. But out of curiosity I asked a few of my lenders and one of them said they would accept that version of IRS confirmation for a conventional loan, as long the borrowers name was listed (in the blacked out area I assume). Is it possible to use this, yes? But many lenders will not for all the reasons Patrick listed.
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