The Nation's Housing Column: A Form to Take Seriously

The much-more intensive use of Form 4506-T is also focusing new light on what consumers should -- and shouldn't -- do when confronted with a lender's or settlement agent's request that they fill one out.

Here's a quick overview:

-- Take Form 4506-T seriously. It's a powerful tool, and potentially exposes otherwise confidential personal financial information to unknown and uncontrollable numbers of people. It is not just another part of the paper blizzard.

-- Pay careful attention to the IRS' instructions on the form, particularly as related to the tax return transcript years being requested, and to the dating of the form next to your signature. The date you write in is important because the IRS won't provide transcripts unless it receives the request within 60 days of the signing date by the taxpayers making the loan application. Make sure you date the form when you sign it.

Filling in the tax return years is crucial as well because it allows you to limit what the lender, settlement official or secondary market purchaser of the mortgage can obtain. The form includes boxes allowing up to four years of tax data to be accessed, but loan applicants can specify that fewer years be available.

Earlier in this decade, controversy erupted in the mortgage industry because some large secondary market loan investors and banks were requiring brokers or closing agents to instruct applicants to sign Form 4506-T's but not date them or fill in the transcript years being requested. Some lenders even distributed their own printed instructions along with the Form 4506-T, requiring the homebuyer's or refinancer's signature, but no dates. This not only countermanded the IRS' instructions but gave investors the ability to check incomes whenever they chose -- long after the closing.

Bottom line here: Be aware of the new importance of Form 4506-T, and get used to seeing it twice during the mortgage cycle. Make sure you know how it's supposed to be used -- and how it can be abused. Check it out in advance by going to the forms area at the IRS' Web site (www.irs.gov) and downloading a copy.