Actually  YES!!!  they do.

Here's Why.

On almost every file an underwriter is pulling a copy of the borrowers tax returns by using the 4506.

The 4506 is a form signed at the application, by an applicant, which allows an underwriter or investor to pull tax records.

The loan officer would best serve everyone in the transaction by acquiring the information up front.

There can be information on the returns which can cause the buyer to be turned down!

My personal Favorite: Unreimbursed Expenses!

These are expenses which a normal W2 employee may be writing off. They are legitimate expenses which are work related which the employer did not pay for. Some examples could be seminars, continuing education, publications, etc. These expenses will be subtracted from the W2 income stated by the applicant if they are claimed on the return.

Small Businesses;

If you have a small business and you are expensing it out on your returns, the losses will be counted against you and subtracted from your income. Examples include; tupperware, jewelry parties; etc. You get the picture.

The ABSURD!!!

A recent applicant had expenses for a property management company last year, and last year only. It is shown on the 2008 return. There is no reference on the 2007 return. There will be no management company referenced on the 2009 return, as the property has sold. The expenses were related to her managing her dad's home until it sold, after his death. These are definitely one time expenses in my opinion. So far two underwriters say NO. They must be subtracted from the applicants income. One company went so far as to say they would not consider the purchase as a second home as she has a property management company!

Grrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr!!!!!

What does this all mean?

When the underwriter is done the buyer no longer qualifies.

In my opinion it's better to know up front about these issues, and see if the buyer still qualifies before they enter into contract.

Also keep in mind it's not just our current climate of conservative underwriting, we have another issue to deal with. If an underwriter has 5 years or maybe a little more experience, but has solely dealt with a time frame when stated income was available, they haven't had to deal with tax returns.

Literally they may not know what they say or mean, or what the quidelines are.

Ouch!

Should loan officers request tax returns up front on all files?

I'm certainly beginning to think so!