Housing Counselor Certification (HUD) Practice Exam

Why is including a 4506-T form critical when submitting a loss mitigation package?

1. It offers a payment plan option

2. It allows the client to dispute errors

3. It authorizes the servicer to obtain tax returns

4. It serves as proof of income

The correct answer is: It authorizes the servicer to obtain tax returns

Including a 4506-T form when submitting a loss mitigation package is important because it authorizes the mortgage servicer to obtain the borrower's tax returns directly from the Internal Revenue Service (IRS). This access to tax returns is crucial for accurately verifying the borrower's income and financial situation, which helps the servicer evaluate the borrower's eligibility for various loss mitigation options, such as loan modifications, repayment plans, or other assistance programs. The 4506-T form ensures that the servicer has the necessary authorization to pull this sensitive financial information and it streamlines the process of gathering income documentation. By having direct access to the borrower's tax returns, servicers can reduce delays that might arise from requesting documents directly from the borrowers themselves and can make more informed decisions regarding the loss mitigation options available to the borrower.