In light of the on-going government shutdown, Kroll Bond Rating Agency (“KBRA”) has reached out to issuers of residential mortgage-backed securities (“RMBS”) transactions to find out how they are handling the inability to execute IRS form 4506-T, Request for Transcript of Tax Return, and what, if any, impact it may have on both origination practices and origination volumes.

While the underwriting guidelines of most lenders only require that a form 4506-T signed and dated by the borrower be included in the loan closing file, many investors who acquire the closed mortgage loans require the actual tax transcripts be included in the file. While KBRA has spoken to one RMBS issuer who has stated that they will accept loans where lenders have implemented procedures to either close the loans with an exception or review the IRS transcripts post-closing, most issuers have said they will not change their investor guidelines and will continue to require the transcripts. One issuer stated the hope is “the government is up and running before lenders have exhausted their pipelines, and the effect is minimal.” The issuer went on to say that if the shutdown is drawn out, they may have to reevaluate their position.

Although all of the issuers we spoke with believe the government shutdown is an issue for the mortgage industry, they all agree it is too early to tell if there will be an impact on volume.

When mortgages from the shutdown period begin to appear in RMBS pools, KBRA will seek confirmation of the 4506-T status of such loans.

About Kroll Bond Rating Agency

KBRA was established in 2010 by Jules Kroll to restore trust in credit ratings by creating new standards for assessing risk and by offering accurate, clear and transparent ratings. KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).