The government’s new way to speed up mortgage refinancing may result in an explosion of foreclosures.
IRS form 4056, which becomes mandatory for all applications on June 1, permits disclosure of IRS tax data to banks and streamlines the approval process with a quick equation.
Blogger Bruce Krasting summarizes:
I) Show me yours and your spouse’s tax return. We add those numbers up and multiply by 31%. That will be the targeted debt service for you.
II) If your income is equal to 31% or higher take a hike.
III) If your income is less than 31% you may apply. But if your income is only 24% (example) then there is nothing we can do for you, Sorry.
While speeding up the debt relief process for some, the form is likely to wake up many Americans to the fact that refinancing is not an option.
Some will refuse to share their tax history with the bank. Some will realise they earn too little to qualify for debt relief; and others will realise they earn too much.
The last group will be the most likely to default, as these are middle class Americans who finally recognise that their over-ambitious mortgage is costing more than it’s worth.
If you’re in this boat, don’t miss our complete guide to walking away from your mortgage >