Banks evaluate a mortgage application and these days leaves no financial stone unturned. That’s why real estate investors tell you that today’s underwriting standards are look nothing like thereal estate investing heydays in the last decade. That’s really not a bad thing, it’s a good thing. Lax underwriting, the absence of employment or income verification and the lack of down payments were the key drivers to the financial collapse.

Real estate investors want scrutiny; it keeps the bad players out of the business. One of the ways lenders evaluate loan applications differently than they used to is the IRS form 4506-T.

This form has been a staple for all conventional and government-backed loans for decades but its application has changed. Prior to 2009, the 4506-T form was an afterthought, typically signed at the settlement table, often at the borrower’s surprise. This signed form gave lender’s permission to audit the loan file at a later date, should the loan go into default or when the loan was sold in the secondary market. The 4506-T form allowed a lender to independently pull copies of the borrower’s previously filed income tax returns.

Today it’s a different story. The 4506-T form is used at the very beginning of the loan underwriting process, not at the closing table. In fact, without this signed form, the loan would never even make it to the underwriter’s desk for review.

When a lender receives a signed 4506-T form, the lender immediately requests copies of the previous two year’s income tax returns directly from the IRS. When the IRS returns copies of the return, they’re immediately compared to the information provided by the borrowers. If borrowers claim they make $50,000 and the tax returns state the same, the loan application moves forward. If it’s different, the discrepancies must be addressed and explained before the loan can be approved.