Mortgage companies

[Roberts]

Why do they want letters from tax preparers when someone is attempting to get a mortgage?
Just because I did their taxes doesn't mean I know all that much about them. They can get a transcript from the IRS of the tax returns if they want proof. I just don't get how a letter from me somehow proves something or alleviates their concerns about self employed individuals.

Can anyone explain?

[JohnH]

Yes, they want someone to share the blame if the loan goes south. Always remember that when answering any questions of any kind. Best practice is to email a password protected copy of the return to the client and let them forward it to the lender.

Refuse to sign any statements the lender asks you to sign, and never make any representations. I lost a client over this one time, and I woudln't hesitate to lose another one if the same situation occurred.

If the lender pushes for info directly from me, I always tell them they can obtain what they need directly from the IRS overnight if they are TRULY interested in doing their due diligence.

[TAXNJ]

Stay away

Yes, they want someone to share the blame if the loan goes south. Always remember that when answering any questions of any kind. Best practice is to email a password protected copy of the return to the client and let them forward it to the lender.

Refuse to sign any statements the lender asks you to sign, and never make any representations. I lost a client over this one time, and I woudln't hesitate to lose another one if the same situation occurred.

If the lender pushes for info directly from me, I always tell them they can obtain what they need directly from the IRS overnight if they are TRULY interested in doing their due diligence.

A word of caution, stay away from those Comfort Letters.

Ask the mortgage company if they would pay for Certified Financial Statements and a letter from their Attorney stating you would not be liable.

[Zee]

I agree with others

Here's a link to an article in the Journal of Accountancy on the issue. It includes suggested examples for CPA's, but could be easily modified for other tax preparers. Like others, I would be extremely hesitant about issuing even those comfort letters unless the client represented a substantial client. The mortgage broker and lenders are simply trying to "pass the buck" on due diligence to satisfy administrative rules. It just isn't worth "sticking your neck" out without a reward for the risk.

http://www.journalofaccountancy.com/news/2009/mar/20091528.html

[JohnH]

I did have a lender representative subtly suggest one time that my client could find an accountant who was more likely to sign a comfort letter. I agreed with him, then I not-so-subtly suggested that the client could more easily find a lender with underwriters who had common sense. That ended the conversation, and the lender magically found a way to get the loan approved without the comfort letter after all.

[TAXNJ]

Insurance

Here's a link to an article in the Journal of Accountancy on the issue. It includes suggested examples for CPA's, but could be easily modified for other tax preparers. Like others, I would be extremely hesitant about issuing even those comfort letters unless the client represented a substantial client. The mortgage broker and lenders are simply trying to "pass the buck" on due diligence to satisfy administrative rules. It just isn't worth "sticking your neck" out without a reward for the risk.

http://www.journalofaccountancy.com/.../20091528.html

Don't know about modifying letters meant for CPA but would make sure you have good Malpractice Insurance and it is included in your insurance contract.

[Lion]

Ask your E&O what you can and cannot write to a mortgage company.

[Roberts]

Here's a link to an article in the Journal of Accountancy on the issue. It includes suggested examples for CPA's, but could be easily modified for other tax preparers.

I've used those letters in the past and I've modified them even further to disclose I haven't audited or verified any of the information on the return, have only aided the client in preparing their return and do not attest to the validity of any of the numbers. I use a version of their 2nd Exhibit. Oddly, they have no further questions and accept it.

I just don't see the point of any of it other than to waste time and shuffle paper. My practice is to ignore phone calls from mortgage companies and only if the client requests will I take any action.

[taxea]

this was hashed over the year it first started. The majority opinion from our side was don't do it.