Discussion:Mortgage lender letters / Clients lost

This past week - I had two requests from the ONLY two clients I ever get the this request from. One totally blew a gasket over what I call the "CAMICO" letter - even threatened me that if "I screwed up the deal- then there will be other problems we'll need to deal with". Did not want to really hear my reasoning and hung up on me as I am not going to give in. His lender/agent called me up and that did not go well because the lender/agent got no place.

The second client is far more reasonable and is an attorney himself. His comment was "I've always managed with what you sent me and it is easier to take the path of least resistance than fight the man who has the money. No money from the "man" and I make no money." This guy can turn sand into gold but still the "CAMICO" letter does not provide what the lender is looking for. ie... self employed for xx years etc...

I guess we have two choices - provide a "CAMICO" type letter or provide nothing at all. Either way - who is the one really getting screwed over this crap - which is why I started this post.

Here is a link to a very long post on this topic but most do not give info on "lost clients" over this issue.

http://www.taxalmanac.org/index.php/Discussion:Requests_from_lendors_for_proof_of_self_employment

You should suggest to your first client, above, that you would be happy to provide his underwriter with a copy of the last 2 years returns and the engagement letters signed by your client. These returns and engagement letter will easily explain everything that the underwriter needs to know.

To Whom It May Concern:

I am the accountant and tax preparer for xxxxxxx and their business. They have been self employed for over two years, and all filings are current.

Any questions may be directed to me.

That says nothing but facts that I am happy to defend. There is nothing implied or warranted there. At all. Give me a break. Find something else to worry about. And if you won't do the letter, send the client to me. Of course, I won't do the letter if they haven't been a client, so I guess that won't help me much or cost you much either...later gators.

I mean seriously this broker must have thought that I had stupid written all over my face. I explained to the client that this was not a reasonable request and that if he could find someone to write a letter like that then he should have them do his taxes. Never heard back from him again. I wonder sometimes if he actually found someone stupid enough to write that letter.

Any CPA contemplating issuing one of these letters would be well advised to read the Statements on Standards for Attestation Engagements (the "AT" standards) issued by the AICPA. In Washington, the State Board of Accountancy has adopted all of the AICPA's professional standards as law. Failure to comply with professional standards can be reason for license revokation. Now, I haven't read them lately and don't know what all I need to do to comply. But the standards are broken up into three primary categories: General Standards, Standards of Fieldwork and Standards of Reporting. Without reading the attestation standards, who would like to wager whether or not the mortgage broker that drafted this letter he wants you to sign took into consideration the standards of reporting on attestation standards when he wrote that letter?

And in the event of a loan going bad, do you want to be on the stand answering the lender's attorney stating, "Yeah, I wrote the letter that the mortgage broker requested" and then state, "No, I never read the standards for attestation engagements"? "Well, do ya, punk?" (Dirty Harry quotation added for emphasis  :)

Anybody interested in reading them can find them here: http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/Audit+and+Attest+Standards/Authoritative+Standards+and+Related+Guidance+for+Non-Issuers/attestation_standards.htm

Based on my experience as an auditor in an earlier life, you cannot draft an engagement letter to start the engagement for $75. As I stated in an earlier post, the speed limit is 55. Some go 60, some go 80. Any that do it with full knowledge are assuming the risks of speeding. Any that do it without knowing the speed limit are foolish.

What does concern me is that we are placed in a position that could very well cause harm to our businesses and the very license we have work so darn hard for. I as many others are very interested in not only what others think about this topic but how it has or has not yet effected their practice. Keep posting your comments - there are many hits which leads me to believe many are interested in it's contents.

I think the weirdest letter I was asked to write was to state that a client of mine was a "man of good character". Sad to admit that I signed that one...That was several years ago before the barrage. I would not do it now. Fortunately, that client sold their house last year. Phew! I'm off the hook.

Last year, a non-client was referred to me by a local mortgage broker I had dealt with in the past. The client was in the construction business or so he said. No Schedule C for the last 2 years. The taxpayer claimed that he is on the Completed Contracts method and had been working on the same property for over 2 years, therefore no Schedule C was required. However, the mortgage broker said that he would still qualify as "self-employed". Did I mention that this house he was working on was his own residence?

Unhappily, this looks like another case in which the Final Four (I think it was the Big 12 when I first started!) dominated AICPA makes regs which cause problems for small practitioners.

So why are there all of these games with the loans?

I did a full document loan, and the underwriter had no problem accepting my S-Corp returns and current ytd P&L printed from QuickBooks.

I could have provided any information but they barely asked for anything. The interest rate was unbelievable. The whole loan process was done in about 3 weeks. I've never personally had an easier experience and never seen a client sail through so easily.

I have given several clients this information, and all, even those with long-term relationships with bankers, have gone w/ PFCU because the interest rates were better. Short story long, very little documentation, no CPA letter requested by my clients, very competitive loan.

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TexCPA 19:19, 18 July 2007 (CDT)

I am talking about 1st DOTs at a purchase or consolidating refi. http://www.moneycentral.msn.com/content/Banking/FinancialPrivacy/P33720.asp http://money.cnn.com/2007/03/19/news/economy/next_subprime/index.htm

What was odd was that I was moving 250 miles away from my client base, planning to convert my loyal clients to doing their work by mail. No one asked about the feasibility of this plan. Five years later when I moved here there were no problems, but more than likely this was because I had a signed agreement of sale on the old house, and a sale for cash.

One of the clients in CA is using a broker who is representing themselves as a corporation or "Inc" (and they do have an office locally - I checked) - yet when I did a search on the CA Sec of State web site - they are not even registered as a valid corporation. Yet the "loan broker" (car salesman) who has maybe a HS education is now the "professional" who is playing (as I see it)with the clients emotions over money.

I also wonder how much of these requested letters are coming from brokers who are fully involved in this subprime lenders market - that as we all read is going to eventually cause billions of dollars in failed loans and losses.

That should scare the holy .... out of all of us!

I would object to JR's letter as I cannot know that "all filings are current". We don't always know about the missing 1099s that should have been issued, cash receipts in excess of $10,000, etc. Heck, unless I efile the 1040 returns myself, I don't even know whether the client mailed them in or not.

so I sent this:

This letter is to state that I have prepared the income tax returns for CLIENT NAME for the years 2005, and 2006 based on information provided to me by the client. Under the terms of our engagement to prepare tax returns and the standards set forth in Treasury Department Circular No. 230 (Rev. 6-2005) Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service, this information has not been audited or verified.

The information provided by the client included self employment income and expenses, which was used to prepare Schedule C (Profit or Loss from Business – Sole Proprietorship) and Schedule SE (Self Employment Tax). It is my understanding that you have a copy of these returns and have reviewed them to your satisfaction, and that you are relying on my statement only to determine whether I have prepared tax returns for the above client.

Didn't get a call back after that, but I sure expected it.

It is my understanding the you the Lender are responsible for the decision and consequences of underwriting a loan to CLIENT NAME

I have wrote a few letters in the same way as JR and DZ. If I have not prepared the return, I say I have reviewed it. Nothing has happened yet.

Do any of you know if any accountant has been burnt on this and actually had to pay a legal suit?

Which leads me to ask...why won't the broker and underwriter accept it? Maybe because with it they can't cast you in the net if the loan goes bad.

Within the last few days I just went through this but the broker wanted a lender letter to include "....the funds withdrawn from the business will not impact the business operations...." NO WAY.

Writing a letter like that for a $500 tax return....NO WAY. (A skilled plaintiff attorney can rip anything, including you, to shreds). Beware.

How do you know everyone has their hands on the table, anyway? Maybe there is another loan with a higher rate (for client) and lower profit margin (for broker) but they are just not going down that path because the CPA will write the letter and everyone makes out....accept for the CPA.

Throw someone else under the bus...

Not sure if I have lost this client or not...last I left it I said "No".

Go throw someone else under the bus...somebody will write it.

Here's my standard email response to requests for these letters when I just cannot bring myself to refuse a good client:

"I'm attaching the letter for your approval.

FYI: Lenders use these letters to hold the CPA responsible in the event there is a default on the loan. There is no other purpose for these letters than to try to make the CPA partly responsible for the determination of the creditworthiness of a borrower.

I'm wondering how your lender would react if you told him I refused to write the letter? Although you aren't going to default on any loan, it's the principle of the thing. I have refused many times and never had it make a bit of difference to my client in the loan processing time, document requirements, or the rate/term. The lender might have to do a little more work, like make one phone call to the underwriter. They are very accustomed to having these requests denied. The larger lenders don't ask for them anymore."

And then, here is the disclaimer at the bottom of every letter:

"As you know, a credit decision should be based on a lender’s exercise of due diligence in obtaining and considering multiple factors and information. Any use by you of this letter is solely a matter of your responsibility and judgment, and this letter is not intended to establish a client relationship with you nor is it intended to establish any obligation on my part to provide any future information to you with regard to [CLIENT NAME]."

This is the best I can come up with on how to handle this crap. As more and more CPAs refuse to write these letters, the weasly underwriters might stop requesting them. I mean, the cat's out of the bag. I've written these blasted letters without any disclaimer before I realized the potential trouble they could cause - that thumping sound is me kicking myself in the butt.

These financial statements may be misleading or they may be just fine. You can't ask me because I don't know.

As far as the word "review" goes, it is challenging sometimes not to use it. And the only time I do use it is when I've reviewed statements. Analyze is a good replacement. Or read. In the case of these letters, I would use the word read (I have read the returns. . .). But I am pretty sure I will not be doing any more letters.

If I loose a couple of clients over not providing third world lenders the come get me if the loan goes bad type letters - so be it.

BethAZ - I like your standard email response.