One of the biggest problems, however, is that unscrupulous Mortgage Audit Companies produce "audits" that won't help the homeowner. These companies often use a generic computer software that just looks at Truth In Lending Act (TILA) violations and nothing more. Most TILA violations have a 3 year Statute of Limitations. So, if the mortgage is over 3 years of age, the audit won't help even though violations are exposed. Note: If the mortgage is significantly less than 3 years old, TILA violations can produce significant remedies which might include rescission (cancellation) of the loan.
We are finding that the absolute most powerful audit needs a complete manual report on ALL mortgage documents beginning with the first application through closing. Few companies actually perform this type of in-depth forensic audit properly. One of the very most common violations we find is fraud. The fraud is generally in the proper execution of inflated income, assets, or appraised value. We also find that the homeowner was unaware of the fraud because it absolutely was the loan officer who falsified the info in order to have the loan closed and receive his/her commission. Certain forms of fraud have no Statute of Limitations and are therefore enforceable even if the mortgage is over 3 years old. This fraud often requires "assistance" from the loan processor, appraiser, and/or underwriter whose duties include verifications of information contained in the application and supporting documents.
For instance, we recently audited a file for a consumer that earned just over $4000 per month. They certainly were applying for a $175,000 mortgage for the purchase of a home. Their debt-to-income (DTI) ratio was over 60% therefore the loan should have already been denied. The borrower had recently graduated from college and had less when compared to a year on his new job. He also had numerous student loans that have been deferred while he was in school, but the payments would begin in just a couple of months. Rather than deny the loan (or instruct the borrower to find a less costly property), the loan officer illegally inflated the borrower's income to $7500 per month. We realize this because we reviewed copies of the original loan application which showed the $4000 income. This is confirmed by copies of paystubs, W-2 forms, and Federal Tax Returns. The closing package told a different story. A revised "Residential Loan Application" was prepared by the lender which increased the borrowers'income to $7500 per month. There is only 1 put on the "Application" that discloses the borrower's income. It's on Page 2 which doesn't require a signature from the borrower. The borrower was shocked to learn that his income was stated as $7500. He never saw this amount until we pointed it out. Since his student loan payments are due, he is unable to pay the mortgage payment and is facing foreclosure as a result. A loan modification is now being processed to lower his payments.
In another case, a borrower sent applications for a 30 year fixed conventional mortgage in 2006. He was well qualified and there should have now been not a problem getting this loan as requested. The loan officer, however, talked the borrower into accepting a loan with a Balloon Payment that has been due in 5 years. The rate was slightly better (.375%) which meant that the monthly mortgage payment was about $43 less per month. The borrower liked the lower payment, but was worried about the Balloon Payment. The loan officer improperly persuaded the homeowner to maneuver forward with the Balloon Note notwithstanding the borrowers concerns. The loan officer assured him he would be able to refinance the loan prior to the Balloon Note was due and he should take advantage of the $43 monthly savings. Why was the loan officer so insistent he accept the Balloon Note? You can find 2 reasons; first, the Balloon Note likely produced a more substantial commission for himself. Secondly, he was positioning himself to refinance the loan in order to earn another commission when the Balloon Note was due (a practice referred to as "Churning" or "Equity Stripping"). The loan officer was negligent because he'd no way of knowing if the Borrower would qualify for the refinance as planned. Guess what...his Balloon Note came due in 2011 and he was not able to refinance as the property value had declined by about 50%. His lender refused to modify his loan and he was facing foreclosure as a result. The lender "Breached their Fiduciary Duty" by putting the Borrower in harm's way.
If you consider the numbers closely, you will see that the Borrower really would not have saved any money even when the property value hadn't declined and he refinanced because the loan officer suggested. The $43 monthly "savings" amounted to $2580 within the 5 years ahead of the Note matured. ($43 times 60 months equals $2580). But, the closing costs to refinance the loan would likely have now been at the very least very much which would negate any real savings. This homeowner did nothing wrong, but he now has damaged credit (the Note is delinquent while he couldn't refinance or tender the Balloon Note of almost $200,000). More importantly, he is worried sick he will lose his home and not be able to buy another. What's promising is that his attorney is confident he are certain to get his loan modified largely because of the findings of our full manual forensic audit. This can likely end in the reamortization of the loan with an interest rate that is lower than he might have obtained by way of a refinance.
You will see no closing costs to Forensic Audit and he expects a lower payment as a result.