Make Your Loan Modification Application Sizzle!, Loan Modifications And Forensic Loan Audit, Forensic Loan Audits = Success!

NEWSFLASH!! The home mortgage meltdown continues in 2010! The environment for homeowners is going to get much worse before it gets better.

1. Foreclosure rates remain high

2. Foreclosures are climbing the economic ladder, meaning higher priced homes are now coming under price pressure – even in the most sought-after locales.

3. Unemployment continues to drag the economy down. No significant relief is in sight…only a slowing of the rate of increase.

4. Commercial property foreclosures will increase throughout the year – vacancy rates are at an all-time high.

5. Inflation will be a problem soon, providing additional negative pressure on the economy.

6. The controversial bailouts won’t continue

There’s no reason to expect that there will be any appreciation in home prices anytime soon. A report recently predicted that as many as 48% of homeowners will be “upside-down” on home mortgages by the end of 2010. More price erosion is expected in the coming months before the decline stops and we hit bottom. Gov’t efforts to stem the tide of foreclosures, most notably the loan modification program, just gets more scandalously slow each month. Backlogs, erroneous denial of applications, errors galore…the banks can’t hire and train fast enough to keep up. Some negotiators have as many as 300 files at one time! Real, meaningful principal reductions seem like so much hype at this point.

During the housing bubble, lenders cut corners to sell more loans to meet the Wall Street demand for mortgage-backed securities (MBS). Loan originators, many of whom had been hastily recruited, poorly trained and with no experience in any other market condition, cut corners to meet high quotas. Brokers, appraisers, Lenders, Realtors, and Home Inspectors…virtually everyone in the industry…responded with what has now been labeled predatory lending practices. Predatory Lending is unethical and some of the actions are illegal. Some of the violations have inconsequential penalties. Do you really care if Chase gets a nasty letter from a regulator, or if Wells Fargo gets cited for failure to provide enough copies of disclosure documents? No. You care about whether or not the violation can now benefit you by improving your negotiating position for a modification or other workout. Predatory Lending was common. Whether through unintentional errors caused by haste or through blatant disregard for the law, the violations may now provide the leverage you need to negotiate a good workout solution.

What are the most common violations? Here are the top 10!

1. Charging fees without providing the services

2. Charging excessive points (more than needed to buy-down rate), higher interest rates or high fees

3. Charging for private mortgage insurance when the borrower did not need it

4. Selling single-premium life insurance and charging the premium in the loan – without prior knowledge and consent of the borrower.

5. “Stripping Equity” by refinancing so many times that the fees eat up the equity and make the borrower vulnerable to foreclosure (too high DTI)

6. Failing to fully disclose and explain the terms of the loan

7. “Teaser” rates on adjustable-rate mortgages to entice borrowers to accept high-risk products

8. Misrepresenting facts (income, home value, assets, etc.) on the loan application

9. Selling a higher rate loan when the borrower could have qualified for a lower rate

10. Preying on the vulnerable by purposely targeting minority groups, poor, uneducated, or elderly with unfair loan products

11. Making loans that were “not in the borrowers’ best interest”

12. Promising refinancing after a short period – to get buyers to agree to bad loan terms

If there is evidence that your lender acted inappropriately in selling you a high interest-rate or high fee loan, or by illegally “assisting” you in preparing the documents, or by approving a bad loan, you may have additional leverage to use in your loan modification or even in a lawsuit. What if I told you that your lender violated three laws in at least seven instances during your loan process? What if one of those violations was serious enough to warrant a lawsuit! Would that give you confidence going into negotiations for a deed-in-lieu or a modification? Oh, yes indeed. Lenders and loan originators were pretty well versed in the law and how to skirt the fringes of the law. So, often your findings will not reveal egregious violations. Rather, the audit may uncover “pattern of inappropriate actions” that, taken altogether, show disregard for your rights and caused you damage. It is in the presentation of the “evidence” of violations that your case can be made and your purpose achieved.

I highly recommend you conduct a Forensic Loan Audit:

1. the loan was made during the 2002-2008 timeframe

2. if the loan came from a broker (not an employee of the lender)

3. if the loan is an ARM, neg-am, “Pick-a-Pay” Option ARM, or interest-only loan

4. if loan is a sub-prime loan (3+ points higher than the best loans at the time) or if it is an Alt-A loan

5. if the loan had any pre-payment penalties

6. if the loan is a stated-income loan

7. if you felt “hustled” or pressured or hurried to get your loan or sign the documents – you likely were a victim.

8. If you accepted poor terms with a promise to refinance to a better loan “soon”

9. If, either when you took the loan or during the projected life of the loan, your debt-to-income ratio was (or was projected to be) higher than 40%

10. If you were forced to accept mandatory arbitration, thereby limiting your legal rights.

Is Legal Action worth it? The modification process is a negotiation. Therefore, the more leverage you have the more likely you are to suceed. Evidence of lender violations of TILA, RESPA, HOEPA or any number of state or federal consumer protection laws can give you an edge in the negotiations. Forensic Loan Audits are required to identify these violations. These audits can be expensive. They are performed by professional auditors who are specially trained in this area.

Three Comments

I have become convinced that Forensic Loan Audits provide valuable leverage to homeowners in loan modifications. Time and again I’ve seen workouts concluded faster and better for borrowers who invest the time, energy and money into such audits. Secondly, I have observed that, oftentimes, the power of the information is in its effective use. That is, even tepid results from an audit can be used effectively in negotiations. Not as a “bluff” but as a signal that you have the resolve and capacity to negotiate professionally. Lastly, I’ve observed that often there are “low-hanging fruit” in the audit. Clear violations of a serious nature that can be readily identified. A deliberate, informed consumer can spot common violations without too much effort. Then, it’s simply a matter of finding a trustworthy auditor. More on this topic, next time.

Rockwood has been providing Loan Modification help to thousands since the housing meltdown began.? Visit Rockwood’s site about DIY Loan Modiification at Home Loan Modification