These companies often work with a generic computer software that just talks about Truth In Lending Act (TILA) violations and nothing more. Most TILA violations have a 3 year Statute of Limitations. So, if the mortgage is more than 3 years old, the audit won't help even though violations are exposed. Note: If the mortgage is less than 3 years of age, TILA violations can produce significant remedies that might include rescission (cancellation) of the loan.

We are finding that probably the most powerful audit needs a complete manual overview of ALL mortgage documents you start with the initial application through closing. Few companies actually perform this kind of in-depth forensic audit properly. One of the very most common violations we find is fraud. The fraud is generally in the shape of inflated income, assets, or appraised value. We also see that the homeowner was unaware of the fraud because it had been the loan officer who falsified the information to be able to obtain the loan closed and receive his/her commission. Certain kinds of fraud haven't any 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.

As an example, we recently audited an apply for a customer that earned just over $4000 per month. They were applying for a $175,000 mortgage for the purchase of a home. Their debt-to-income (DTI) ratio was over 60% so the loan should have already been denied. The borrower had recently graduated from college and had less than a year on his new job. He also had numerous student loans which were deferred while he was in school, however the payments would begin in just a few months. Rather than deny the loan (or instruct the borrower to get 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 first loan application which showed the $4000 income. This was 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 just one place on the "Application" that discloses the borrower's income. It is on Page 2 which does not require a trademark 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 has become being processed to reduce 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 already 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 reduced payment, but was worried about the Balloon Payment. The loan officer improperly persuaded the homeowner to go forward with the Balloon Note notwithstanding the borrowers concerns. The loan officer assured him that he would manage to refinance the loan before the Balloon Note was due and that 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 bigger commission for himself. Secondly, he was positioning himself to refinance the loan to be able to earn another commission once the Balloon Note was due (a practice known as "Churning" or "Equity Stripping"). The loan officer was negligent because he had no means of knowing if the Borrower would qualify for the refinance as planned. Guess what...his Balloon Note came due in 2011 and he was unable to refinance because 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 go through the numbers closely, you will dsicover that the Borrower really wouldn't have saved any money even though the property value hadn't declined and he refinanced as 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 may likely have been at the least that much which would negate any real savings. This homeowner did nothing wrong, but he now has damaged credit (the Note is delinquent when he could not refinance or tender the Balloon Note of almost $200,000). More to the point, he's worried sick he will miss 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 due to the findings of our full manual forensic audit. This will likely lead to the reamortization of the loan by having an interest rate that is lower than he might have obtained via a refinance. You will have no closing costs and he expects a much lower payment as a result.