The 411 on Forensic Loan Audits

A Forensic Loan Audit is a process that involves examining certain key loan documents. A Forensic Loan Audit's purpose is to identify violations of lending laws so that you may utilize this information to your advantage, by either negotiating a Loan Modification, filing a lawsuit to stop a foreclosure, or initiate some other type of legal proceedings against your lender.

Predatory Lending

The Forensic Loan Audit service is very specialized and important in identifying whether you were a victim of predatory lending or other violations of lending laws. Our Auditors review key loan documents and perform a thorough investigation to identify miscalculations and to determine if the loan terms and disclosures are accurate, truthful, and met the requirements of the applicable federal and state statutes. Our primary goal is to determine whether there were violations of federal law. Whether or not you are currently in foreclosure, you may use any violations of lending laws commited by your lender to your advantage. The words "Predatory Lending" are all over the news and media, but how can you determine if you are a victim? What is Predatory Lending? Predatory Lending is a term used to describe practices whereby certain borrowers were provided with loans and loan terms that were not beneficial to the homeowner, or the homeowner was subject to certain abusive practices during the loan origination process. These practices may have been illegal under the Truth In Lending Act, RESPA and many State and Federal Statutes.

Predatory Lending is a hot topic in the news and there is a good reason why. Some lenders and mortgage brokers have spent the last few years taking advantage of home owners by providing low teaser rates and Pay Option ARM loans. Many lenders and brokers knew these loans were deceptive, yet the borrowers weren't told the truth.

Many loans were set up in a manner so that the borrower would choose to make only "minimum monthly payments" that did not even cover the accruing interest, so each month the balance of the mortgage went up, and not down. This was not properly explained to new homeowners. Even worse, many homeowners were qualified for loans on the basis of the minimum monthly payment. If the actual payment had been used to qualify for the loan, then the borrowers would certainly have been declined a mortgage loan. To add insult to injury, these were also loans that mortgage lenders often paid generous incentives to brokers for -- in the amounts of thousands of dollars per loan.

The term Predatory Lending can apply to all aspects of the mortgage industry and refers to the practice whereby a creditor originated a loan that the borrower would probably not be able to repay. Predatory Lending can be difficult to determine without a full analysis of the loan and the circumstances of the loan origination and closing process, but there are certain characteristics that are generally prevalent in the process. The following are just a few of the more usual tactics and characteristics. More often that not, there will be a combination of these characteristics and many others not mentioned here.

Bait & Switch

You're sold on the phone by a smooth talking loan officer who pitches you a great rate. Things move quickly and when you go to sign your loan documents with a notary, that great rate isn't so great anymore. Or, you are told that the interest rate on the loan is 1%, as was done with the Option ARM loan. In reality, this rate may have been for only one month, and then the actual rate took affect, often higher than 8%.

Excessive Fees

This is very common. Homeowners being charged fees which are above and beyond the normal costs. This may involve large junk fees or other costs that most lenders do not charge. HUD created a two part test to determine when fees were reasonable or unreasonable, but this was routinely ignored.

Elder Abuse

Elder abuse is unfortunately common because retirees often have a large amount of equity in their homes, making them prime targets for greedy and crooked creditors. These predators cold call elderly homeowners and then scam them into a loan which they do not need, can not afford, and which provides the predator with an incredibly large commission. This was especially true when retired homeowners were placed in Option ARM Mortgages.

Loan Flipping

This is the process whereby a homeowner is convinced to refinance soon after closing on a previous loan. There is seldom benefit to the homeowner, with the financial benefit primarily being to the loan officer and lender. Often, the loan being paid off involved a hefty Prepayment Penalty that the borrower had to pay, as well.

Steering & Targeting

Steering and Targeting is the practice of placing homeowners into loan products beneficial for the lender but not for the borrower. This often involved placing the homeowner into a subprime loan when they could have qualified for an A paper loan, or placing a borrower into an Option ARM mortgage, when a 30 year fixed rate loan was more beneficial and readily available.

Equal Credit Opportunity Act & Fair Housing Act

Both federal and state law prohibit the mortgage industry from providing different loan terms to people based on race, sex, ethnicity, or other protected class. Such a transaction may be subject to a cause of action under law.

Equity Skimming

Equity theft also called equity skimming, refers to the situation whereby the same creditor refinances the same property with the same borrower multiple times and uses the equity in the borrower's property.

What We Do

Using traditional manual audits, thoroughly investigated by our auditors with the assistance of compliance technology software, Amerihope Alliance Legal Services, LLC provides one of the most accurate and comprehensive loan auditing services available in today's market, capturing ALL violations made prior to or at closing.

Our report reveals ALL violations of Federal and State statutes, including RESPA, TILA, HOEPA, GBL, FACTA and Tangible Net Benefit, detailing EVERY VIOLATION, their severity, and the specific code in violation. We pride ourselves on the thoroughness and accuracy we deliver with each report.

We review your loan documents (the papers you signed when you applied for the loan and the papers you signed when you closed the loan). We investigate whether the information and calculations provided in those documents was accurate, truthful, and met the requirements of the applicable federal and state statutes.

We look to what the lender, broker, and agent told you about the loan. We focus on whether the loan you were told you were getting was actually the loan you received.

We review the loan program to determine the appropriateness of it for the borrower and the underwriting decision of the loan. Most important, we want to determine if the homeowner had a true ability to repay the loan.

There is much more involved in this process, but this gives a good idea of the thoroughness of the audit.

Using The Forensic Loan Audit

Once you have the FACTS about your loan, you may wish to negotiate directly with your lender, proceed in obtaining our professional loan restructuring service, or refer the matter to your local attorney for prosecution. If you elect to sue, any foreclosure proceedings are usually stopped immediately and the lender can do nothing until the suit is resolved. Most suits are resolved in an out-of-court settlement.

We determine whether there were predatory lending or other violations of federal law. In rare cases, this has given rise to the right to rescind or cancel the mortgage. If you are successful in rescinding the loan through litigation, you may be entitled to receive back all of the interest paid on the loan, all of the points and fees paid to obtain the loan, all fees paid by you to the lender in connection with the loan, and statutory penalties. This allows you to obtain a new loan with a smaller principal, meaning that your mortgage can become more affordable.

Facets of Your Loan That Our Auditors Will Investigate

CONSTRUCTIVE FRAUD

Material facts include the terms of the loan, whether there is a prepayment penalty, or any other information which a reasonable borrower would want to know before accepting the loan. Did the loan officer or lender fail to disclose any material facts to the borrower? Was the loan presented to you at closing materially different than what you had applied for?

NEGLIGENT MISREPRESENTATION

Were any representations, statements, or comments, (written or oral) made by the loan officer, broker, notary or anyone else which contradicts the terms of the documents?
When a mortgage professional makes errors which a reasonably diligent mortgage professional would not have made, he or she may have made a negligent misrepresentation.

BREACH OF CONTRACT

The note and its attachments are a contract. The lender must follow all the terms of the contract such as the manner in which the interest is calculated, and the penalties it assesses. Were there any terms in the contract which the lender failed to follow?

LACK OF GOOD FAITH AND FAIR DEALINGS

Did the lender or broker negotiate or approve the loan with your own interests being considered?

UNFAIR AND DECEPTIVE ACTS AND PRACTICES

An analysis of various factors in the loan process or even the loan documents that could be actionable under UDAP Codes.

YIELD SPREAD PREMIUM

AALS's own unique approach for attacking the payment of Yield Spread Premium to brokers.

NEGATIVE AMORTIZATION

Another AALS innovative approach for attacking Negative Amortization loans.

Loan Audit Report

    • Results report of all factual findings of the forensic audit
    • Any and all applicable federal law violations
    • The real terms of your loan
    • Outline of hidden fees and/or commission earned by your broker or lender
    • A complete assessment so you can pursue possible legal claims against your lender

Federal Laws Governing Mortgage Lending

The United States federal government has 4 core laws that make the lending guidelines uniform and administered fairly and equally for all individuals. In fact, all lenders are required to operate under certain rules, regulations and procedures when taking loan applications. Those rules, regulations and procedures are defined in the Real Estate Settlement Procedures Act (RESPA), the Truth In Lending Act (TILA), Equal Credit Opportunity Act (ECOA) and Fair Credit Reporting Act (FCRA).

Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act (RESPA) requires lenders to give a "good faith estimate" of all closing costs you are likely to pay. The idea is to keep the borrower from being forced to pay "hidden" fees at closing. RESPA also requires that borrowers receive disclosures at various times. Some disclosures present the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.

Truth In Lending Act (TILA)

The Truth In Lending Act (TILA) also known as Regulation Z, requires that the annual percentage rate (APR), term of the loan and total costs must be disclosed to a borrower prior to extending credit to the borrower. This information must be conspicuous on documents presented to the consumer before signing, and also possibly on periodic billing statements.

Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending based on race, creed, religion, national origin, sex, marital status or age. It also ensures that all consumers are given an equal chance to obtain credit. This doesn't mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.

The law protects you when you deal with any creditor who regularly extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate and mortgage brokers who arrange financing, are covered by the law.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies. When you apply for a mortgage, the lender obtains a credit report. The FCRA guarantees you will have access to that report.