mortgage audit software
Mortgage Audits - Do They Really Help?
It depends largely on who is doing the audit. Numerous studies and reports make sure over 80% of mortgages have legal violations linked to the origination of the loan. Our experience in reviewing hundreds of files confirms this. Among the biggest problems, however, is that unscrupulous Mortgage Audit Companies produce "audits" that won't help the homeowner. These companies often use a generic mortgage audit software that just discusses 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 which can include rescission (cancellation) of the loan.
We have found that the most powerful audit requires a complete manual overview of ALL mortgage documents you start with the first application through closing. Few companies actually perform this sort of in-depth forensic audit properly. One of the very common violations we find is fraud. The fraud is often in the proper execution of inflated income, assets, or appraised value. We also discover that the homeowner was unaware of the fraud because it absolutely was the loan officer who falsified the information to be able to obtain the loan closed and receive his/her commission. Certain forms of fraud have no Statute of Limitations and are therefore enforceable even though 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 within the application and supporting documents.
Like, we recently audited a declare a customer 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% and so the loan should have now been denied. The borrower had recently graduated from college and had less than the usual year on his new job. He also had numerous student loans of deferred while he was in school, nevertheless the payments would begin in just a couple months. As opposed to deny the loan (or instruct the borrower to find a more affordable property), the loan officer illegally inflated the borrower's income to $7500 per month. We all know 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 an alternative story. A revised "Residential Loan Application" was prepared by the lender which increased the borrowers'income to $7500 per month. There's just one put 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 discover 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 currently being processed to reduce his payments.
In another case, a borrower requested 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 which was 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 concerned with the Balloon Payment. The loan officer improperly persuaded the homeowner to move forward with the Balloon Note in spite of the borrowers concerns. The loan officer assured him he would have the ability to refinance the loan before the Balloon Note was due and he should take advantage of the $43 monthly savings. Why was the loan officer so insistent that he accept the Balloon Note? There are 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 once the Balloon Note was due (a practice called "Churning" or "Equity Stripping"). The loan officer was negligent because he had no method of knowing perhaps the Borrower would qualify for the refinance as planned. Guess what...his Balloon Note came due in 2011 and he was unable to refinance as the property value had declined by about 50%. His lender refused to change his loan and he was facing foreclosure as a result. The lender "Breached their Fiduciary Duty" by putting the Borrower in harm's way.
In the event that you go through the numbers closely, you might find that the Borrower really wouldn't have saved any money even though the property value had not 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 now been at 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). Moreover, he is worried sick that he will miss his home and not be able to buy another. The good thing is that his attorney is confident he will get his loan modified largely because of the findings of our full manual forensic audit. This can likely result in the reamortization of the loan with an interest rate that's less than he might have obtained by way of a refinance. You will see no closing costs and he expects a much lower payment as a result.