If you are a loan modification attorney it can get frustrating approaching a lender to request a mod on behalf of a client and being turned down. Worse yet, getting turned down and with no good reason offered. You have to go back to your client and deliver the bad news.
However, 83% of US loans are frought with lender violations of one applicable law or another. TILA, RESPA, HOEPA, a state law, ECOA, or one of over 80 laws that can be violated. Many of these violations provide your client with a right to rescission of their loan. Instead of facing foreclosure, your client could instead turn the tide of negotiation in their favor. And you’ll be hero.
It all begins with a loan audit. That’s where you can see if there are any violations of your client’s loan. Your loan auditor will provide you with a comprehensive report, detailing missing documents or other violations of your client’s loan and an analysis of what it may mean to your client financially and legally. Click the link to view a sample loan audit.
Your loan auditor can provide a comprehensive report and help you identify areas that are key negotiating points in the loan modification process. Get more information on the loan auditing process.
The ECOA - Equal Credit Opportunity Act - forbids lenders from considering race, color, religion, national origin, sex, marital status, or age when a person applies for a loan. They can’t even consider whether or not you receive public assistance. This offers greater opportunities for women who wish to take out a loan for purchasing real estate.
Married women often find themselves in situations where they do not have credit because major purchases are made in their husband’s name. While your creditworthiness may be considered for a loan, the fact that you are a woman without credit history may not.
Single women often have other issues related to credit, but unless there is a real compelling reason to deny you a loan based on your creditworthiness, the fact that you are a single woman cannot be used against you either. Nor can your marital status or gender be used to increase the terms of you credit. A loan audit can reveal such instances if they exist in your loan and can save you from foreclosure if there is evidence of such dealing with your lender. Consult an attorney before you do anything else and request a loan audit.
A pooling and servicing agreement outlines the rights and responsibilities of the trustee, servicer, and others involved in a pool of mortgage loans. So where do you find it? I’ll assume that you don’t know the name of the securitized pool of loans that you are looking for (otherwise it would quite simple).
Follow these steps to locate a pooling and servicing agreement:
- Go to http://www.sec.gov and look for a blue tab labeled “Filings & Forms”. Click on Search for Company Filings.
- Click the link labeled “Company or fund name, ticker symbol, CIK (Central Index Key), file number, state, country, or SIC (Standard Industrial Classification)”
- Type the name of the mortgage company in the Company Name field and click the Find Companies button>
- If you know the year your loan was serviced (and you should), look for an entry with that year in the title and click on that entry’s document number.
- Look for the document titled Prospectus and open it in HTML or Text.
- Look for the Pooling and Servicing Agreement section in the Table of Contents. In that section you’ll find information on closing dates and cut offs for the pool of loans in question. Other information in the Pooling and Services Agreement includes who has the right to modify a loan or negotiate with the homeowner. You’ll want to get to know that person.
- If this isn’t the right document for the loan you are attempting to modify, repeat these steps until you find the right Pooling and Servicing Agreement. It’s tedious work, but well worth it.
Get more information on the loan audit process at U.S. Lender Audit.
California Senate Bill 94, passed in May of this year, requires third-party loan modification services to provide a written statement to customers prior to entering into any fee agreement the following statement, with the additional requirement that it be written in at least 14-point type bold font.
IT IS NOT NECESSARY TO PAY A THIRD PARTY TO ARRANGE FOR A LOAN MODIFICATION OR OTHER FORM OF FORBEARANCE FROM YOUR MORTGAGE LENDER OR SERVICER. YOU MAY CALL YOUR LENDER DIRECTLY TO ASK FOR A CHANGE IN YOUR LOAN TERMS. NONPROFIT HOUSING COUNSELING AGENCIES ALSO OFFER THESE AND OTHER FORMS OF BORROWER ASSISTANCE FREE OF CHARGE. A LIST OF NONPROFIT HOUSING COUNSELING AGENCIES APPROVED BY THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) IS AVAILABLE FROM YOUR LOCAL HUD OFFICE OR BY VISITING WWW.HUD.GOV.
The question is, Why and who does this protect?
It is obvious the statement is designed to protect lenders. ALL lenders. Not just the good ones. It also protects unscrupulous lenders who do not deserve the protection.
Think about this: If your lender has violated state or federal law by not providing you with the proper disclosures or has sold you a mortgage product that you do not need and is above your means to pay, what incentive do you have to contact that lender directly for a loan modification? Furthermore, if you do contact that lender and request a loan modification, how will that lender treat you? The following treatments are common among lenders who also agree to provide their customers with loan modification services:
- Charge clients for the loan modification - This begs the question: Is the mortgage company providing a modification to the loan to help the borrower or to make more money off the borrower? If your lender is providing a loan modification then it shouldn’t cost you anything.
- Force you to sign away your rights - Many lenders will not discuss loan modification with you until you sign a waiver stating that you will not sue them. If such a statement is necessary then the lender must be worried that there is a cause for litigation (and there probably is). Just as well, you have a right to seek justice and remuneration for any wrong done you by your lender. Therefore, we advise you not to sign such statements.
- Offer a less than adequate modification - While you may think that you are getting a fair deal from your lender, remember that your lender sold you a product that you didn’t need. Many lenders will provide you with a loan modification, but your new loan terms will not be as good as they could have been had you used a third-party negotiator and the leverage of a forensic loan audit.
Your best strategy for getting the loan modification that you deserve is to first request a forensic loan audit through an attorney that specializes in loan modifications. Your attorney can order the audit on your behalf, which will be thorough and comprehensive in scope and analysis. If your lender has violated any state or federal law (83% of all mortgages has some kind of violation in them) then your attorney can negotiate a better settlement for you. You’ll get a much better deal with a third-party negotiator who specializes in modifications backed by a loan audit that can be used as admissible evidence in a court of law.
When you ask for a loan audit or mortgage document review, there are certain documents that are always looked at. Then there are documents that may be exempted depending on the circumstances. The procedure for a document review includes:
- Credit report, unless the loan was a streamlined refinance or meets other underwriting exemptions
- Verification and re-verification requests
- Gift letters
- Mortgagor’s employment or other income
- Deposits
- Alternative credit sources
- Funding sources
- Mortgage and rent payments
There may be times when a re-verification of documents is necessary by telephone. Regardless, when a loan document review is complete, the loan auditor will have a good picture of the mortgagor’s situation at the time of lending and whether or not any predatory practices have taken place. But a thorough loan audit doesn’t just end with these verifications. It goes much further.
HOEPA stands for Home Ownership and Equity Protection Act. Passed in 1994, the law extends the Truth In Lending Act passed in 1968. It deals with mortgage restrictions and requirements pertaining to high-cost loans. The law requires that HOEPA disclosures be given to the borrower at least three days prior to closing. Restrictions covered in the Act pertain to certain loan terms that are typically associated with abusive or predatory lending.
The following types of loans are covered under the HOEPA Law:
- APR on original mortgage is 8% points over comparable Treasury securities
- Or if the APR on the second mortgage is 10% or more over comparable Treasury securities
- The borrower’s total fees and points exceed $583 or 8% of the total loan amount, whichever is greater
That $583 is tied to the Consumer Price Index and established by the Federal Reserve Board annually so it’s only good for 2009. Next year the Board will adjust that figure.
The rules apply primarily to home equity installment loans or refinancing, which are typically high-cost loans.
HOEPA specifically prohibits balloon payments, negative amortization, default interest that exceeds pre-default rates, a variety of prepayment penalties, and several other controversial lender practices. You can learn more about HOEPA here.
To find out if a lender has violated the HOEPA Law, request a loan audit.
When you are challenging the terms of your mortgage you want the best of two things: An attorney and a loan auditor. At least one of them should be a case law expert.
I am utterly surprised by the number of loan auditors today who couldn’t answer simple questions about mortgage case law. A good loan auditor will be thoroughly familiar with the Truth In Lending Act, HOEPA, RESPA, ECOA, and many other local, state, and federal laws that apply. Of course, your local laws will be different than those in another state, but your loan auditor should know where to go to find the most applicable laws.
Many lender violations can result in fines and penalties for the lending company. That’s why, if you have evidence that some of those laws were violated, even if by innocent error, it could save you thousands of dollars over the lifetime of your loan. Your payments could get lowered as well.
And since 83% of mortgages have violations in them, it makes sense to get a loan audit - just so you can sleep at night.
TILA stands for truth in lending. It’s a piece of legislation put in place to protect consumers from predatory lenders who prey on consumer ignorance and borrower innocence.
The part of the Truth in Lending Act that is cited most often and which affords the latest and most protection for borrowers is Part 226, also called Regulation Z. This is the part of the act that requires lenders to provide certain disclosures and gives the time line for those disclosures based on the type of loan.
For instance, Part 226.5b says in part:
(d) Content of disclosures. The creditor shall provide the following disclosures, as applicable:
(1) Retention of information. A statement that the consumer should make or otherwise retain a copy of the disclosures.
(2) Conditions for disclosed terms. (i) A statement of the time by which the consumer must submit an application to obtain specific terms disclosed and an identification of any disclosed term that is subject to change prior to opening the plan.
(ii) A statement that, if a disclosed term changes (other than a change due to fluctuations in the index in a variable-rate plan) prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of all fees paid in connection with the application.
(3) Security interest and risk to home. A statement that the creditor will acquire a security interest in the consumer’s dwelling and that loss of the dwelling may occur in the event of default.
(4) Possible actions by creditor. (i) A statement that, under certain conditions, the creditor may terminate the plan and require payment of the outstanding balance in full in a single payment and impose fees upon termination; prohibit additional extensions of credit or reduce the credit limit; and, as specified in the initial agreement, implement certain changes in the plan.
Subsection d of this part of the code contains 12 specific instructions to lenders that must be complied with or the lender is in violation of the loan agreement. All 12 must be adhered to, if applicable. Other items not mentioned above include:
- Disclosures for variable-rate plans
- Tax implication disclosure
- Transaction requirements
- Negative amortization disclosure
- Third-party fees disclosure
- Creditor fees disclosure
- and APR disclosure
All of this can be found just within one small part of Regulation Z. You can read the entire regulation on the FDIC website.
To learn more about how a loan audit can help you uncover lender violations - either a violation of Regulation Z or one of the many other state, local, and federal laws that apply - visit one of the oldest and most comprehensive loan auditors in the nation.
The best tool that you can use to assist your legal clients from falling prey to a mortgage scam and risking the loss of their home due to a foreclosure is to request a loan document review from a professional forensic loan auditor. Trust me when I say that a comprehensive document review can provide more evidence of fraud or negligence on the part of your lender than anything else. If your client’s loan servicer is guilty of violating any of the loan’s contractual obligations then the loan document review will show it.
A good review, however, has at least three characteristics:
- It’s in writing
- Cites case law
- Is specific about the violations within the loan
Your forensic loan auditor should go over every detail of your client’s loan and point out every violation so that you have a basis for discussion and negotiation with the lending company and a foundation for accurate discovery should you need to litigate. If you have not ordered your loan audit today then now is the time.
The purpose of truth in lending laws are pretty straightforward. From the Truth In Lending Act itself:
The purpose of the Truth In Lending Act is to require a meaningful disclosure of credit terms so that the borrower will be able to compare the terms of different loans available to him and to protect the consumer against unfair lending practices.
It is only right and fair that consumers of mortgage loans know in advance what they are getting into. Hidden fees and secret punches ought to be discouraged. But they happen anyway, even with strict laws.
One of the primary ingredients of the truth in lending laws in place is that lenders must disclose in writing the exact nature and amount of your fees, loan amount, and finance charges. Failure to do so can result in huge fines and financial remedies for the borrower.
The test for most truth in lending violations is “bona fide and reasonable”. That means market rate is a necessary consideration. It doesn’t mean that every lender must offer the market rate on loan amounts and charges. It does mean that huge gaps between the market rate and the actual charges could be terms for dispute or litigation. If that seems vague, it’s because it is. The law does allow for some flexibility in product offerings for the sake of competition, but it doesn’t allow for predatory or unscrupulous lender practices.
If you feel like you have a truth in lending claim then a loan audit can help you identify any violations that can give you legal recourse.