Loan Modification vs Forensic Loan Audit

A loan modification seems to be all the rage these days with the advertisements, radio and TV ads and the overall hype it is receiving. A loan modification is any action taken by a lender to reduce a portion of the principal balance or to alter any other mortgage variables. The terms that can be modified are interest rate, length of loan, placing of unpaid balances at end of mortgage, convert adjustable rates into fixed rates or fixed rates into adjustable rates, etc.

A loan modification can be requested by the homeowner, real estate agents, and lawyers. There would, of course, be no fee if the homeowner requested a modification of their personal loan. The State of California requires that any loan modification serviced by a third party, who requires, asks for and retains up front loan mod fees to have submitted the appropriate paperwork to the CA Department of Real Estate (DRE). Anyone not approved by the CA DRE cannot legally accept any up front loan mod fees.

The traditional loan modification is a simple mortgage approval process. To perform a loan modification, a homeowner or third party would use all financial documents such as paystubs, tax returns, bank statements, household financial statements to qualify the homeowner for an adjustment to their original loan note. The homeowners must qualify for the new loan terms as they must qualify for a purchase or refinance mortgage. If the income is not sufficient, then the approval for a loan modification will not be granted. According to industry average, 20% of homeowners will qualify for an approval on the loan modification. As per industry reports, 50% of the homeowners who are approved for a loan modification have been reported to be in need of additional assistance or have financial issues within 6 months of the loan modification original approval.

There are shortcomings to the traditional financial loan modification process. First, the homeowner is realistically negotiating from a position without leverage. This lack of leverage means the bank determines all the rules and options. Second, the traditional loan modification bases the approval on black and white factors (i.e. documentable income, bank statements and tax returns). Any homeowner who cannot fully document their income lacks further ability to get approved. Many homeowners are business owners and business owners who understand the tax code are less likely to document an income satisfactory to qualify for a loan modification.

A forensic loan audit is not a loan modification. A forensic loan audit will not, by itself, lower any mortgage interest rate, principal balance or alter any terms of the original note. A loan audit is similar to a spell checker for your original loan documents or a MRI of the original loan paperwork and the process that went with your loan approval. A spell checker checks for errors in spelling. A MRI scans for issues inside your body. A forensic loan audit reviews your loan paperwork, all the lender documents and loan process for violations of any one or more of the 70 various California and US consumer protection laws. The loan audit checks for proper Truth-In-Lending Disclosures, RESPA laws, REG Z, HUD, Good Faith Estimates and many others. A violation in any of these areas is black or white and has black and white ramifications to a violation.

A forensic loan audit allows the homeowner to do a loan modification or hire a third party to perform one for them...from a position of power and from a position of leverage. With power and leverage, from the documented legal violations, the homeowner's chances of approval will increase. The ability to show bank statements instead of paystubs and the ability to show rental income from an investment property may become easier. A traditional financial loan modification is like asking for a date from a super attractive person and all you can do is bow your head and say please over and over. A forensic loan audit with notable violations of the consumer protection laws is like asking that same person on a date after winning the lottery, saving a baby from a burning building and winning on Survivor. Your odds are never 100%, but your odds just go way better.

A forensic loan audit can be ordered and performed on any loan that was originated within the last 5-7 years. It does not matter the type of loan or if the loan was for a refinance or purchase or HELOC. Some loans have inherently more chances for violations (i.e. negative amortization loans with stated income).

Once an audit is performed, one of three choices can be made by the homeowners:

• Homeowner performs the loan modification by themselves,

• Homeowner pays for a third party loan modification company to perform a loan modification,

• Homeowner hires a lawyer to file a lawsuit against the lender based on the known violations with the loan documents and original loan approval process.

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