Loan Audit FAQ
FAQ ON FORENSIC LOAN AUDIT/LOAN MODIFICATION
1. What is a forensic loan audit? What is the difference between a forensic loan audit and a loan modification? Although related real estate actions, they are totally different in function. A loan mod is any actual change in interest rate, principal balance, term length that affects the borrower’s monthly payments. A forensic loan audit is a comprehensive exam or diagnostic of the loan approval process. There are numerous consumer protection laws and statues that are designed to protect consumers from corporations. Any violations of these laws and statutes can and do constitute as predatory lending violations. A forensic loan audit compares the loan process and all the documents against the state and federal guidelines for lenders which they are required to follow when processing the loan. A forensic loan audit is like an X-ray and a loan mod is a process to fix what is wrong. An audit by itself is just a report. A loan mod without all the pertinent facts is just not as compelling to a lender. A forensic loan audit gives the details to add strength to the negotiation process with the lender during a loan mod.
2. How many different laws do the forensic loan audit compare itself against the homeowner’s loan docs? There are close to eighty (80) different state and federal laws and statutes. They range from RESPA…real estate settlement procedures act, TILA…truth in lending act, GFE…good faith estimate, etc.
3. What are some common violations? Wrong date on GFE, APR is off, no cancellation forms, TILA is inaccurate, loan application was not completed correctly, loan agent chose loan program, loan paperwork is not translated in borrower’s main language, etc.
4. Where in the process do the violations occur? Violations can occur during initial loan application, at loan document signing, during the life of the loan, during NOD or NTS process.
5. What are some common penalties to the bank for these violations? $1K-$10K fine per offense, rescission of the loan making the note worthless (the loan is no longer secured against the property), etc.
6. What types of loans are most likely to have a violation? Stated loans, ARM loans, NEG AM loans, any lender who went out of business in last 2 years.
7. From what year range or loan origination do most violations come from? 2002-2008
8. What is the step-by-step process of a forensic loan audit? The laws are specific and the loan paperwork is detailed…the two are compared for inconsistencies with a law and what was noted or not noted on the loan paperwork or how the loan approval process went in general. To learn more, a person should get trained on how to conduct the forensic loan audit through our office.
9. How can an audit force a lender to lower the interest rate and, therefore, the payment? With an audit, the lender (who may or may not have made the loan) is shown all the violations caused when the loan was originated. With this information known to the lender, it allows a more effective negotiation during the loan mod process. There are black and white consequences to the lender. Some of the consequences for violations are severe fines, including up to rescission of the loan. This means the loan is no longer secured against the property and the note becomes worthless. The bank will do what it can to avoid litigation or a worthless unsecured note. The lender is not in business to fight lawsuits. They are in business to collect mortgage payments.
10. What does a forensic loan audit do in most simple terms? It is a complicated proprietary computer analysis of a borrower’s mortgage file with any and all related laws which highlights potential issues. These highlighted issues give borrowers a more powerful tool to help them change their loan terms. A forensic loan audit is a better way to identify loan, bank and underwriting errors than paying an attorney $300-$500 per hour to find these issues.
11. Can you say that a forensic loan audit will save someone’s home? NO. A forensic loan audit is a report only. What the homeowner does with the report can include things that will allow them the opportunity to keep their home, but a forensic loan audit does not specifically save anything and does not reduce anything.
12. Can a forensic loan audit alone reduce the mortgage payment or principal balance? No, it’s just a report given to the homeowners. They can perform the loan mod against the lender themselves, hire a loan modification company, work with a licensed and approved DRE agent or hire a predatory lending attorney. Taking that next step to reduce the mortgage and possibly save their home is the responsibility of the homeowners.
13. What would a predatory lending attorney do with a forensic loan audit? A predatory lending attorney could determine if a case is possible without spending numerous hours reviewing all laws that may have been violated in relation to the borrower’s file.
14. How does someone use the audit to then modify a loan? First, determine the budget for a new payment amount the homeowner is seeking from lender, calculate the difference between current and original payment. How much rate would need to be cut to achieve this new payment? How much principal would need to be reduced? What blend of the two terms would need to happen to get the desired payment? Is that a crazy number? Is it a large number? Is the reduction amount requested appropriate in size? Second, include a cover letter with comps, explanation of why changes to loan terms is requested, why payments will be made on time if loan mod is approved, show the worst case scenario for the lender if the loan mod is not granted (lawsuit or foreclosure), provide a completed forensic loan audit identifying X number of violations and some of the ramifications are x,y,z. Third, state your proposed new rate, term length and principal balance. Inform the lender of your required response date before you file suit with attorney. Include your contact info. Send all documents to lender and wait.
15. What types of loans can be rescinded by the lender? Refinanced loans.
16. Can I call this a “LEGAL LOAN MOD?” NO, NO, NO, NO! There is no legal representation, claims or qualifications being made. There is no legal advice, opinion or attorney review given. A forensic loan auditor is merely inputting the data for the report to identify what happened factually before, during, and after the loan process.
17. Does a homeowner need to be current or past due on the mortgage payment to do an audit? No preference for audit. The loan mod will place weight on one or another during the negotiation.
18. Can you guarantee the audit will find violations? Not every X-ray shows a broken bone, not every audit shows a violation. But you will know better how to proceed with your mortgage if you can start eliminating things that are not possible to fix.
19. What if no violations are found? Then proceed with a traditional financial loan mod, sell the home or walk away or pay the payments.
20. How long does the audit take? 30-45 minutes initial interview and loan document inspection, 4-6 hours to review all loan documents and input them into a software program. It takes 2-5 days after input for the report to be generated by the system.
21. What states will this forensic loan audit work for? California only.
22. What does the forensic loan audit look for? Any errors, misrepresentations or omissions which may be intentional or unintentional from the lender, broker or title company.
23. Why would the lender reduce a rate or lower a principal balance with just a report? The cost of settling is less than a rescission of the whole loan if a lawsuit is lost in court.
24. Who would need this service and why would a homeowner pay for a forensic loan audit? Any homeowner who wants to do one of the following: check for violations of the loan approval process, homeowner who feels the mortgage payment is too high for their budget, homeowner who feels the mortgage balance is higher than the value, homeowner who feels the loan process was flawed or who feels the mortgage process was wrong in any way, homeowner who wants to use the possible violations as leverage to modify their loan terms.
25. What is an example of savings to a homeowner? .5% savings on $500k saves $1860 yearly, 2% saves over $7500 yearly.
26. If someone was denied a loan mod before, could they do a forensic loan audit and try again? Any homeowner with a loan can perform an audit at any time, as many as they want. However, why was the loan mod previously denied? If a borrower does not have a job, then a lawsuit against the lender may make more sense than a loan mod attempt.
27. If there are violations found, who can do the loan mod after the audit is complete? Owner, loan modification company, licensed and approved DRE agent or predatory lending attorney.
28. Will the borrower need to provide all financial info for a loan mod to start? Yes
29. If a loan was approved with a stated income borrower, does an audit raise any flags to the lender? There is always a chance some lender may seek to stir up trouble for a borrower, but that chance needs to be weighed against the benefits of having a successful loan audit and using that audit to influence the loan terms.
30. Does the borrower need to provide the original loan documents to start? Yes. The most crucial documents include 1003 Universal Residential Loan App, Truth-In-Lending Disclosure, HUD-1 Closing Statement, Mortgage Note, Servicing Disclosure Statement, Initial Escrow Statement, Good Faith Estimate, Appraisal, Title Report, Notice of Rescission. Many of these documents were provided at closing.
31. What if the borrower does not have the original loan documents? If the borrower cannot provide documentation, the borrower can either contact the title company that did the signing, the broker who did the loan or send a QUALIFIED WRITTEN REQUEST to the lender to request copies of these docs.
32. What is a QUALIFIED WRITTEN REQUEST? It is a high horsepower letter to get all the paperwork and documents from the lender.
33. Will a forensic loan audit affect a homeowner’s credit score? There is no relationship between an audit and a credit bureau or credit history. Imagine how much better your credit would be if you save money on your mortgage and pay your other bills?
34. Will a credit report need to be pulled in order to audit a loan? No
35. How much does a homeowner invest to audit their loan? $950
36. Is there a money back guarantee? You are guaranteed to get a report. However, for $1995 you can have a guarantee. If there are any violations you pay the full $1995. If there is no violation, then you get a full refund. We are confident with the process. If you are not, then pay the higher amount.
37. Does your company conduct training to perform forensic loan audits? Yes, we offer training. It is a 5 hour class which covers the specifics of how to get started in becoming a forensic loan auditor. The cost is $175, but this could lead to a very steady income working from home. Click here or email us if you are interested in registering for the training.
38. How much will I make with each forensic loan audit? $100, $250, $500 depending on amount of work completed.
39. If someone wanted to perform a forensic loan audit on their own home, how do they contact you? Click here and complete the questionnaire. E-mail the completed form to icrg@reicircle.com or fax to 563-405-4561 and we will contact you.