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Make Your Loan Modification Application Sizzle!, Loan Modifications And Forensic Loan Audit, Forensic Loan Audits = Success!

By T.J. Rockwood, Jr.

NEWSFLASH!! The home mortgage meltdown continues in 2010! The environment for homeowners is going to get much worse before it gets better.

1. Foreclosure rates show no sign of slowing

2. Foreclosures are climbing the economic ladder, meaning higher priced homes are now coming under price pressure – even in the most sought-after locales.

3. Unemployment is rising and is expected to continue to rise throughout the yearwith a leveling off period before beginning to decline.

4. Commercial property in the US is the next major industry to implodefollowed by credit card companies.

5. Inflation will be a problem soon, providing additional negative pressure on the economy.

6. The controversial bailouts won’t continue

There is no reason to look for any uptick in home prices anytime soon. Some experts predict that as many as 48% of homeowners will be “upside-down” on home loans by January of 2011. More price erosion is likely in the coming months before the decline stops and we bottom-out. Government and bank efforts to stem the tide of foreclosures, including the Making Homes Affordable Program, just can’t seem to build any momentum. Backlogs, wholesale denial of applications, errors galore…some negotiators have as many as 300 files at one time! Real principal reductions seem like a pipe dream now.

During the housing bubble, lenders cut corners to sell more loans to meet the Wall Street demand for mortgage-backed securities (MBS). Loan originators, many of whom had been hastily recruited, poorly trained and with no experience in any other market condition, cut corners to meet high quotas. Brokers, appraisers, Lenders, Realtors, and Home Inspectors…virtually everyone in the industry…responded with what has now been labeled predatory lending practices. Predatory Lending is unethical and some of the actions are illegal. Some of the violations have inconsequential penalties. Do you really care if Chase gets a nasty letter from a regulator, or if Wells Fargo gets cited for failure to provide enough copies of disclosure documents? No. You care about whether or not the violation can now benefit you by improving your negotiating position for a modification or other workout. Predatory Lending was common. Whether through unintentional errors caused by haste or through blatant disregard for the law, the violations may now provide the leverage you need to negotiate a good workout solution.

The most frequently cited violations are as follows:

1. Charging unnecessary fees

2. Charging excessive fees for loan rate buy-down (points)

3. Charging for private mortgage insurance when the borrower did not need it

4. Selling single-premium life insurance and charging the premium in the loan – without prior knowledge and consent of the borrower.

5. Equity Stripping – refinancing so frequently that the fees charged “strip equity” and leave the homeowner in a risky position

6. Not fully disclosing loan terms

7. Use of low (aka “teaser”) rates with adjustable-rate mortgages to get buyers to accept loan products that are high risk

8. Misrepresenting facts (income, home value, assets, etc.) on the loan application

9. Pushing a more expensive product for personal gain – even if the borrower could qualify for a lower-priced loan

10. Preying on the vulnerable by purposely targeting minority groups, poor, uneducated, or elderly with unfair loan products

11. Selling loans that were clearly “not in the borrowers’ best interest”

12. Promising refinancing after a short period – to get buyers to agree to bad loan terms

What if I told you that your lender violated laws in at least seven instances during your loan process and what if one of those violations was serious enough to warrant a lawsuit! Would that give you confidence in negotiating for a modification? If there is evidence that the lender violated the laws in selling you a high interest-rate or high fee loan, or by illegally “assisting” you in preparing the documents, or by approving a bad loan, you may have additional leverage to use in your loan modification or even in a lawsuit. Lenders and others were pretty well versed in the law and how to skirt the fringes. So, often your findings will not reveal egregious violations. But, the audit may uncover “patterns of inappropriate actions” that show disregard for your rights and that caused you damage. The presentation of the “evidence” of violations that your case can be made and your purpose achieved.

I recommend a Forensic Loan Audit for clients if:

1. your loan was purchased during the 2002-2008 timeframe

2. if the loan came from a broker (not an employee of the lender)

3. if your loan is an Adjustable-rate, negative-amortizing, “Pick-a-Pay” Option ARM, or interest-only loan payment type

4. if the loan is a sub-prime loan or an Alt-A loan

5. if loan has pre-payment penalty of ANY kind

6. if loan was a no-doc or low-doc loan

7. if you felt unduly pressured to get the loan or to sign the documents

8. If you were pressured to accept terms and costs that you had not been advised of earlier…with promises of a refinance in the near future to a better loan

9. If, either when you took the loan or during the projected life of the loan, your debt-to-income ratio was (or was projected to be) higher than 40%

10. If you were forced to accept mandatory arbitration, thereby limiting your legal rights.

Legal Action – worth it? The loan modification process is a negotiation. The more leverage you have the more likely it is that you will succeed. Proof of lender violations of TILA, RESPA, HOEPA or state or federal consumer protection laws can give you a significant advantage. Forensic Loan Audits are professional audits of the loan and the process used to qualify you and the property for the loan. They are extensive. They are performed by auditors, specially trained in spotting violations.

Three observations in 2010

I am convinced that workouts are concluded faster and better for borrowers who invest the time, energy and money into Forensic Loan Audits. Secondly, I have observed that the power of the information is in its effective use. By that I mean, that even luke-warm results from an audit can be used effectively in negotiations as an indication that you have the resolve and capacity to negotiate professionally. Finally, I’ve observed that often there are clear violations of a serious nature that can be readily identified. A deliberate, informed consumer can spot common violations without too much effort. Then, it’s simply a matter of finding a trustworthy auditor. More on this topic, next time.

Rockwood has been providing Loan Modification help to thousands since the housing meltdown began.? Visit Rockwood’s site about DIY Loan Modiification at Home Loan Modification

categories: loan modification,home loan modification,mortgage modification. Real Estate,mortgage,finance,debt,business,Real Estate,Mortgage,foreclosure,Finance,personal finance

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Article Citation
MLA Style Citation:
Jr., T.J. R. "Make Your Loan Modification Application Sizzle!, Loan Modifications And Forensic Loan Audit, Forensic Loan Audits = Success!." Make Your Loan Modification Application Sizzle!, Loan Modifications And Forensic Loan Audit, Forensic Loan Audits = Success!. 9 Jun. 2010. 28 Jul 2014 <>.

APA Style Citation:
Jr., T (2010, June 9). Make Your Loan Modification Application Sizzle!, Loan Modifications And Forensic Loan Audit, Forensic Loan Audits = Success!. Retrieved July 28, 2014, from

Chicago Style Citation:
Jr., T.J. R. "Make Your Loan Modification Application Sizzle!, Loan Modifications And Forensic Loan Audit, Forensic Loan Audits = Success!"

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