Forensic Loan Audit on GFE

According to a Consumer Mortgage Audit Center assessment of thousands of mortgage documents, 98 percent of all mortgages may be eligible for renegotiating owing to violations of the Truth in Lending Act (CMAC). Most infractions typically manifest as incomplete paperwork, inaccurate “good faith” estimations, concealed payments, double-dipping brokers, and borrowers who lack proof of income.

The Consumer Mortgage Audit Center conducts thorough audits of mortgage documentation every day, and serious and occasionally purposeful mortgage breaches are identified every day. There are several fundamental things that every customer should consider before obtaining a mortgage, even though not all mortgage infractions are necessarily intentional on the part of financial institutions.

The five most typical mortgage infractions that violate the Truth in Lending Act and Real Estate Settlement Procedure Act, according to CMAC, are as follows:

1. Missing documentation In accordance with the federal Truth in Lending Act, lenders are required to fully disclose important loan terms and expenses at the time of mortgage application and home closing. Still, buyers may never see the final mortgage terms and prices if paperwork is missing. This infraction is present in 98% of the mortgages CMAC reviews.
2. Poor projections made in “good faith.” Good faith estimates provide buyers with documentation of costs and mortgages so they can compare and contrast various mortgage offers. Although some brokers present low-ball good faith estimates to clients as a “bait and switch,” they eventually tack on higher interest rates, higher closing costs, or mortgages that some homeowners cannot pay. In its reviews of mortgages, CMAC finds this infringement in 21% of cases.
3. Inaccurate representations of payments that raise APRs. Truth in Lending Disclosure Statements, which are estimates of the cost of borrowing money to buy a home, the estimated payments for a mortgage, and other associated information, are a bit of a shell game played by unscrupulous lenders. The Annual Percentage Rate (APR) for the loan fluctuates with each error made by lenders when filling out these forms, particularly when it comes to the payment portion. This results in homeowners receiving unexpected payment increases that, if unpaid, may result in foreclosure. This infraction is present in 26% of the mortgages CMAC reviews.
4. Brokers who double-dip. Brokers are required to disclose revenue to be paid outside of closing, often known as the yield-spread premium, within three days of providing a good-faith mortgage estimate. Unsavory brokers fail to tell the borrower about their income on the GFE. At HUD-1 closing, the borrower learns about the YSP, which he or she is indirectly paying for by paying a higher interest rate.
5. No evidence of income. Mortgages written with little to no documentation of the buyer’s income allow dishonest brokers to fill in false income data that allows borrowers to qualify for larger loans and brokers to make higher commissions. Originally designed to assist the self-employed who frequently lack a paper trail to show income history. A third (33%) of the mortgages that CMAC has assessed had this violation.

Paperwork is never enjoyable to deal with, but there are ways homeowners can determine if they have been the victim of a mortgage violation. An excellent initial step is to compare the same lender’s good faith estimate with the HUD-1 paperwork, which buyers receive at settlement and which details the majority of expenditures. It could be time to call an attorney if the statistics on your HUD-1 and your good faith estimate differ.

A consulting and due diligence firm specializing in mortgage forensic research and analysis is called the Consumer Mortgage Audit Center (CMAC). The team of mortgage specialists at CMAC is highly skilled, includes members of the American College of Forensic Examiners Institute, and has a total experience of more than 80 years in both mortgage finance and law.

How to Conduct a Legal Mortgage Audit

A professional mortgage auditor typically conducts a forensic mortgage audit, which thoroughly examines the mortgage papers. A forensic mortgage audit is performed to find any loan inconsistencies, including any violations of the Federal Truth in Lending Act. A foreclosure procedure can be stopped by reviewing mortgage documentation. You should know the laws and guidelines governing the mortgage procedure to conduct a proper audit:

• Verify the mortgage documentation to make sure the file contains all necessary records. The application, an income, and debt report, a credit report, and a loan note that has been signed, for instance, should all be included in the file. You should use a checklist provided by your firm to guide you through this procedure and ensure you don’t overlook any crucial papers.
• Verify the accuracy and completeness of each document. Compare, for instance, the amounts on wage and income statements with the mortgagee’s application claims or the interest rate on the application with the interest rate on the closing paperwork. Look for any information that is incorrect or missing.
• Verify the documents’ adherence to the Federal Truth in Lending Act by looking them over. For instance, the TILA mandates accurate disclosure of annual percentage rates to buyers and accurate disclosures and calculations for adjustable rate mortgages.
• Examine the texts for logic. For instance, if a home was valued at $100,000, but the mortgagee secured a loan for $105,000, this may call for additional scrutiny.
• Verify that the mortgagee received the same mortgage for which she actually submitted a loan application. Make a note, for instance, if a borrower requested a fixed-rate loan but was offered an adjustable-rate mortgage.
• Examine the paperwork to determine whether the borrower was overcharged for brokerage or closing costs.

Conclusion

In some ways, lenders should be concerned since a flurry of prospective lawsuits may come their way. Given that they typically involve individual loan amounts, these lawsuits may not always be expensive. Still, they are irksome, and the costs to defend the institution from these actions can add up quickly. In addition, the lender is responsible for covering all closing fees and finance charges if homeowners successfully request to cancel a loan.

The industry should also be concerned since, according to authorities on home loan revocations, it is very difficult for a bank to establish a strong defense against borrowers who can show that their loan contains flaws. When faced with a genuine rescission claim, lenders find it incredibly challenging to defend themselves in court.

On the other hand, there is some balance because it can be expensive for the homeowner to schedule a loan audit and retain legal counsel.