Loan Modification Forensic Loan Review (Part 2 of 3)

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Back by popular demand, we are going to expand on some of the violations that occur where mortgage lending is concerned, more particularly violations that occur during processing, underwriting and the closing of a mortgage loan application. These violations are the violations that would be researched by legal professionals or other individuals during the normal course of a forensic loan review.

As there are several violations that could result in injury to a borrower, we are going to touch upon just a few to demonstrate what items could result in the award of monetary restitution or other restitution for damages should a borrower or client of a mortgage lender be determined to have been a victim of particular violations.

A forensic loan review as conducted on a borrowers behalf is a formal examination of an individuals account for the sole purpose of obtaining evidence to demonstrate that an organization or client has complied with all applicable terms, laws and requirements as indicated in the borrowers contract, in this case, with the lender or broker that the borrower selected to represent them and their interest during the mortgage loan process. As there are several state and federal requirements that govern how we as mortgage brokers and lenders do business, a forensic loan review will uncover any items of information obtained or otherwise provided to a borrower that do not adhere to the laws and regulations that govern the mortgage lending industry.

There are several areas which will be investigated during a Forensic Loan Review and these areas include but are not limited to, RESPA, TILA, HOEPA, ECOA, GLB and FDCPA. As an auditor proceeds with a manual audit which is approximately 80% of the overall forensic review, they will try to determine if the borrower’s rights were violated under any of the above mentioned laws.
As one can imagine fair disclosure is required under all of these laws both prior to mortgage loan closing as well as after loan closing as in practice regarding FDCPA. In addition, an auditor may employ the use of particular compliance software such as HOEPA calculators which will indicate any violations where section 32 is concerned.

In short, if a lender inadvertently fails to appropriately disclose any prepaid finance charge and this failure to disclose results in an increase in the borrowers APR which may very well result in a mortgage that is now considered high cost, the lender is now considered in violation as the HOEPA law requires that a borrower be disclosed this information at least 3 days prior to loan closing and such signed disclosure is required by law to be included in the borrowers mortgage file. Further consequences could also develop as a result of lack of disclosure in this instance. Things such as predatory lending and possibly even constructive fraud may also be implied by the borrower’s legal council.

The above mentioned areas are not the only areas of concerned that must be addressed by mortgage lender or loan servicer. As stated, areas such as predatory lending or constructive fraud will also be investigated. The sole purpose of the audit is to determine unlawful practice and disclosure which has ultimately cause financial damage or violation of the borrower’s rights. If determined that any such violation has occurred the borrowers counsel has the leverage they need in order to place a stay on a lender or servicer, sometimes in the case of foreclosure, until the matter is resolved. Next week I will discuss possible restitution should it be determined if the borrowers rights were indeed violated. As always happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.