Loan Modification Forensic Loan Review (Part 3 of 3)

About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: blog@mortgageprocessor.org.

Over the last couple of weeks we have been discussing the audit practices involved in a forensic loan review and how this discipline can affect lenders on both the front end of the mortgage process as well as the back end in terms of mortgage servicing. This week I thought it would be a good idea to discuss exactly what documentation would be required of the borrower in order to proceed with the manual piece of the audit.

As mortgage professionals we are all aware of our obligations where accurate and fair disclosure to the borrower is concerned, more particularly RESPA and Regulation. Further, mortgage brokers also have additional responsibility in terms of disclosure of Yield Spread premiums and so forth. If or not a lender or broker has violated disclosure requirements where RESPA and Regulation Z is concerned can therefore be easily identified on the borrowers initial disclosures as well as any final disclosure the borrower may have been provided prior to closing or at time of closing.

For instance, if the borrower was provided an initial Good faith estimate of settlement charges which did not reflect any YSP being paid to a broker and was also not disclosed prior to loan closing of such YSP however a YSP was indicated on the HUD I settlement sheet then this would be considered a violation of RESPA. A second example would be the charging of broker fees on the HUD I settlement sheet that were not originally disclosed on the Good Faith Estimate nor any subsequent GFE’s. Additionally, if the borrower was not provided a Mortgage Brokers business contract then this would be a further violation of RESPA.

In order to complete the initial manual audit, the borrower will need to provide to the auditor copies of their initial application and disclosures as well as their final loan closing documents. These documents would be but are not limited to: The initial 1003 and final typed 1003, copies of paystubs and W-2 wage statements that might have been provided to the lender, initial borrower disclosures including the Good Faith Estimate, Truth in Lending as well as any subsequent “revised” documents that might indicate a change in the loan amount or terms of the loan, all other disclosures required by law such as a Fair Lending Notice, Privacy Policy Notice as well as other required disclosure.

Additionally, the borrower should provide copies of their closing documents such as the Final HUD I settlement sheet, final Truth In Lending disclosure, Initial Escrow account statement, Note as well as a copy of their Deed of Trust or other security instruments. Additionally, requested copies of the Title Policy, Assignment if there is one and the right of rescission in the cases of a refinance transaction.

Once an auditor has copies of these documents they should easily be able to examine them to determine if a borrower’s rights were violated under the law. Also keep in mind that further violations may exist if the borrower is current in default and the lender has been attempting collection efforts so it makes sense to request copies of any correspondence that may have been received from the loan servicer with regard to the collection of the delinquent debt if this is the case.

As we can well see it is not very difficult to determine if a lender has liability where the violation of a borrowers rights are concerned so from an origination and underwriting standpoint it makes the most sense to make sure these violations do not occur in the first place. As always happy underwriting.

SOURCE: Published by NAMP® Publishing Group, a division of the National Association of Mortgage Processors (NAMP) (http://www.mortgageprocessor.org)