Mortgage Best Rate

Most homeowners are completely unaware that their mortgage loan may contain violations made by their lender. Of the homeowners I speak to, many comment that their lender ‘could not possibly have made a mistake’ or ‘banks do everything by the books, so how can our mortgage(s) have violations?‘. Well, they do. Many loans that were written during the refinance boom of 2002-2006 were rushed out the door. As brokers and banks were interested in processing as many loans as possible, and earning as many commissions as possible, homeowners suffered. Non-traditional ‘exotic’ loans such as adjustable rate mortgages (ARM’s), interest only loans, option arms, reverse amortization, and alt-A loans were dangled in front of customers because of their low monthly payment rates, called ‘teaser rates’. Little did homeowners care that these payments would eventually catch up with them when their loans would adjust, typically in 3-5 years. The pitch from brokers and banks was that the homeowner could always re-finance out of the loan into a traditional fixed rate 30 year mortgage well in advance of the rate adjustment. Of course no one predicted the market and the economy to drop.  In fact, lenders were ‘banking’ on real estate values and housing markets to continue their climb, their justification for writing these types of loans in the first place. The unforeseen market drop unfortunately prevented most from being able to get out from under their loans. Now these loans are resetting, forcing monthly mortgage payments to almost double in most cases, and forcing homeowners into foreclosure. The default rate in the US is currently at unprecedented levels and there is no sign that it is tapering off.1

Reckless ’sub-prime’ mortgage rates and exotic loans compounded the problem, however so-called ‘liar loans’ or ‘NINJA’ loans (no income, no job, no assets) made it worse. No income verification loans (stated income or no doc loans) allowed mortgages to be issued to the least credit-worthy borrowers. It is estimated that 70% of the loans that were written in 2002-2006 will eventually default adding to the free fall housing market problems in the United States. In many cases now, people who are still paying their teaser rates are defaulting, BEFORE the loan has even adjusted. In the United States in the next 4 years, 8 million families are expected to lose their homes.1,3

Homeowners facing foreclosure are usually not in a logical state of mind when it comes to decision making. High emotions caused by stress force irrational decisions and in most cases cause the typical homeowner to avoid dealing with the situation at all. Education and timing are key. Most homeowners are told their only option is to sell. So how can homeowners be helped? One viable solution is a loan modification. This is a process by which the mortgagor (homeowner) negotiates with the mortgagee (lender/bank) for an adjustment to their loan. Typically there is a process with all banks by which homeowners would qualify for such a ‘modification’. Some homeowners even do manage to call their bank to work out a ’successful’ modification to their loan on their own. Although, typically it goes without saying that banks (now overwhelmed) do not have the homeowner’s best interest in mind when it comes to adjusting their loan. ‘Loan servicers are overwhelmed by the numbers of homeowners applying for loan modifications or refinancing. Borrowers are frustrated that their paperwork is being lost, and calls are not returned’2. CNNMoney also reports that ‘we have heard from hundreds of troubled homeowners who’ve run into roadblocks. The complaints are often the same: a lack of responsiveness by servicers’. ‘Many borrowers are also not getting help under government modification or refinancing plans’.2 This month, Sen. Jack Reed, D-R.I., and 14 other senators wrote a letter to Housing and Urban Development (HUD) Secretary Shaun Donovan and called for a new strategy to get lenders to respond to homeowners faster. “Of particular concern are homeowners who have been instructed by HUD-approved counselors to contact their (loan) servicers only to be rebuffed or, worse, never even reach their servicer,” it said.3

Many overnight ‘modification consultant’ type firms have also sprouted, virtually overnight, causing even more confusion as rescue ’scams’ prey on unfortunate homeowners. Educating homeowners is paramount in helping them, neighborhoods, markets, and ultimately the US economy. Modifications are viable options indeed. In the case of a modification, state laws should be reviewed and/or an attorney engaged. Homeowners should be provided with honest, ethical and sensible information. In addition, consultations should be provided up front, with no large required fees.

The often overlooked tool in the modification process is the loan audit. This is a method whereby  auditors review the entire loan, from original application to final funding, checking for potential errors. Errors made by banks often translate into more leverage for homeowners in negotiations. Federal and/or state lending infractions or Real Estate Settlement Procedures Act (RESPA) violations can be used to force lenders to change the terms of loans, reduce payments, and in rare cases reduce principle. Audits also uncover anomalies in lending practices made by brokers. At minimum, audits should review the following for discrepancies or violations:

• Original mortgage loan application (form 1003)
• Final TILA (truth in lending documents)
• Good faith estimate (GFE)
• Final HUD-1 (settlement statement)
• Final closing statement
• Notice of right to cancel
• All title documents
• All riders and addendums to the loan

Although major federal lending violations and predatory practices are indeed found, our audits have revealed typical infractions such as:

• the originating broker did not hold a license in the state the loan was made
• loans funded BEFORE the right to cancel
• unlawful fees charged by the lender on the final HUD
• changes in interest rates from application/GFE to final settlement sheet

All of these infractions can be used by a licensed attorney to leverage negotiations with banks. Banks do not want the negative press associated with the infractions, and in extreme circumstances the lawsuit that may follow. Mortgage loan audits, combined with either legitimate modification companies and/or licensed attorneys will maximize the benefit to the homeowner. Consultations should be free, and value presented to the client before any payment is collected. In many states, ‘modification legislature’ has been enacted and updated to protect consumers.