Forensic Loan Audit Sample

Forensic Loan Audit Sample free pdf ebook was written by Certified Forensic Loan Auditors on October 08, 2010 consist of 32 page(s). The pdf file is provided by www.certifiedforensicloanauditors.com and available on pdfpedia since May 10, 2012.

certified forensic loan auditors, llc au prepared for: d forensic audit report it 13101 west washington..[15 u.s.c. §1601] (“tila”), home ownership equity protection act [12 c.f.r...that we are not providing legal advice, nor do we have...

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Forensic Loan Audit Sample pdf




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Forensic Loan Audit Sample - page 1
CERTIFIED FORENSIC LOAN AUDITORS, LLC 13101 West Washington Blvd., Suite 140, Los Angeles, CA 90066 Ph: 310-432-6304; info@certifiedforensicloanauditors.com www.CertifiedForensicLoanAuditors.com Forensic Audit Report Law office of Mike Man Borrower(s): Joe Doe and Jan Doe Property: 123 Any Street, Any Town IL 60447 SA M October 8, 2010 ________________________________________________ -1- PL 1 E AU Prepared for: D IT
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Forensic Loan Audit Sample - page 2
TABLE OF CONTENTS Advisory Letter Introduction Report Summary Summary of Loan Terms Financial & Underwriting Analysis Truth in Lending Act Analysis HOEPA Analysis RESPA Analysis Predatory Indicators Potential Additional Claims Analysis 3 4 5 8 9 AU PL Discrimination Fraud Foreign Language Translation Breach of Contract Breach of Implied Covenant of Fair Dealing Breach of Fiduciary Duty Unjust Enrichment Unconscionability Civil Conspiracy Unfair/Deceptive Business Practices Other Claims & Recommended Legal Research E SA M ________________________________________________ -2- D IT 11 13 14 15 18 19 2
Forensic Loan Audit Sample - page 3
10/8/2010 Law of Office of Mike Man 444 N. Avenue Anytown, IL 60657 Re: Forensic Audit for Mr. and Mrs. Joe Doe Loan # 1 st -7184, 2 nd -71845 & Wells Fargo #8967 The loan transaction for the above-referenced borrower/property has been audited 1 for violations of the Truth in Lending Act [15 U.S.C. §1601] (“TILA”), Home Ownership Equity Protection Act [12 C.F.R. 226.32 et seq.] (“HOEPA”), the Real Estate Settlement Procedures Act [12 U.S.C. §2601] (“RESPA”), and to the extent applicable, violations of other state and federal laws discussed below. This report was based exclusively on the documentation provided. It also required that we make reasonable assumptions respecting disclosures and certain loan terms that, if erroneous, may result in material differences between our findings and the loan’s actual compliance with applicable regulatory requirements. While we believe that our assumptions provide a reasonable basis for the review results, we make no representations or warranties respecting the appropriateness of our assumptions, the completeness of the information considered, or the accuracy of the findings. The contents of this report are being provided with the understanding that we are not providing legal advice, nor do we have any relationship, contractual or otherwise, with anyone other than the recipient. We do not, in providing this report, accept or assume responsibility for any other purpose. Sincerely, SA M 1 Marla Giddings Certified Senior Forensic Loan Auditor CERTIFIED FORSENIC LOAN AUDITORS 13101 West Washington Blvd., Suite 140 Los Angeles CA 90066 310-432-6304 Please note that a complete mortgage servicing audit (i.e., audit for RESPA and/or breach of contract violations for the entire servicing history of the loan) is not included in this audit; QWR recommended before such audit can be accomplished. ________________________________________________ -3- 3 PL E AU D IT Dear Mike Man:
Forensic Loan Audit Sample - page 4
INTRODUCTION Interested Parties: ORIGINAL MORTGAGE LENDER/TABLE FUNDER: Draper and Kramer Mortgage Corp. nd 100 W. 22 Street, Ste 101 Lombard, IL 60148 2 nd -Wells Fargo Servicing Center MAC B6955-01B P.O. Box 31557 Billings, MT 59107 MORTGAGE BROKER: Green Valley Mortgage, Inc. ESCROW/TITLE: MORTGAGE NOMINEE/BENEFICIARY: Documents Provided for Review: 1 st 2 nd X X Loan Application (Form 1003) Loan Commitment Letter MISSING Good Faith Estimate MISSING X X Truth in Lending Disclosure Statement X (3-Day) Notice of Right to Cancel (may not find with purchase money loans) ONLY 1 COMPLETED COPY, 4 COPIES ARE REQUIRED X HUD-1 (or HUD-1A) Settlement Statement X Note (with riders or attachments) MISSING ON THE 2ND X X Deed of Trust Underwriting and Transmittal Summary (Form 1008) MISSING Appraisal Report MISSING X RESPA servicing disclosure MISSING ON THE 2ND Hazard Insurance disclosure MISSING Credit score disclosure MISSING Lender’s Closing Instructions MISSING Affiliated Business Arrangement Disclosure MISSING N/A I/O and/or Neg-Am disclosure N/A ARM disclosure SA M PL ________________________________________________ -4- E AU MORTGAGE TRUSTEE: D IT SECURITIZATION: Likely. See discussion below. 4 First American Title Insurance Company 27775 Diehl Road Warrenville, Il 60555 MERS Mortgage Electronic Registration Systems, Inc. P.O. Box 2026 Flint, MI 48051
Forensic Loan Audit Sample - page 5
REPORT SUMMARY Total Potential TILA Violations (see p. 11): 8 Total Potential HOEPA Violations (see p. 13): 0 Total Potential RESPA Violations (see p. 14): 4 CLAIM Underwriting TILA APR Tolerance Test TILA Finance Charge Test TILA Right of Rescission Predatory Indicators Discrimination* Fraud* Other State/Common Law Claims* Auditor's Summary: CONCLUSION FAIL FAIL FAIL FAIL FAIL Total Predatory Lending Violations: (see p. 15): 7 AU POSSIBLE FAIL *(Probability of Violations Ratings: No Evidence or Possible) The borrower’s refinanced a loan they had for less than 1 year. They paid off the existing mortgage with a new 1 st in the amount of $628,000.00 and 2 nd in the amount of $67,500.00. SA M The first loan is a 30 year fixed loan. The interest rate is 7.125% with a monthly payment of $4,230.95 (P&I). The national average for a 30 year fixed rate for the week ending 07/14/2006 was 6.74%. Typically borrowers lock their loans in 30 prior to closing so that is why I went back to the history of that time. The monthly payment is $4,069.02. That is a difference of $161.93 per month and $58,294.80 over the life of the loan. The second loan has a balloon payment of approximately $64,715.30 just after 5 years! The payment is $498.82. I am unable to determine the actual interest rate, but it is around 8.00%. The amortization for this loan is approximately 30 years. I was unable to come up with the same calculations as the Federal Truth in Lending, but I did get numbers close to it so I was able to make an approximation. This loan is HIGHLY PREDATORY due to the short term! The CLTV(Combined Loan to Value) is 88.60% and if the property depreciates slightly, then borrower’s obligation becomes greater than the value. Typically when a balloon payment comes due, the borrower’s would refinance again and pay off the balloon payment, but the borrower’s could not do this if the property looses value and it ________________________________________________ -5- 5 PL E POSSIBLE D IT DETAILS See p. 9. See pp. 11-12. See pp. 11-12. See pp. 11-12. See p. 15. . See discussion at p. 18. See discussion at p. 19. See discussion at p. 19.
Forensic Loan Audit Sample - page 6
becomes “underwater”. Predatory Lending -Unfair Business Practices – Deceptive Business Acts -are all possible violations of this loan. I am not able to comment more on the 2 nd due to the lack of documentation. A copy of a Notice of Right to Cure Default dated 09/25/2008 from Wells Fargo Servicing Center is in the file. A Notice Required by the Fair Debt Collection Practices Act is also in the file. Underwriting Standards: Predatory Lending Indicators: 1.) Yield Spread Premium/Broker Premium. The broker received a Broker Premium of $5,024.00 from Draper and Kramer. To earn a Broker Premium the broker will increase the interest rate that the borrower will pay. It takes a borrower about three years to repay the Broker Premium. Once the three year repayment period has ended, the interest rate does not drop. Instead, the borrower continues to pay at the same interest rate and the lender reaps the benefits of the higher payment. Broker Premium significantly affects the borrower’s payment and financial situation. Absent the presence of a separate fee agreement regarding Broker Premium and that the borrower agreed to pay such an excessive amount to the broker, and in evaluating the Broker Premium using the HUD 2 part test, it is the contention of the auditor that the broker and the lender have enjoyed the benefits of Unjust Enrichment as well as unearned fees under RESPA. 12 CFR sec. 226.4(a), 226.17, and 18(d) and (c) (1) (iii) Under the EOCA, a borrower is entitled to the same terms of credit issuance that another borrower of equal characteristics is entitled to. ________________________________________________ -6- 6 SA M PL E I believe the income used to approve this loan was stated by the borrower. The lender used a stated income product for approval based on the value of the collateral used as the security for the loan. Typically, such credit is underwritten predominantly on the basis of the liquidation value of the collateral, without regard to the borrower’s ability to service and repay the loan according to its terms absent resorting to that collateral. When a loan has been made based on the foreclosure value of the collateral, rather than on a determination that the borrower has the capacity to make the scheduled payments under the terms of the loan, based on the borrower’s current and expected income, current obligations, employment status, and other relevant financial resources, the lender is effectively counting on its ability to seize the borrower’s equity in the collateral to satisfy the obligation and to recover the typically high fees associated with such credit. Not surprisingly, such credits experience foreclosure rates higher than the norm. AU D IT
Forensic Loan Audit Sample - page 7
The lender placed borrower into a loan that had a significantly higher interest rate than what was qualified for. This was a result of paying a Broker Premium to the broker (which benefited the lender). 2.) Equity Stripping. The borrower paid off a loan the borrowers had for less than one year. Each time the borrowers refinance it strips the equity due to the fees and charges. The total closing costs for this loan was $7,588.48. See Predatory Analysis for more comments. SA M ________________________________________________ -7- PL 7 E AU D IT
Forensic Loan Audit Sample - page 8
SUMMARY OF LOAN TERMS The essential loan terms were found to be as follows: Type of Loan: Loan Origination Date: Amount of Loans: Originating Lender: Loan Broker: Current Servicer: Current Note Holder: 1st Note (ARM) Terms: Initial Fixed Rate: Term of Initial Rate: Initial Payment: Payment Feature: Index Measure: Index Rate: Margin: Fully Indexed Rate: Min/Max Rate: TILA disclosed APR: Total Closing Costs: Total "Points and Fees" %: Prepayment Penalty: Unsecured Debt Paid off by Refinance: Loan Origination Fees: Loan Discount Fees: Total Broker Fees: Refinance 08/10/2006 $628,000.00 / $67,500.00 Draper & Kramer Mortgage Green Valley Mortgage Inc. Likely Securitized 7.125% 30 Years $4,230.95 30 Year Fixed N/A N/A N/A N/A N/A 7.1990% $7,588.48 1.21% No 0 SA M PL 2nd Note (Fixed) Terms: Fixed Rate: Term of Loan: Payment Feature: TILA disclosed APR: Total Closing Costs: ________________________________________________ -8- E AU $2,355.00 (.375%) 0 $8,029.00 (including Broker Premium of $5,024.00) Payment of $498.82 5 years Balloon in 5 years 8.3317% TBD 8 D IT
Forensic Loan Audit Sample - page 9
FINANCIAL & UNDERWRITING ANALYSIS Underwriting Standards The purpose of an underwriter is to determine whether the borrowers can qualify for a loan and if the borrowers have the ability to repay the loan. This determination of the ability to repay a loan is based upon employment and income in large measure, which is proved by getting pay stubs, 1040’s, W-2’s and a Verification of Employment and Income on the borrowers. Automated Underwriting Systems The real issue with the automated systems is that they were not designed to be the “final word” in approval. The system approval was designed to be a guide, a preliminary approval and nothing more. After approval was received, the underwriter would then be expected to extensively review the file, closely examining the documents for final approval. DISCUSSION: Borrower’s financial status at the time of the loan is taken from the loan application. An analysis of borrower’s financial status at the time of the loan reveals the following: The following figures are based on the information from the Loan Application and have not been verified. Gross Monthly Income PL Mortgage Payment (PITI & including the 2 nd ) E Other Monthly Debt $752.00 $752.00 $752.00 SA M $11,627.00 2 ND Loan app $4,855.41 AU Total Monthly Debt $5,607.41 $5,624.98 $5,607.41 The underwriter’s role in approving loans has been delegated to a support role in the past decade. Automated Underwriting Systems became the normal approval method. An underwriter or even a loan officer would simply input the data and the Automated System would give an approval or denial. Any documents requested would be gathered and then loan documents drawn and signed. $11,627.00 Personal tax returns $4,872.98 $5078.24 $4,855.41 CONCLUSION: N ormal underwriting practices include analysis for a 28/36% debt-to- ________________________________________________ -9- income ratio. During 2003 to 2006, subprime lending involved higher DTI ratios, from D IT Debt-to- income ratio 48.23% 48.38% 110.42% 9 If an underwriter has evaluated the loan properly, then there should be no question of the ability of the borrower to repay the loan. Debt ratios will have been evaluated, credit reviewed and a proper determination of risk made in relation to the loan amount. Approvals and denials would be made based upon a realistic likelihood of repayment.
Forensic Loan Audit Sample - page 10
33/38% to 38/50%. Lender’s underwriting standard for this loan far exceeded normal underwriting practices for normal and subprime loans. The borrower’s provided personal tax returns of 2004 and 2005 for me to calculate the DTI ratios for when they refinanced the loan. Unfortunately, they did not give me copies of the corporate tax returns for 2004 and 2005, so the income I have above may not be correct if the corporation had a profit. Even without the tax returns the borrowers DTI ratio was extremely high. It is the fiduciary duty of the lender/broker not to put the borrowers in HARMS WAY and by approving this loan the lender/broker had put the borrower’s in HARMS WAY! I was unable to review the credit report, income/employment documentation to verify the debt/income ratios. The purpose of an underwriter is to determine whether the borrowers can qualify for a loan and if the borrowers have the ability to repay the loan. This determination of the ability to repay a loan is based upon employment and income in large measure, which is proved by getting pay stubs, 1040’s, W-2’s and a Verification of Employment and Income on the borrowers. If an underwriter has evaluated the loan properly, then there should be no question of the ability of the borrower to repay the loan. Debt ratios will have been evaluated, credit reviewed and a proper determination of risk made in relation to the loan amount. Approvals and denials would be made based upon a realistic likelihood of repayment. Risk factors for the loan: 1. Stated income SA M 2. Equity Stripping 7. High LTV 8. Balloon Payment 3. High Debt to income Ratios 4. Lack of due diligence in underwriting 5. Excess Fees/Charges 6. Yield Spread Premium/Broker Premium 9. Less than adequate reserves verified ________________________________________________ - 10 - PL Risk layering is the concept of borrowers having multiple elements of risk in any one loan. Risk would be greater as the different factors that lenders should be concerned about were found in each loan. The more layers of risk, the greater the likelihood of default. Layers of risk in this loan include…. E AU D IT 10
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