WASHINGTON — Homeowners who are having difficulty getting the attention of their lenders to discuss their troubled mortgages might want to obtain a forensic loan review to determine if their lenders made any mistakes when the mortgage was issued.Even a $30 miscalculation on the lender’s part could be an actionable offense, and the threat of a lawsuit can be enough to persuade the lender to deal with you in trying to find a way to help you work through your financial difficulties.
In a forensic loan review, a legal pathologist scours your loan documents looking for errors in, among other things, the truth-in-lending statement the lender provided shortly after you applied for your mortgage and the lender’s annual percentage rate calculation so you could compare loan costs.If the truth-in-lending statement doesn’t match the HUD-1 closing-cost sheet you received at closing, if the APR is off by just a hair, you might have cause for legal action against the lender.
Typically, forensic loan audits are ordered by mortgage investors to determine what kind of legal liability confronts them in the pools of loans they already own or are considering buying. As a so-called business-to-business service, they are not generally available to individual borrowers.
But we offer comprehensive loan-document reviews to consumers as part of our service to help homeowners facing foreclosure.The reviews aren’t cheap. The fee could be as high as $3,000 depending on how much is owed on your mortgage. But if an error is found, it could be the 2-by-4 between the eyes you need to force the lender to move you up to the front of the long, long line of borrowers who are looking for ways to hold on to their homes.
“In some cases,” says such a company’s Jon Maddux, “if people were simply overcharged by $30 on the final HUD-1, or if the APR was higher by just 0.125% than was originally disclosed, this may give the lawyers leverage when negotiating with the lender to grant a beneficial loan modification.”
They say that well over 80% of the recent audits performed by Loan Safe have revealed major truth-in-lending violations, errors in the good-faith estimates required under the Real Estate Settlement and Procedures Act, illegal predatory lending practices or even fraud.
“With 60 pages of loan documents, there’s bound to be a mistake in there somewhere,” says Ruyle, a real-estate and estate-planning attorney. “Maybe some pages were left out, or they are in the wrong order. Perhaps some of the language is just plain gibberish, or maybe there is a technical error.”
The 80% claim seems a little high to Jeffrey Taylor of Digital Risk, an Orlando, Fla., firm that performs forensic loan audits on behalf of mortgage investors. But because his company finds “material misrepresentations” in 57% of the loans it reviews, he says an 80% error rate is “very possible.”
Intentional or not, mistakes by mortgage brokers and lenders are characteristic of the housing boom, when there was a rush to approve the application of practically anyone who could fog a mirror. Now that the boom has gone bust, borrowers can use these errors to try to keep their homes.
Forensic reviews “have put a big spotlight on how the average home buyer was abused during the mortgage craze,” Ruyle says.
The problem isn’t so much that lenders aren’t willing to work with borrowers to keep their homes. Rather, it’s that they are so overwhelmed that they can’t keep up with the onslaught of callers seeking help.
That’s why some consumer advocates advise troubled buyers to order forensic loan audits to determine whether their loans were predatory or violated lending laws.