Since the start of the Making Home Affordable Modification Program, or HAMP, problems have plagued the program. These have ranged from misunderstanding and misapplication of HAMP, such as granting of trial modifications to applicants, who did not qualify, to outright fraud and intentional misapplication of HAMP guidelines for profit. Unsurprisingly, lawsuits resulted from these problems.

Not surprisingly, one set of lawsuits involve fraud, whistleblower, and breach of contract claims arising out of intentional misapplication of HAMP guidelines for profit. Under HAMP, investors are generally compensated for half of the reduced interest rate of the HAMP modification. The exact guidelines state:

13.3.1 Payment Reduction Cost Share

Investors are entitled to payment reduction cost share compensation equal to one-half of the dollar difference between the borrower’s monthly payment (principal and interest only) under the modification calculated at 31 percent of the borrower’s monthly gross income and the lesser of:

What the borrower’s monthly payment (principal and interest only) would be at a 38 percent monthly mortgage payment ratio; or

The borrower’s pre-modification monthly payment (principal and interest only).

Making Home Affordable Handbook for Servicers of Non-GSE Mortgages Version 3.0 (emphasis added)

Many times it is more profitable for investors to lose, ignore, misapply, and destroy applications for HAMP modifications. This allows them to instead foreclose or to continue charging full amounts of interest rather than be compensated for only half of their costs for modifications. In addition, servicers who typically are given the job of handling modifications on behalf of investors often find themselves in a conflict of interest between servicer compensation for HAMP trial modifications and HAMP remedies and enhanced and often illegally marked up fees for default related services for mortgages in foreclosure. Settlements for lawsuits involving intentional misapplication of HAMP guidelines for profit are currently twenty five billion dollars. Auditor fully expects to see Investor lawsuits relating to HAMP modifications as well in the future.

It is this environment that many desperate and now foreclosed homeowners are currently embroiled in. After receiving run-arounds, outright lies, and deception, homeowners began lawsuits against their servicers and lenders regarding HAMP problems. These starting lawsuits asked courts to consider that borrowers should be treated as “beneficiaries” of HAMP legislation. These were generally rejected, with the general idea that HAMP was ultimately designed to stabilize our housing and nation, and the benefit of any individual borrower is incidental.

Over time, these lawsuits have evolved to examining the actual trial and modification contracts and behavior in relation to state law into claims of breach of contract, fraud, and various state law claims, if allowable. Hamilton summarizes the evolution from HAMP based claims to contract and state based claims:

We have identified more than 80 other federal cases in which mortgagors brought HAMP-related claims. The legal theories relied on by these plaintiffs fit into three groups. First, some homeowners tried to assert rights arising under HAMP itself. Courts have uniformly rejected these claims because HAMP does not create a private federal right of action for borrowers against servicers…

In the second group, plaintiffs claimed to be third-party beneficiaries of their loan servicers’ SPAs with the United States. Most but not all courts dismissed these challenges as well, holding that borrowers were not intended third-party beneficiaries of the SPAs…

Wigod is in the third group, basing claims directly on the TPP Agreements themselves. These plaintiffs avoid Astra because they claim rights not as third-party beneficiaries but as parties in direct privity with their lenders or loan servicers. In these third-generation cases, district courts have split. Including first- and second-generation cases, about 50 of the courts granted motions to dismiss in full. See, e.g., Nadan v. Homesales, Inc., No. CV F 11-1181 LJO SKO, 2011 WL 3584213 (E.D. Cal. Aug. 12, 2011); Vida v. OneWest Bank, F.S.B., No. 10-987-AC, 2010 WL 5148473 (D. Or. Dec. 13, 2010). In 30 or so cases, courts denied the motions in full or in part, allowing claims based on contract, tort, and/or state consumer fraud statutes to go forward.

Wigod v. Wells Fargo Bank, N.A. Appeal No. 11-1423 (7th Cir. Mar. 7, 2012)(emphasis added)

This emphasizes the point we have been trying to make all along. You can’t understand a transaction by looking at the surface. You actually have to delve into the actual story, representations, agreements, papers, and contracts in order to understand what happened on an individual level. In the third group of cases that may go forward, review of the actual Trial Period Plan Agreements was necessary.

This shows how Securitization Audits that tell you who the owner of the Note is does not tell a complete picture. TILA and RESPA audits which tell you about federal consumer protection statute violations do not tell a complete picture. You have to delve in and review the entire transaction and actual paperwork, to understand what happened, why it happened, and what should have happened instead. It often takes several days to review hundreds of pages of documents, stories, and account history to weave together a cohesive understanding.

For more information please contact me here.

Stephen Ching, Owner, Rateswire.com

A week ago, webmaster and co-creater of Rateswire.com Matthew Porter passed away. Ever since I met Matthew in high school fifteen plus years ago he has been the bravest and most loyal friend I have ever known. He gave selflessly, and was content with whatever he received back in return.

Not only did Matthew build this site, he built websites for friends, family, and even a churh, and gave many of his services away for free or in exchange for gifts for his friends and family. When I finally went to shut his computer down, it had internet browser windows open showing website wordpress themes he was researching to improve some of the websites he maintained, even as his health faded.

However, we take solace in the fact that his was a life worth living, filled with love, and we did live it!

Future posts from me may have minor spelling and grammatical errors. As Mathew reminded me, he was the one that received an A+ in our high school senior year English class while I merely received an A!

Whenever I look through mortgage documents, my goal is ultimately to find things that can be used by a lawyer to help a borrower. One of the more straightforward findings that can be used to help a borrower is breach of contract by a mortgage broker, lender, or servicer. The most common breaches is “bait and switch” by a mortgage broker or lender. Bait and switch schemes have been around since the dawn of time. The most important factors when examining mortgage bait and switch schemes are time, reason, and documentation. In order to identify things that can help a borrower, here is how I analyze these factors.

Time is actually the most important factor. Time determines if you need to meet the burden of proof of an oral or written contract, or if you can even file a lawsuit within the statute of limitations for your findings. If the burden of proof is a written contract, where is the letterhead, sign, seal, or stamp for the collective agreement? Are the documents in agreement?

Reason is a tricky one. There are a lot of reasons for mortgage terms to change. A lower than expected appraisal value is the most common, but certainly not the only reason. If a borrower led a mortgage broker or lender astray with an inaccurate initial mortgage application, it is going to be much harder for that borrower to say they were wronged by not obtaining the promised rate, unless the errors were not material. I have many years of experience as a mortgage broker, so reason is something fairly apparent to me upon review of the overall file (I have overseen roughly a thousand mortgage originations). Reason is often fairly apparent on bait and switch cases. As an example, say a borrower was promised a low fixed rate for five years through closing. A broker contract and rate lock at closing confirmed this.  Instead, that borrower was given the rate only as a fixed payment rate on a higher interest option arm.

Documentation is also of great importance.  Having a borrower tell you they remember that they were promised a 6% fixed interest rate, and seeing no documentation to prove this only allows you to say that the documentation is not there to verify the bait and switch, and that X,Y,Z documents need to be obtained first. Not every stack of documents you receive will be complete, and it is necessary to know what documents are missing but likely exist, and where they can be obtained.

Ultimately, the goal is to identify things usable by a lawyer to help people.  In order to do that, you can’t just state that a bait and switch occurred. You need to examine how, when, and why it occurred, and how to prove your findings. If you have questions on this article or wish to speak with us, contact us here!

In previous articles, I wrote about how I dig deeper when I find TILA and RESPA violations for sources of relief for homeowners looking to sue their lenders and other parties. One very interesting place I have found when looking for relief is in foreclosure complaints and notices filed by lenders.

I do find many errors that could be used to delay a foreclosure process, but that isn’t actually my goal. My focus is on finding the story behind what actually happened to find relief for a homeowner. Delaying an inevitable foreclosure isn’t my idea of providing relief.

For Example, I recently audited multiple mortgages with defective foreclosure notices and court filings. One such notice explicitly failed to state recording numbers or include a copy of the recorded Deed of Trust that was being foreclosed on.

This raised an interesting question. Why would a lender fail to include or reference a Deed of Trust that it was attempting to foreclose on? I did a more in-depth look at records online and found that the title company waited beyond the allowed time to record the mortgage. At this point, alarm bells started to ring in my head. Something was wrong with the construction of the Deed of Trust that prevented it from being immediately recorded.

A review of the borrower’s story revealed they didn’t know anything about changes to the Deed of Trust. A review of the borrower’s copy of the Deed of Trust revealed that it was defective and different from the recorded Deed of Trust. Therefore, the Lender, Escrow, or both changed the Deed of Trust after signing and recorded the altered version. The foreclosing attorney probably saw the fraud and decided not to include the recorded deed or reference to it.

Because my audit looks beyond apparent errors, yet another homeowner finds a solid backing to sue his lender, title company, and the foreclosing attorney for fraud. More importantly, local state statutes will likely allow him to discharge his unsecured mortgage in bankruptcy, as without a legal Deed of Trust local law treats it as unsecured floating debt. Goodbye mortgage!

Obviously, with the amount of time it takes to look at a mortgage transaction in depth, I can’t help everyone out there who needs it. However, I do my best to help those in need, one at a time, one-on-one. If you are in need of help, contact me here.

Earlier I talked about TILA and RESPA forensic loan audits and how they are limited in their ability to provide relief to homeowners who were victims of predatory lending. In this article, I am going to explore a bit on how we have gone beyond RESPA violations within the HUD-1 Settlement statements to actually help homeowners.

The HUD-1 Settlement Statement is typically a line item receipt of the funds for the loan, complete with parties involved, and who is paying and receiving money. Preparation of the HUD-1 Settlement Statement is governed by RESPA, or the Real Estate Settlement Procedures Act. A violation of RESPA for improper preparation of the HUD-1 Settlement Statement is typically subject to a one-year statute of limitations in which to make a claim for damages.

One common violation I find is not reporting the seller’s identity on the Hud-1 Settlement Statement. This is a clear violation of RESPA, Appendix A that states fill in the names and current mailing addresses and zip codes of the Borrower and the Seller.

To a straight TILA and RESPA forensic loan audit, this seems like an innocent omission, and is typically beyond the 1-year statute of limitations to sue over. However, to my experienced eye, I have helped many homeowners recover from fraud that this little omission is covering up.

Digging deeper through purchase contracts, building contracts, and county records, I have found several occasions where the omission hid undisclosed multiple flip transactions and an inflated property price for the homeowner to sue over. Digging deeper, I have also found the same omissions on other documents prepared for the loan that show illegal conspiracies between title companies, sellers, and others to defraud new buyers. Digging even deeper, I have even gone through title records and stories to verify relationships between parties conspiring to defraud new buyers. This provided many defrauded homebuyers that came to me for help with the proper evidence needed to sue for recoveries.

When I perform a forensic loan audit, I go beyond simple TILA or RESPA violations. Often, the violations are past the period to sue over. More important, simple violations are just the visible tip of an iceberg. That’s why you need to contact me if you need help. I have a decade of experience originating, auditing, and doing quality assurance on mortgage loans. Because of my experience, I am able to tell which simple errors are simple errors, and which ones may be hiding relief for your home.

If you are in need of mortgage litigation support or mortgage forensic audits to help keep your home, contact me here. If you are a lawyer looking to provide your clients with better service and an improved chance of keeping their home, contact me here.

I’ve redone several forensic loan audits for people who have obtained forensic loan audits through other sources. The most common mistake I see in other audits is that they fail to see the big picture that is required to find things that can actually help a homeowner. Let’s quickly look at why my forensic loan audits are more thorough than a simple TILA and RESPA review.

A TILA violation, for example, can be used to offset a foreclosure judgment, or possibly rescind a loan within three years. While this sounds great in theory, most people would rather avoid a foreclosure and foreclosure judgment altogether over having a reduced judgment against them. Very few people are even able to take advantage of a rescission as they have insufficient cash or equity to give the lender their original loan amount back.

RESPA violations also have a very short 1-3 year statute of limitations in which to take action, and are often unusable as a source of relief when found.

Often, the actual core mortgage documents reviewed by a TILA and RESPA forensic loan audit are not the source of relief for homeowners. The surrounding documents, receipts, correspondence, and stories paint the picture of what really happened.

As an example, on January 26, 2011 an Attorney, Title Company Employee, and Builder in Texas were found guilty of wire fraud and money laundering in a construction mortgage fraud scheme. The core mortgage documents (Deed, Note, Truth In Lending, HUD, etc.) were not the source of this conviction. It required stories, records, surrounding documents, and accounting of funds to prove the fraud.

Another common reason TILA and RESPA forensic loan audits fail is the large amount of predatory and unfair loans put together by large financial institutions with very savvy computerized document systems. These very expensive computerized document systems are less likely to make mistakes that will be uncovered in a TILA and RESPA forensic loan audit. The actual story, advertisements, loan application, bank statements, surrounding documents, and credit profile reveal if loans are predatory, deceptive, or unfair.

For example, when the Attorney General of California sued Countrywide on behalf of homeowners in California, TILA and RESPA violations are ignored, and the AG focuses the lawsuit on unfair and deceptive practices.

This is why when I perform a forensic loan audit, I examine all the available documents and often request you to find additional key documents from specific sources. The fact that a TILA or RESPA violation occurred is important, but the more important reason is to understand what purpose or fact said violation is hiding, and what sources of relief for homeowners we can find.

If you are in need of mortgage litigation support or mortgage forensic audits to help keep your home, contact me here. If you are a lawyer looking to provide your clients with better service and an improved chance of keeping their home, contact me here.

I wrote earlier on the reasons why our forensic loan audits consistently find construction loans as the most fraudulent and toxic loans in the industry. In this article, I am going to talk more about why we commonly are able to identify and outline fraud in our forensic loan audits of mortgages so that a homeowner can sue for relief.

Standard forensic loan audits commonly reveal missing and clearly erroneous documents. Unfortunately, they typically miss fraudulent documents put together by industry insiders to appear innocent. A computer program can test the APR and figures of your mortgage, and will likely spit out that your computer-generated documents are fairly accurate.

However, it takes an experienced human eye with mortgage origination and appraisal experience to understand and recognize fraudulent schemes and documents. It is my decade of personal experience in mortgages combined with an appraiser with over a decade of experience that give us an edge in identifying fraud.  One common fraud we find which no computer will catch is an appraisal not being prepared properly, or which parties that knowingly failed to disclose property flipping. There are many other common schemes that I can identify from the overall picture given from records, documents, and your story that a computer analysis of your loan will not uncover.

I recently performed an audit of someone in foreclosure with a major lender. I examined the loan and found a few missing documents and inaccuracies. However, after reviewing records, documents, and the story of the homeowner, I realized and was able to pinpoint how the damages and current foreclosure situation originated with fraud surrounding a previous loan that was refinanced and paid off which resulted in an inflated loan amount. With this information, I was able to steer his attorney in the right direction to find relief.

Finding relief for homeowners in our forensic loan audits is our goal. Missing documents and inaccuracies are signposts that point the way to find relief, but understanding the complete situation from a position of experience and knowledge is why we are able to help so many people. We don’t just look for inaccuracies in core mortgage documents; we look for sources of relief for homeowners.

If you are in need of mortgage litigation support or mortgage forensic audits to help keep your home, contact me here. If you are a lawyer looking to provide your clients with better service and an improved chance of keeping their home, contact me here.

I have performed forensic loan audits on numerous construction loans and helped many of homeowners and financial institutions identify and recover from fraudulent construction loan schemes. Out of all the loan types that I perform forensic loan audits on, construction loans repeatedly amaze me by how commonly I find fraud, and by how large the variety of fraudulent schemes there are. In this article, I will go over why construction loans are riddled with fraud, and help homeowners who have been damaged by construction loans.

In 2006, construction loans were represented by government studies as being virtually free of any suspicious activity. So how is it that loans that appear so angelic and pure end up being described by Deutche Bank as “without doubt, the riskiest commercial real estate loan product”?  In August of 2010, USA Today reported, “the Congressional Oversight Panel, a financial watchdog, has warned that construction loans have deteriorated faster and inflicted bigger losses on banks than any other real estate loans.”

The answer to why these seemingly good loans are revealed to be riddled with fraud once analyzed by a forensic loan audit starts with the origination process. When builders approach financial institutions, they aren’t looking for a single loan with a single set of fees that an average homeowner looks for. They are looking for dozens of loans spread out over years and tens of millions of dollars of total loans with millions of dollars of fees and interest.

Shortcuts, fraud, and poor underwriting decisions stem from greed and competition for tens of millions of dollars in loans and millions of dollars in perceived profit. Many financial institutions willingly performed fraud and looked the other way for profit.

So why didn’t the government agencies detect the overwhelming fraud and put a stop to this? Part of this is a lack of regulator training and oversight. A larger part was allowing financial institutions to audit their own loans and report suspicious activities only when they desire, called

Suspicious Activity Reports (or SARs).  Because of a lack of federal oversight, Suspicious Activity Reports (SARs) by financial institutions “are one of the government’s main weapons in the battle against money laundering and other financial crimes.” Apparently letting the fox guard the henhouse isn’t the best of choices…

So construction loans became the most toxic and fraudulent loans in the industry, while appearing in government studies as the best loans in America.  I’ve seen fraud in appraisals, escrow accounting, lot switching, builder contracts, funds disbursement, budgeting, flipping, sales disclosures, and unique multiparty construction loan conspiracies.

So how does this help homeowners facing foreclosure or damaged by fraudulent construction loans? The forensic loan audits I perform on construction loans commonly identifies fraud, the resulting damages, and the documentation needed to prove it clearly for a lawsuit. My audits include a review of your appraisal by a licensed appraiser, as well as a review of all the related contract and loan documents. With ten years of experience in the mortgage origination and auditing field, I simply know what to look for.

If you are in need of mortgage litigation support or mortgage forensic audits to help keep your home, contact me here. If you are a lawyer looking to provide your clients with better service and an improved chance of keeping their home, contact me here.

I recently prepared a forensic loan audit that emphasized the importance of properly recognizing and the prevalence of fraud in a mortgage audit to cover up sloppy or missing documents.

This forensic loan audit I wrote was on behalf of a borrower who was foreclosing within the month. The borrower was considering bankruptcy. The borrower had a first mortgage around a million dollars and a second mortgage of a few hundred thousand dollars. The borrower’s property is worth several hundred thousand dollars. To a bankruptcy lawyer it would be a simple slam-dunk, strip off the second mortgage in bankruptcy as an unsecured lien due to lack of equity. Unfortunately, as the borrower could not afford the first mortgage, even stripping the second in bankruptcy would ultimately result in foreclosure.

My eye caught something different. I found evidence of clear-cut fraud on the first mortgage that was used to cover up lender sloppiness.The fraud and sloppiness will very likely result in the first mortgage being treated as an imperfect lien and unsecured debt and becoming dischargeable in bankruptcy under local state statutes. Now instead of eliminating the second mortgage, the borrower can declare bankruptcy and eliminate their million dollar first mortgage, while the second mortgage becomes the new secured first mortgage. Now they will probably be able to remain in their home.

So just how sloppy are lenders?

One recent study by researchers and lawyers found that in roughly half of bankruptcy mortgage proceedings, lenders fail to provide required documents to the bankruptcy court. Many of these documents are lost, improperly prepared, or many never existed. Lenders typically turn to fraud to cover up their deficiency.

So why aren’t bankruptcy attorneys catching all of these errors? Simply put, many lack proper expertise in examining documents for fraud, which is built by experience of how mortgage processes work. It just isn’t efficient to have an expert in law examine mortgage documents. Others simply lack the time required, due to the huge influx of new bankruptcies. This is where a trained forensic loan auditor like myself comes in.

When I find mortgage fraud by lenders, it provides borrowers and lawyers yet another tool to provide relief to a troubled home. If you are in need of mortgage litigation support or mortgage forensic audits to help keep your home, contact me here. If you are a lawyer looking to provide your clients with better service and an improved chance of keeping their home, contact me here.