The Forensic Mortgage Loan Audit Process
We conduct a forensic mortgage loan audit to see if there are any Federal Truth in Lending Act violations.
TILA requires that:
When interest rates change, especially when they rise, ARM adjustments become much more complicated and Indexes play into the picture. These economic forces can wreak disaster on improper disclosures. ARM program disclosures must be provided as soon as a customer asks about an ARM program.
We review the loan application to determine if the loan program applied for is different than the one you were eventually approved for. Sometimes the initial loan application is for a fixed rate loan, whereas the borrower is forced to accept an adjustable rate mortgage at the closing table. We review the stated income and assets to see if they were inflated by the loan officer. We analyze the total fees charged by the broker and lender to determine if you were overcharged.
We also audit your loan file to see if the Real Estate Settlement and Procedures Act (RESPA) was violated.
Here is some basic information about RESPA from the Housing and Urban Development Website (HUD)
Scope of RESPA
What kinds of transactions are covered under RESPA?
Transactions involving a federally related mortgage loan, which includes most loans secured by a lien (first or subordinate position) on residential property. This includes: home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages.
What types of transactions are generally not covered?
The following are kinds of transactions that are not covered: an all cash sale, a sale where the individual home seller takes back the mortgage, a rental property transaction or other business purpose transaction.
Is a "time share" a covered transaction under RESPA?
Yes, if the lender's interest is secured by a lien on residential property.
Is a loan secured by a condominium unit or a cooperative share a covered transaction under RESPA?
Yes, as long the units are not used for business purposes.
Is a loan secured by a manufactured home (mobile home) covered transaction under RESPA?
Yes, but only if the manufactured home is located on real property on which the lender's interest is secured by a lien.
Does a federally related mortgage loan only involve FHA, VA or other government sponsored loans?
No, RESPA covers most conventional loans too. See the statute or regulations for the definition of a federally related mortgage loan.
Are home equity loans covered under RESPA?
Yes, home equity loans secured by residential property are covered.
How does the coverage of home equity loans and subordinate lien loans differ from other RESPA covered loans?
If the loan involves an open-end line of credit, providing the disclosures required by Regulation Z satisfies the RESPA good faith estimate and the HUD-1 or HUD-1A requirements. Both subordinate lien loans and open-end lines of credit (home equity loans) in first lien position are exempted from the loan servicing requirements.
Are construction loans covered under RESPA?
No. Unless: 1) the loan is used as, or may be converted to permanent financing by the same lender; or 2) the lender issues a commitment for permanent financing; or 3) the loan is used to finance a transfer of title to the first user; or 4) the loan is for a term of two years or more, unless it is to a bona fide builder.
If a construction loan is covered under RESPA, how do you account for construction loan closing on the HUD-1 if funds will be held back by the lender until performance?
List the sales price of the land on Line 204, the construction cost on Line 105 (Line 101 is left blank) and the amount of the loan on line 102. The remainder of the form should be completed taking into account adjustments and charges related to the temporary and permanent financing which are known at the date of the settlement.
When the loan transaction includes an option for the borrower to obtain additional funds in the future merely by signing a note for the new amount, must RESPA's disclosure requirements be followed for the future advance of additional funds?
Yes, because there is a new note. This is consistent with Truth in Lending Act provisions.
If a loan is sold within 1-7 days of closing to another lender, does the sale of that loan fall within RESPA's coverage?
The sale of a loan after the original funding of the loan at settlement is a secondary market transaction. Such a sale is exempt from RESPA coverage as a secondary market transaction. However, any transfer of ownership and/or servicing rights is subject to RESPA's requirements in Section 6.
Does the exemption from RESPA for the sale of a land parcel of at least 25 acres apply even if there are 2 homes on the property?
Yes, as long as the property is a single parcel.
Can a credit agency provide a lender with a dedicated printer to expedite communication between the credit agency and the lender?
Yes, provided the printer can only be used for communication with the lender and not for general use. If it's for general use it may be considered payment for the referral of business.
Can a flood zone certification company examine a lender's existing loan portfolio for free or at a reduced rate, in exchange for the lender sending the company future business?
No. Flood zone certification is a covered settlement service (24 CFR 3500.2), therefore RESPA would apply to agreements by companies or persons providing portfolio reviews. Providing free or reduced reviews is a thing of value. Providing this service in exchange for referrals of future flood insurance business would violate Section 8(a) of RESPA which provides that "[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person."
Can a lender set up a contest for real estate agents under which the agent who provides the lender with the most business will win a trip to Hawaii?
No. Under RESPA, the trip itself, and even the opportunity to win the trip, would be a thing of value given in exchange for the referral of business.
Can a lender give a borrower an incentive, such as a chance to win a trip or a rebate, for doing business with the lender?
RESPA does not prohibit a lender or other settlement provider from giving the borrower an incentive for doing business with it as long as the incentive is not based on the borrower referring business to the lender.
Can a mortgage banker and a real estate broker advertise their services together, for example, on the same brochure or newspaper advertisement?
Nothing in RESPA prevents joint advertising. However, if one party is paying less than a pro-rata share for the brochure or advertisement, there could be a RESPA violation.
Can a lender give a real estate agent note pads with the lender's name on it?
Yes. Such note pads with the lender's name on it would be allowable as normal promotional items. However, if the lender gives the real estate agent note pads with the real estate agent's name on it for the agent to use to market clients for its real estate business, then the note pads could be a thing of value given for referral of loan business, because it defrays a marketing expense that the real estate agent would otherwise incur.
Can a mortgage broker be compensated for referring business to a lender that is unrelated to a real estate transaction, such as automobile loans?
Yes, provided that the compensation is exclusively related to the automobile loan and does not represent, in whole or in part, compensation for the referral of real estate business, and no lien is placed on a residence to secure the auto loan.
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