Considering that a startling 90% of mortgages have some sort of error that could potentially make them void, or at the very least cost the bank considerable money in fines and damages to correct, the loan audit is a crucial tool in negotiating with your bank for a loan modification. Common errors include:
Incorrect Interest Rate
RESPA and TILA require that lenders disclose the cost of borrowing money to all borrowers before the borrower commits to the contract. Especially in the case of subprime loans and loans with teaser rates, you may have been shown one interest rate on the documents you signed, but the interest rate you are actually being charged could be quite different.
Junk Charges
A junk charge is any charge that has no legitimate basis or does not add anything of value to the processing of your loan documents. For example, on top of charging you a document recording fee for recording your new Deed of Trust at the County Recorder's Office, your broker also charges you a document filing fee. Such a fee only serves to further line your broker's pocket and adds no value to your transaction.
Undisclosed Broker or Loan Officer Compensation
Especially in the case of subprime loans, many brokers received compensation in the form of yield spread premiums, which means that they were compensated a percentage of the loan amount for originating a higher interest loan. As of this writing, yield spread premiums are not in and of themselves illegal as long as they are disclosed to the borrower. Most brokers did not disclose their yield spread premium compensation.
The first step in getting a loan audit is to gather your loan paperwork together. If you don't have it, you can sent a Qualified Written Request to your servicer requesting copies of your loan documents. Your servicer must acknowledge receipt of your Qualified Written Request within 20 business days of its receipt and must correct any errors within 60 business days.
Once you have your documents, you can hire a loan auditing company to look them over for violations. If any are found, and unless you're one of the lucky 10% whose loan documents are pristine, you will have an excellent bargaining chip to use against your servicer when negotiating a loan modification.
Incorrect Interest Rate
RESPA and TILA require that lenders disclose the cost of borrowing money to all borrowers before the borrower commits to the contract. Especially in the case of subprime loans and loans with teaser rates, you may have been shown one interest rate on the documents you signed, but the interest rate you are actually being charged could be quite different.
Junk Charges
A junk charge is any charge that has no legitimate basis or does not add anything of value to the processing of your loan documents. For example, on top of charging you a document recording fee for recording your new Deed of Trust at the County Recorder's Office, your broker also charges you a document filing fee. Such a fee only serves to further line your broker's pocket and adds no value to your transaction.
Undisclosed Broker or Loan Officer Compensation
Especially in the case of subprime loans, many brokers received compensation in the form of yield spread premiums, which means that they were compensated a percentage of the loan amount for originating a higher interest loan. As of this writing, yield spread premiums are not in and of themselves illegal as long as they are disclosed to the borrower. Most brokers did not disclose their yield spread premium compensation.
The first step in getting a loan audit is to gather your loan paperwork together. If you don't have it, you can sent a Qualified Written Request to your servicer requesting copies of your loan documents. Your servicer must acknowledge receipt of your Qualified Written Request within 20 business days of its receipt and must correct any errors within 60 business days.
Once you have your documents, you can hire a loan auditing company to look them over for violations. If any are found, and unless you're one of the lucky 10% whose loan documents are pristine, you will have an excellent bargaining chip to use against your servicer when negotiating a loan modification.