MORTGAGE AUDITS

A mortgage loan, for most consumers, accounts for a large proportion of one’s income. Therefore, it is imperative to ensure that the mortgage loan agreement has been drafted correctly in terms of both structure and validity. Even a minute error, on a lender’s behalf, in carrying out the mortgage agreement could potentially cost the consumer thousands upon thousands of dollars. Unfortunately, many Home Equity Loans, Fixed Rate Mortgages (that have been either refinanced, sold, or involve an escrow account), and Adjustable Rate Mortgages contain at least one error in its construction or calculations.

There are several acts set forth by the federal government in order to protect consumers from predatory lending practices. Such acts include the Truth in Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA), and the Real Estate Settlement Procedures Act (RESPA).

The Truth in Lending Act (TILA) provides that the borrower be provided the key provisions of his or her mortgage terms in obvious, accurate, and clear language. Such key provisions include the total payments, the payment schedule, the annual percentage rate, the amount financed, and the finance charge. Furthermore, the TILA act provides that every charge on the loan must be accounted for in one of 2 categories, finance charge or amount financed. The finance charge refers to the dollar amount the credit will cost the consumer, whereas the amount financed refers to the amount of credit provided to the consumer or on the consumer’s behalf. The APR, or annual percentage rate, is the cost of the consumer’s credit as a yearly rate, and is the combination of additional prepaid, or up-front, finance charges and the interest rate. Moreover, TILA provides that certain up-front costs, such as the cost of obtaining the consumer’s credit report, may not be included in a consumer’s APR calculation. Additionally, TILA mandates the lender to furnish 2 copies of the 3-day notice of the consumer’s right to revoke the loan transaction, including the expiration date, effects of revoking the loan transaction, and how to go about revoking the loan transaction. According to TILA, failure to properly disclose any of the above information extends the time period that the consumer is legally allowed to rescind the mortgage loan agreement without penalty.

The Home Ownership and Equity Protection Act (HOEPA) is another act aimed at protecting consumers from predatory lending practices. HOEPA is an amendment act to TILA, described above. In the past, some mortgage lenders have offered residents in certain geographical areas mortgage loans with particularly high fees and or high interest rates. HOEPA covers first-lien loans and second-lien loans that have an APR exceeding the rates in Treasury securities of comparable maturity by more than 8 and 10 percentage points, respectively. HOEPA also covers loans that have fees and points (points being items paid to the lender or to a lender affiliate, prepaid finance charges, and compensation paid to mortgage brokers) that exceed 8% of the total loan amount. The 3 types of loans mentioned above may also be referred to as Section 32 mortgages because the rules pertaining to these types of mortgages are contained in Section 32 of the regulation that implements TILA. HOEPA provides that the consumer receives notification 3 days prior to the finalization of the mortgage loan agreement informing the consumer of his or her regular payment amount, loan amount, APR, and right to sign, or not to sign, the loan agreement. Additionally, if the loan has a variable rate, the consumer must be informed clearly that his or her rate, and consequently his or her monthly payment, may be subject to increase as well as his or her maximum monthly payment amount. HOEPA also outlines certain prohibitions in regards to default interest rates, negative amortization, balloon payments, and other specific conditions.

The Real Estate Settlement Procedures Act (RESPA) provides that the consumer is informed about the costs associated with his or her real estate mortgage transaction, or settlement, and prohibits kickbacks, referral fees, or any other thing of value for the referral of a settlement service. RESPA is an act that is aimed at protecting the consumer because it prohibits referral and kickback fees and thus, reduces the overall cost of settlement procedures to the consumer. RESPA further provides that any federally related mortgage loan may not accept a percentage, portion, or split of any charge made or received unless the service has actually been rendered. Additionally, although yield-spread premiums (a mortgage broker fee paid by a lender for setting up a loan with a higher than par interest rate) are allowed, the fee rendered must be reasonable related to service value.

The law firm of Smith & Gromann, P.A., works hand in hand with experienced mortgage auditor professionals to protect consumers from predatory lending and costly mistakes or errors in servicing mortgages. Our mortgage or loan auditors will scrutinize mortgage agreements in order to confirm that the mortgage agreement and all closing documents are in accordance with both state and federal lending laws. In addition to reverse engineering mortgage agreements to ensure compliance with statutes, our highly experienced loan or mortgage auditors will ensure that the rates contained in the mortgage agreement have been properly deduced and calculated. If you are interested in potentially saving yourself thousands of dollars and want the security of knowing that your mortgage loan is being serviced correctly, please call 1-800-508-0041