Forensic Loan Auditing by Terry Robinson

What is Forensic Loan Auditing?
Forensic loan auditing refers to examining all the documents related to your loan. The resulting analysis helps the attorney by providing increased leverage when negotiating better loan terms or while filing a foreclosure prevention lawsuit or any other related legal proceedings.
There is a low level of auditing and a more complete high level auditing which you should be aware of.
1. TILA/RESPA or Low Level Auditing
This is a typical auditing that most companies do. A lot of it is based on software programs and is intended to identify TILA or RESPA violations and achieve "loan rescission" (cancellation of the loan). However to cancel the mortgage the borrower will return the loan amount taken from the lender subtracting the payments made up-to-date and other costs of the loan. This is also called tendering an offer.
Rescission basically restores the situation between the lender and the borrower as it was before the loan. The catch is most borrowers are often in no position to tender an offer. Lenders and financial institutions understand this all too well. In most cases rescission is quite ineffective in protecting the interests of the borrowers.
2. Predatory Lending Audit
This is an advanced loan audit that analyzes everything related to a loan. Apart from TILA and RESPA violations, it seeks to identify various other violations which let the attorneys prevent foreclosures and file lawsuits.
Since this process requires a a high degree of knowledge with a variety of provisions of the law and also the possible postures that lenders may take to defend their positions, very few companies are qualified to do a quality loan audit.
Many loan fraud investigations fall into this category. These auditing practices evolve rapidly over time due to revisions in the relevant laws and better and superior tactics employed by lenders and financial institutions.
The best way to know if you have been a victim of loan fraud or predatory lending is through a thorough and professional forensic loan audit. A forensic loan auditor must play the role of a detective with a keen eye to the details.
Each real estate filing is covered by various consumer protection laws both at the state and federal levels. The auditor must be able to find the applicability of such laws to your file which may or may not be patently obvious to a normal eye. What to Look for in an Auditor?
A forensic loan auditor must be adept at scrutinizing all forms, documents, loan processes, lender and loan officer practices. This demands a close familiarity with all laws relevant to loans. Software programs are essentially useless because many lenders have already mastered the art of making their loans appear as 'in compliance' with TILA and RESPA with most of the software applications available in the market.
It needs a trained eye and precision focus to perform a forensic audit by hand. It takes approximately 6 months to train a qualified forensic loan auditor.
While interviewing an auditor keep the following things in mind:
1. What is the experience of the auditor in performing forensic loan audits?
2. How and why did the auditor enter forensic loan auditing?
3. What is the background of the auditor? Did he or she ever testify in a court?
4. How does the auditor perform auditing? By hand or through software?
5. How knowledgeable is he or she about various codes and laws relevant to loans?
6. What is his or her approach toward loan modifications?
7. What kind of support does the auditor offer to the attorney arguing the case in the court?
It is very important that you identify the right kind of auditor to support your file. The practices and strategies being employed in the loan modification and foreclosure cases are changing every day and attorneys of the lending institutions can be quite creative at trouncing your case. Therefore, your auditor must stay a 'step ahead' with loan auditing if you are to prevail against the opposition. What Should Your Audit Look for?
A forensic loan audit involves reviewing all loan documentation, terms and conditions of the loan, compliance of the loan with various state and federal laws, fees charged at all stages of the loan, loan fraud, deception, bait and switch and other loan fraud practices. The auditing should also review foreclosure documents and relevancy of servicing and pooling agreements.
A quality loan audit must address the following important issues while submitting a report. This is by no means an exhaustive list, but these are the most common issues to be addressed by a loan audit.
1. Loan Fraud
You can be deceived at many levels. Loan fraud is quite subtle and the auditor should be able to identity all the nuances in the papers. Lying about various terms and conditions of the loan, false statement of income and loan applications, forgery of the documents, and backdating the documents are some common practices in the loan fraud.
2. Misrepresentation
To entice the borrower to take the loan, brokers and officers may make false claims, statements, and representations, either orally or in written form, that are in contradiction with what is drafted in the loan documents. The loan documents might also be misrepresented to mislead the borrower to take a loan that is not in the best interests of the borrower.
3. Deceptive Practices
Did the loan officers deceive the borrower? Were all loan documents consistent with UDAP (Unfair and Deceptive Codes and Practices) codes? The auditor must observe with great care the documents for any possible violation of UDAP Law. Deceptive yield spread premiums and misleading negative amortization loans are two of the most commonly employed deceptive practices by the lenders and the loan officers.
4. Breach of Contract
A loan document is a contract to which both the broker and the borrower must abide. Whether it is calculating the interest rates or stating penalties, the broker must be fair in providing accurate and truthful information to the borrowers. The auditor must check for any possible violations in this area. What Should an Audit Report Tell You?
After the investigation an audit summary is compiled which details various aspects of the loan and any violations discovered. The report should clearly explain all the results of the forensic loan audit performed, all State and Federal Law violations found, the actual terms and conditions of the loan, hidden fees and the commissions earned by your lender or broker.
These results are forwarded to an attorney who will use the report to support your case in a court of law. A competent auditor helps your attorney stop the foreclosure and save your home. So choose your auditor carefully by using some due diligence and a little logic and reasoning.