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Concerns with mortgage loan modifications do not always involve fraud. Each state has provisions and requirements for a senior lien holder to modify a loan and retain their lien position.

A typical fraudulent issue involving loan modifications is as follows:

Borrower submits false income information and/or false credit reports to persuade a financial institution to modify or refinance a loan on more favorable terms.

With respect to any mortgage loan, a loan modification is a revision to the contractual payment terms of the related mortgage note, agreed to by the servicer and borrower, including, without limitation, the following:

1. Capitalization of any amounts owed by adding such amount to the outstanding principal balance.
2. Extension of the maturity.
3. Change in amortization schedule.
4. Reduction or other revision to the mortgage note interest rate.
5. Extension of the fixed-rate payment period of any adjustable rate mortgage loan.
6. Reduction or other revision to the note interest rate index, gross margin, initial or periodic interest rate cap, or maximum or minimum rate of any adjustable rate mortgage loan.
7. Forgiveness of any amount of interest and/or principal owed by the related borrower.
8. Forgiveness of any principal and/or interest advances that are reimbursed to the servicer from the securitization trust.
9. Forgiveness of any escrow advances of taxes and insurance and/or any other servicing advances that are reimbursed to the servicer from the securitization trust.
10. Forbearance of principal whereby the servicer “moves” a certain interest free portion of the principal to the “back-end” of the loan, lowering the amortizing balance and the monthly payment.

Refinancing is the process of paying off an existing loan by taking a new loan and using the same property as security. A homeowner may refinance for the following legitimate reasons:
• In a declining interest rate environment a refinance generally will lower monthly payments.
• In a rising interest rate environment a refinance to a fixed rate loan from an adjustable rate loan will generally allow the borrower to lock in the lower rate for the life of the loan.
• In a period of rising home prices the refinance allows the borrower to withdraw equity.

Examples

o Two years after the origination of a mortgage loan, a borrower contacted the lender, claiming a need to modify the loan. In an attempt to deceive the lender into modifying the loan, the borrower stopped making loan payments. The borrower’s original loan application indicated that the borrower earned $7,500 per month; however, the borrower subsequently claimed income of only $1,200 per month. While evaluating the need for the modification, the bank reviewed the borrower’s credit report and determined that the customer’s supposed annual income of $14,400, was insufficient in comparison to the reported $40,000 per year servicing other debt, which was current. The bank stopped the modification process, as the borrower had intentionally understated income in an attempt to defraud the financial institution.

o A borrower contacted the lender claiming a reduction in income and trouble with making loan payments. The borrower provided the lender with a copy of his most recent tax return, which showed an adjusted gross income (AGI) of $45,000, down from the previous year’s $96,897. The borrower signed Form 4506-T, authorizing the lender to access tax returns filed with the IRS. In reviewing the tax information obtained from the IRS, the lender found that the borrower had recently amended the most recent return, lowering the AGI from $105,670 to $45,000. In this scenario, the borrower had purposely amended the return to reflect a lower AGI, possibly with the intent of amending it a second time to reflect the true amount of income.

o A borrower requests a loan modification for a property that he claims to occupy. Based on the various facts provided to the lender, it appears that the borrower is eligible for a modification. When underwriting the modification, the lender verifies the borrower’s income with the IRS. During the verification process, the lender recognizes two potential problems with the information provided. The address on the tax return is different than the address of the house collateralizing the loan, and the return reflects rental income from real property. After additional investigation, the lender concludes that the customer was trying to modify the loan on rental property and not on the primary residence.

Best Practices
• Underwrite all modifications. The financial institution should ensure that modification files include:
o Documentation of Hardship.
o Borrowers’ willingness and ability to continue to pay debt and retain property.
o Independent verification of information (employment, income, occupancy) provided.
o New credit report.
o Analysis of sustainability of performance post-modification.
o Referral to reputable credit counseling service.
• Establish legal department protocol for review of modification agreement (different states have different laws and language).
• Establish strong post-modification loan performance reports.
• Review Uniform Retail Classification and Account Management Policy
• Ensure proper accounting for delinquencies, trouble debt restructuring, charge-offs, and the allowance for loan and lease losses.

Red Flags
A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Borrower states that the property is his primary residence and is therefore owner-occupied but the mailing address and telephone number are not for the subject property (e.g., property is located in North Carolina; mailing address and telephone number are in New York).
• Vague and/or unrealistic hardship (“the national economy”).
• No documented resolution of hardship.
• No or limited financial analysis in file.
• No employment/income verification.
• Credit Report inconsistent with borrower’s stated hardship.
• Financial reports that reflect low delinquencies that are inconsistent with local economic conditions or the bank’s loan portfolio composition.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

Home owners should wake up TODAY! before it’s too late by mustering enough courage for “Pro Se” Litigation (Self Representation – Do it Yourself) against the Lender – for Mortgage Fraud and other State and Federal law violations using foreclosure defense package found at https://fightforeclosure.net/foreclosure-defense-package/ “Pro Se” litigation will allow Homeowners to preserved their home equity, saves Attorneys fees by doing it “Pro Se” and pursuing a litigation for Mortgage Fraud, Unjust Enrichment, Quiet Title and Slander of Title; among other causes of action. This option allow the homeowner to stay in their home for 3-5 years for FREE without making a red cent in mortgage payment, until the “Pretender Lender” loses a fortune in litigation costs to high priced Attorneys which will force the “Pretender Lender” to early settlement in order to modify the loan; reducing principal and interest in order to arrive at a decent figure of the monthly amount the struggling homeowner could afford to pay.

If you find yourself in an unfortunate situation of losing or about to lose your home to wrongful fraudulent foreclosure, and need a complete package that will show you step-by-step litigation solutions helping you challenge these fraudsters and ultimately saving your home from foreclosure either through loan modification or “Pro Se” litigation visit: https://fightforeclosure.net/foreclosure-defense-package/

 

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