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Old 01-08-2009, 10:56 PM
839 posts, read 3,177,552 times
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I need to get up to speed very quickly on this. I'm trying to help someone who got into a mess and now by doing nothing --denial from being too terrified to face reality??--they are making it worse.

From what I am reading it says that sometimes the only way to win a loan modification is by proving a case of predatory lending.

So I am trying to find info on the internet and this is what I am seeing:


Predatory lending strips borrowers of home equity and threatens families with foreclosure. Often borrowers are tricked into accepting unfair loan terms, usually through aggressive sales tactics. Often they are taken advantage of because of their lack of understanding of terms and involvement in complicated transactions. Even more informed consumers are occasionally fooled. Anecdotal information suggests predatory lending is concentrated in poor and minority communities, where better loans are not readily available.

Across America, people are losing their homes and their investments because of predatory lenders. Signs of predatory lending practices include, but are not limited to:
  • Aggressive and deceptive marketing. The lender may tell you that they are your only chance of getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses.
  • Financing excessive fees into loans or charge fees for unnecessary or nonexistent products and services.
  • Sell properties for much more than they are worth using false appraisals from dishonest appraisers.
  • Encourage borrowers to lie about their income, expenses, or cash available for downpayments (includingtrue source of down-payment) in order to get a loan. You may be asked to sign a sales contract or loan documents that are blank or that contain information which is not true.
  • The cost or loan terms at closing are not what you agreed to.
  • Charging higher interest rates than a borrower's credit allows based on their race or national origin and not on their credit history. (Discrimination in mortgage lending is prohibited by the federal Fair Housing Act and HUD's Office of Fair Housing and Equal Opportunity actively enforces those provisions of the law. The Fair Housing Act makes it unlawful to engage in the following practices based on race, color, national origin, religion, sex, familial status or handicap (disability) or to impose different terms or conditions on a loan, such as different interest rates, points, or fees )
  • Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
  • The house you are buying costs a lot more than other homes in the neighborhood, but isn't any bigger or better.
  • You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud - it does not.
  • Use high pressure sales tactics to sell home improvements and then finance them at high interest rates.
  • Knowingly lend more money than a borrower can afford or has the ability to repay.
  • "Strip" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
  • Target vulnerable borrowers to cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems. The borrower is told that refinancing can solve your credit or money problems. If a deal to buy or refinance a house sounds too good to be true, it usually is! (See the following notes about this subject.)
HUD is taking an active role in curbing predatory lending practices. This includes strategies to prohibit harmful sales practices in the mortgage market and restrict abusive terms and conditions on high cost loans.

HUD'S WEBSITE: Predatory Lending - HUD

Payment history constitutes 35% of one's credit score. Consumer advocates say such scores are unfair to people wiped out by some catastrophe, such as a job loss, huge medical bills or identity theft.

The way to raise one's credit score is by paying all obligations on time. But what if there is not enough money to do so, due to having higher payments for everything based on a a lowered score due to unfair practices by a mortgage company?

Using credit scores result in a discriminatory pattern of higher premiums among minorities and the poor. (Such as when AIG checked one couples credit without their permission!!)

Most of us know that when a loan company checks one's credit it can lower your credit score which can:
  • Keep you from getting a job! Potential employers can pull one's credit report as long as they notify the potential hire first. A low credit score can prevent one from getting certain jobs they might otherwise be well qualified for even though credit problems have not been shown to negatively affect job performance. Many employers -- 35% in 2003 -- are doing credit checks on prospective employees, according to the Society for Human Resource Management. Why? Bad credit can be a signal of irresponsibility, or employers might have concerns that the employee will spend more time fretting about their financial woes than concentrating on the job.
  • Affect Your Lending Cost- Low credit score can cause interest rates to become higher thus also making monthly installments higher and more difficult to manage. Credit score is a major factor when trying to obtain a home mortgage, car loan and credit cards. A lower credit score will cost more due to higher interest rates while a good rating can help one qualify for the best interest rates. Working on a stellar score while you're young could actually save hundreds or thousands of dollars over your lifetime.
  • Make your mortgage insurance rate higher (This can significantly increase the monthly mortgage loan payment. Sadly, many don't know it until they are at the closing table, ready to sign.)
  • Higher car and home insurance premiums- A great majority of both auto insurers and auto insurers use credit information to base the cost of customers' insurance premiums. A recent survey by Consumer Reports among eight popular auto insurers found that drivers with top scores could pay up to 31% less on their premiums than if credit scoring wasn't factored in, while those with bad scores would pay as much as 143% more. (If your scores have improved, you may be able to win breaks on your auto and homeowners coverage.)
  • Cost you larger deposits and a higher rent. Many landlords check credit scores before allowing one to sign a lease, as a measure of one's responsibility to pay bills on time. If the rating is below par the renter could be required to pay a higher rent and/or higher security deposit. Folks with low credit scores often wind up with less-desirable housing than those with pristine credit histories....and many who are going to lose their homes are going to be shocked to find what they will end up having to rent.
  • Require a deposit from utility companies, should one end up having to move. Phone companies and utilities that provide electricity, gas, water and other services often require substantial deposits from people with low credit scores.
  • Credit card companies use ones credit score to determine how much interest to charge and whether to even extend credit
  • Get you a lesser service package from the cell-phone company as providers usually check credit before signing one up for a plan. If one has have credit issues, they may not qualify for the best plan rates, you could be required to pay a deposit, or you could get turned down.
Checking ones credit, without their authorization, lowered my clients credit score costing her to be unfairly discriminated against in applying for jobs that may have given them more income to pay their bills. This ended up costing the couple much more money on numerous things; making it harder just to survive in everyday life. A lot of stress caused by wondering how to get out from under this may have played a part in heart problems suffered by each of them and her subsequent stroke.

The unauthorized credit check made by their mortgage company months after the couple had taken out a loan unfairly dropped their credit score, costing them to pay higher rates and making it harder to keep up with payments that could actually have been less if their credit score had been higher, which it could have been if unauthorized checks weren't made into their credit, by their loan company----resulting in the couple having to make the payment late because they just don't have the money.

A late payment reported to a credit bureau can drop ones score by 100 points, particularly if they had a high score. Late payments can remain on one's credit report for seven years.

__________________________________________________ __________________________________________________ __
Maybe the couple only needed another $25 in order to have enough to pay their electric bill---and they would have had it if they weren't paying higher insurance rates or interest (due to the lowered credit score caused by that unauthorized credit check made by the loan company). The consequences of not having the $25 can be severe - utilities cut off, high "poverty fees" and increased interest rates, etc.

Or maybe the thirteen year-old car needs repairs. Now one has to scrape up the cash to have it fixed or you won't be able to get to work because there's no public transit available. A newer car would get better gas mileage and have fewer repair costs, but to get that newer car one needs money up front.

There may not be family or friends one can tap for a short-term loan to get that $25 for the light bill that's due three days before payday.

Some with low credit scores end up bouncing checks because they have to pay higher fees for things. They end up closing their checking account and use a check-cashing place that charges a fee for each check. (Just another "poverty" fee.)
__________________________________________________ _____________________

Some privacy and minority advocates are now seeing credit as a civil-rights issue as minorities start to fight employers and insurers who base decisions on credit histories. Their effort could slow the near doubling in credit checks by employers in the past decade, which affects millions of Americans who are struggling with debt. "It's definitely a civil-rights issue because of the growing use of credit reports and credit scores for hiring, renting an apartment, insurance.

Last edited by OneDayAttaTime; 01-08-2009 at 11:45 PM..
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Old 01-08-2009, 11:05 PM
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I don't see a question here, but yes, predatory lending (and proof of) is one way to force a favorable modification. However, if there is fraud from the borrower's side, ie, falsely stated income or history, it's going to be a tough road to point the finger at the lender, saying they orchestrated it. After all the borrower would have to sign as to the truthfulness of the application in several places.

If time is of the essence, your friend needs to get to an attorney now. Only a law degree is going to be able to cut through the massive backlog and redtape. I recommend you concentrate on finding the right attorney - this is way over a consumer's head. By all means, file reports with HUD and the regulatory agency of the lender that closed the loan, but don't wait for a response. That could happen well after the home is lost.

Legal now or be prepared to roll with it.
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Old 01-09-2009, 07:28 AM
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Default Interesting tidbit....now if I can just confirm it!!

The following sounds great and I have seen it on several websites, but the sites seem to be for attorneys or others who want to do what they call a "forensic audit". Can anyone confirm if the following is true and if so where do I find the law to read it..... or is this just a sales pitch to get paid to do an audit?

State and Federal law violations in your loan documents can mean EXTREMELY stiff financial penalties and consequences for your lender.

Analyze the original paperwork, legal documentation and disclosures associated with the loan to document if laws were broken by the lender during the loan process and to determine if the loan is even legal. (We call it a "forensic audit".)

Remember the more violations found, and the higher their severity the better chance you have of getting your loan modified so you can afford your payments.

Violations can also be used to force the lender to refund all interest paid to date, back to the borrower! Example- If you paid $35,000 in interest on a loan that contained Federal or State Violations this could force your lender to pay you back $35,000!

It doesn't matter if the violations were the result of lender greed or carelessness.

Foreclosures resulting from loans with illegal terms or conditions are not enforceable. When litigation on a questionable loan begins, the foreclosure process stops. Mortgage payments are NOT required during the foreclosure or litigation process.
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Old 01-09-2009, 08:35 AM
Location: Rockport Texas from El Paso
2,601 posts, read 7,800,539 times
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One Day - thanks for your informative posts. I am going through a refinance and Ive posted almost a journal here on the thread "Refinancing - Taking money out"

There is also a site called the rip off report Ripoff Report: By Consumers, For Consumers
where one can warm about dishonest mortgage brokers.

Mine was listed on there for one incident but also had someone who was happy with his work come back and defend him-- the jury is out - his rates and fees are a bit lower than market and so far he is quite accessible.

I will report either way - if he does a good job or if its a bad one. I'm a former elected prosecutor and take this very seriously -either way.

Once again thanks for your information - I believe people interested in refinancing can get a good education from combining both of our threads.
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Old 01-09-2009, 11:05 AM
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I hope the forensic audit verifies the borrowers' disclosures as well. Why should borrowers who lied or embellished to get a loan be eligible for any sort of help or modification?

Predatory lending is difficult to prove for good reason. Most sales people are aggressive. It doesn't mean the borrower has to bite. And since when is not understanding a legal contract grounds for modification? It's the borrowers' responsibility to understand what they sign. If we remove that stipulation, then every contract in America, express or implied, could be voided using the Dunderhead Defense.
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Old 01-09-2009, 11:11 AM
Location: Montrose, CA
3,031 posts, read 8,276,068 times
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Originally Posted by goodbyehollywood View Post
I hope the forensic audit verifies the borrowers' disclosures as well. Why should borrowers who lied or embellished to get a loan be eligible for any sort of help or modification?

Predatory lending is difficult to prove for good reason. Most sales people are aggressive. It doesn't mean the borrower has to bite. And since when is not understanding a legal contract grounds for modification? It's the borrowers' responsibility to understand what they sign. If we remove that stipulation, then every contract in America, express or implied, could be voided using the Dunderhead Defense.
Oh, amen to that! I am so tired of seeing people justify defaulting by pathetically whimpering "I didn't know what I was signing!"

Well, waah boohoo. Should have gotten a real estate attorney to look at it before you signed, maybe? Nobody held a gun to your head and made you pick up the pen.
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Old 01-09-2009, 11:24 AM
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Default Excessive fees

Predatory mortgage lending involves a wide array of abusive practices. Here are brief descriptions of some of the Seven Most Common Signs of Predatory Lending
  1. Excessive Fees
  2. Loan Flipping
  3. Abusive Prepayment Penalties
  4. Kickbacks to Brokers (Yield Spread Premiums)
  5. Mandatory Arbitration
  6. Unnecessary Products
  7. Steering & Targeting
Excessive fees

A Nov 2003 survey done by bankrate.com found that fees charged by lenders on first mortgages varied widely from $1020 to $11,395 on a $180,000 loan!!

· $50-$1423 for attorney and settlement fees
· $150-$1161 for mortgage broker fees
· $25-$4400 for document preparation
· $37- $595 ambiguous "processing fee"
(Some lenders try to make $5000 off of a loan that another lender might do for $2000

Some fees can be financed but are not directly affected by the interest rate, making them easy to disguise, manipulate or downplay.

On competitive loans, fees below 1% of the loan amount are typical. On predatory loans, fees totaling more than 5% of the loan amount are common.

A refinanced mortgage can be packed with excessive fees and/or unnecessary fees. A regular mortgage usually will have loan fees below 1% of the total loan amount. A predatory mortgage can have loan fees in excess of 5%. These excessive costs are tucked into the loan amount so the lender can easily disguise them, and these fees can put thousands of the homeowner's dollars into the predator's pockets. This practice falls within the definition of predatory lending.

Loan flipping (Refinancing offers)If your lender offers you to refinance it may be a form of loan flipping, a practice they use to generate income without giving you any tangible benefits. Instead it can drain your equity and increase your monthly payments.

Prepayment penalties. Some lenders to charge you a penalty if you pay off your loan in advance to make up for the interest they lose by letting you off early. The penalty is considered abusive if it’s effective for more than three years or is worth more than six months of interest. In the subprime mortgage market, where borrowers tend to have less-than-perfect credit, an abusive prepayment penalty can trap them in a high-interest loan even after they improve their credit rating. This penalty is seldom imposed in the conventional mortgage market.

Yield Spread Premiums is simply kickbacks your lender pays a broker to steer you into a high-interest or sub-prime loan. Look at your bill. If you see this term onthere, you’re probably paying more interest than is legally acceptable. Kickbacks can cost homebuyers thousands of dollars extra on their mortgages.

Mandatory arbitration, one of the most common predatory practices is a provision in many contracts that bans you from going to court if you find the terms abusive. In other words, this provision denies you your rights to justice! A lender hides words in the fine print that make it illegal for the homeowner to take legal action against the lender meaning that borrowers are not allowed to seek legal remedies in a court if they find that their home is threatened by loans with illegal or abusive terms. Mandatory arbitration makes it much less likely that borrowers will receive fair and appropriate remedies in cases of wrongdoing. The borrowers sign away their rights to sue the lender for any fraud, predatory actions or illegal actions. The only right the borrowers have is to take their grievances to arbitration. The arbitration process is totally in the hands of the lenders, usually conducted in secret without the borrowers having adequate representation. Although the borrowers can usually have legal counsel, they find it difficult to find anyone who will represent them because the lawyers are not guaranteed payment of their fees in arbitration like they are in court. Many arbitration cases are handled over the phone and when a small individual is pitted against a large corporation and the proceedings are confidential with no stenographic or written record of the facts, the borrower is at a true disadvantage. Most arbitration decisions are binding and the borrowers cannot appeal them. More than half of the lenders are now including mandatory arbitration in their loan documents Lenders also favor arbitration because it eliminates a borrower's rights to do a class-action suit against the lender. The Fair Credit Reporting Act and the Truth in Lending Act have no bearing in an arbitration situation, only if one can go to court. And, some lenders keep their right to go to court but prohibit the borrower from doing so. The fees for arbitration can also be more expensive than filing a small claims court suit

Insurance and Other Unnecessary Products Sometimes borrowers may pay more than necessary because predators often add insurance and other unnecessary products to the loan amount. (Lenders themselves sell and finance this unnecessary insurance or other products along with the loan.) The insurance they either insist on or intimidate the borrower into buying can include regular mortgage insurance, fire and hazard insurance, life insurance, disability insurance, homeowner's insurance, and health insurance. The insurance can be extended to include all family members, not just the borrowers themselves. The premium for these items is also added onto the loan amount where the cost is not easily spotted by the borrower. And, of course, the predator earns large commissions every year on the premiums paid. A variation of this happens when three or five years of premium are paid in advance.

Steering & Targeting (Coercing)
Predatory lenders may steer borrowers into subprime mortgages, even when the borrowers could qualify for a mainstream loan. (Fannie Mae has estimated that up to half of borrowers with subprime refinanced mortgages could have qualified for loans with better terms – saving the borrowers thousands of dollars in fees and interest rates.) Vulnerable borrowers --the elderly, low-income, or minority homeowners who, in many cases, would actually qualify for a regular prime loan may be subjected to aggressive sales tactics and sometimes outright fraud. Unfortunately some prime borrowers end up paying sub-prime prices is that they are solicited by sub-prime lenders and go along with the deal pitched to them without ever contacting a mainstream lender. Many will be sub-prime, but those who aren’t and who go along with the soliciting firm when it isn't in their best interest, will pay sub-prime prices regardless of how qualified the borrower may be. Many states are attempting to set up predatory lending laws to avert this type of activity.

Last edited by OneDayAttaTime; 01-09-2009 at 12:39 PM..
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Old 01-09-2009, 07:24 PM
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Forensic audit companies are showing up almost as fast as loan modification companies. An attorney familiar with predatory lending, with cases in predatory lending, is going to have auditors on staff familiar with each particular state's regulations.
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Old 01-10-2009, 08:33 AM
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Default TILA violations may be used as leverage when negotiating a loan modification

Violations in Truth in Lending Act ("TILA") and the Real Estate Settlement Procedures Act ("RESPA")

Under TILA, loan originators and assignees may be held liable for failure to make required disclosures. Remedies for TILA violations include rescission, damages and equitable relief. These violations may be used as leverage when negotiating a loan modification

Many of the home loans originated by brokers and lenders over the last few years have several of these these violations:

Real Estate Settlement Procedures Act- federal law governing many types of disclosures that lenders must provide at the time of closing, in addition to prohibiting things like kickbacks and unearned fees. It enables damages, and sometimes rescission if the error triggers TILA.

1. Discovery of Truth in Lending Act (TILA) violations may enable rescission and/or damages. These violations may give you the right to rescind the loan to negotiate with your mortgage company. If you purchased the property with the loan or used the proceeds to refinance and proper disclosures were not given, then you may be entitled to money damages to offset the foreclosure.

Improper disclosure or material facts to the borrower, and the last minute changes that the closing agent makes without re-calculating the APR using the new HUD-1 closing costs: (Misrepresentation) The loan officer may offer you one set of terms (including rate and fees) and then change them at closing. If these disclosures the bank must have provided you at the time of closing. are inaccurate, the loan is statutorily rescindable under TILA.

An example, in a foreclosure action, the finance charge must have been accurate within $35 on the final HUD-1 or if the annual percentage rate (APR) is only .125% higher than what was originally disclosed or else there may be a violation of the Truth in Lending Act and the loan may be rescindable. This means the loan is cancelled and all money paid to the lender is refunded. (As you can see this gives you leverage when negotiating with the lender for a loan modification. )

Three days before you signed loan documents your lender must have provided you with a Good Faith Estimate that should outline your rate and fees. Compare this to the Settlement Statement or HUD-1, received at closing. It tells you where all the money you are borrowing will go. Compare for any differences between the Good Faith Estimate and the HUD-1.

The Truth in Lending disclosures detail how much you are paying for your loan, what the percentage rate and APR is, and what you will owe at the end of the loan. Review the contract to determine if there are prepayment penalties that lock you into the loan for a pre-determined period of time. If you feel you were a victim of predatory lending, it is critical you dp something before the statute of limitation runs out. Some violations can restart the rescission clock and you will have up to three years from the time you discover the violations to address them.

2. Failure to Provide a Correct Notice of the Right to Rescind. A common violation occurs when the creditor fails to properly provide a notice of the borrower’s right to cancel. This is a specific notice that must be provided to refinance customers at closing. If this form is inaccurate or incorrect, the loan is rescindable up to three years after the closing date. When the right is extended for three years you can rescind the loan at any time before the three years are up meaning that the loan is treated as if it never existed. This means that the creditor must refund all interest paid, all closing fees, all broker fees, and even pay for your attorney fees.The extended right of rescission is a powerful tool to help victims of predatory lending.

3. Home Ownership and Equity Protection Act (HOEPA) is a very powerful federal law governing high cost refinance loans. If your loan is under $150,000 or the initial rate was above 8%, you should evaluate your loan for violations of this act. Violations here enable rescission and substantial money damages that can be in excess of the loan’s dollar amount.

4. Breach of Contract by the lender (things that are unfair or unjustified before starting the foreclosure process). The lender has a responsibility not to interfere with your ability to pay your mortgage – like force placing insurance making the payments substantially more expensive than they should have been.

5. Unconscionability. This defense is focused on the events surrounding the creation and closing of the mortgage loan. A violation here gives the court great leeway in deciding whether the mortgage should be voided or changed.

__________________________________________________ _____________

Fair Debt Collection Practices Act-federal law requiring servicers or lenders who obtain the mortgage after default follow specific protocol in attempting to collect on the debt. A failure to follow this law enables statutory damages and attorney’s fees.

Fair Credit Reporting Act- federal law governing lenders ability to report information about the mortgage and requires the accurate reporting of negative information. Violations of this act also enables damages and attorney’s fees. Punitive damages might be available under this act.

Real party in interest- a procedural defense to foreclosure that can be extremely effective at stopping the lender’s ability to foreclose. It essentially questions the ownership of the mortgage and questions whether the foreclosing party is, in fact, the holder of the mortgage and note.

Failure to state a claim upon which relief can be granted. This defense attacks the lender’s ability to foreclose and is can be used in conjunction with one of the other foreclosure defenses.

Failure to establish conditions precedent. A foreclosure action can get thrown out of court quickly by using this defense that attacks the lender’s pre-foreclosure processes.

Failure to comply with FHA pre-foreclosure requirements. FHA requires every lender to mail a booklet called “How to Avoid Foreclosure” and set up a face-to-face meeting with the borrower before foreclosing (in most cases). If the lender does not take these steps, then it cannot foreclose.
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