Many of the mortgages which are currently going into default never should have been originated in the first place due to violations during the origination and/or underwriting process commonly known as predatory lending practices. In an attorney driven loan modification, the determination that these violations occurred can give the attorney/homeowner team additional bargaining chips in negotiating terms with the lender.

The following is a list of regulations and violations which may be found as predatory practices:

* RESPA violations - “Real Estate Settlement and Procedures Act” is a consumer protection statute, first passed in 1974. One of its purposes is to help consumers level the playing field as they shop for settlement services. The main purpose is to eliminate kickbacks and referral fees that increase unnecessarily the costs of certain settlement services. RESPA requires that borrowers receive regular disclosures throughout the process. These are typically “small print” documents which are often ignored by borrowers. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers. RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting anything of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.
* The Truth in Lending Act – This act is also known as Title I of the Consumer Credit Protection Act, was passed to assist consumers in shopping for credit. It’s relation to mortgage lending is primarily through home equity lines of credit and second mortgages. The purpose of The Truth in Lending Act is to promote the full disclosure about the terms and cost of consumer credit. The Truth in Lending Act also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high cost mortgages, The Truth in Lending Act does not regulate the charges that may be imposed for consumer credit. Rather, it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer’s dwelling. It also imposes limitations on certain home equity plans and mortgages.
* Good Faith Estimate - A good faith estimate must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and expenses related to the mortgage and must be provided within three business days of applying for a loan. These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges. A good faith estimate is a standard form which is intended to give a uniform list of costs for comparisons between different lenders or brokers. The form is only for the purpose of providing an estimate. The final closing costs may be different but it is a requirement of RESPA that a Good Faith Estimate of costs be provided to prospective borrowers.
* Reverse engineering – This is the act of altering a loan document after it has been executed. This is most often seen when mortgages are sold to investment pools consisting of thousands of loans. It has been found that operators of these pools will change terms and conditions to increase the loan’s value when it is put up for sale the secondary market. A typical change would be to raise the margin on an adjustable rate loan to enhance its value on the open market.
* Incorrect or confusing disclosures - The act of creating a disclosure document in such a language as to intentionally confuse the client in regards to the terms and conditions of the mortgage. This is often used to dress potential adjustable rate mortgages to appear as fixed rates using long winded and confusing language to describe to terms of the loan
* Inflated appraisals – These are commonly used to assist in the underwriting of the loan by appraisers affiliated with a lender or is trying to become an approved service provider of a lender. This action could result in overpaying for a home or approval of a loan for a property that isn’t worth as much as is needed for underwriting.
* Overstatement of income – Commonly found on no doc and stated income loans, this violation was encouraged to allow homeowners to get into homes they couldn’t actually afford. It was not unusual for the income to be changed on an application after the signing of the loan documents when actual earnings weren’t enough to get approval for loans which were out of reach for the borrower from the beginning.
* Misrepresentation - The revision of any terms of agreement on a contract without the borrower’s consent. Commonly found when loan terms are changed from what was presented in the original purchase agreement to terms, even through all the compliance disclosures, that are less favorable to the borrower. These changes were often covered up until the last minute before closing where the borrower then gets  a “take it or leave it” set of loan documents with changes which were never part of the original deal. Many homeowners went along with their loans despite the dishonestly because they had already paid for an appraisal, put up a deposit, and made plans move in to the home.

One of the many advantages of having an attorney see you through your loan modification is the ability to spot these predatory practices in the original mortgage. The Feldman Law Center has negotiated hundreds of attorney driven outcomes for their clients, including those which were originated using predatory practices. Call them today at (800) 527 8497.