NEWSFLASH!! The home mortgage meltdown continues in 2010! The environment for homeowners is going to get much worse before it gets better.

1. Foreclosure rates show no sign of slowing
2. Foreclosures are climbing the economic ladder, meaning higher priced homes are now coming under price pressure – even in the most sought-after locales.
3. Unemployment is rising and is expected to continue to rise throughout the year…with a leveling off period before beginning to decline.
4. Commercial property in the US is the next major industry to implode…followed by credit card companies.
5. Inflation can only be kept in control for so long – expect rising prices worldwide starting in 2010.
6. The gov’t cannot continue the bailouts – too expensive

In fact, there’s no reason to expect that there will be ANY upward pressure on home prices in the near future. Actually, a recent report predicts that a full 48% of homeowners will be “upside-down” on their home mortgages by the end of the year. We are likely to see continued price erosion in the coming months before the decline stops and we bottom-out.

The loan modification process is getting nastier. The backlog of cases is unmanageable, and growing every day. Banks can’t hire and train fast enough to keep up. Negotiators have as many as 300 files in their charge at one time! And the settlements are not adequate (witness the high percentage that are failing) and real, meaningful principal reductions seem like so much hype at this point.

More than ever, you need to use every tool available to save your home!

During the housing market run-up, lenders loosened their underwriting standards…some would say they abandoned them…to sell more and more loans to meet the seemingly insatiable Wall Street demand for mortgage-backed securities (MBS). Loan originators, many of whom had been hastily recruited, poorly trained and with no experience in any other market condition, cut corners to meet high sales quotas.

Lenders, brokers, appraisers, Realtors, and Home Inspectors responded with what has now been labeled predatory lending. Predatory Lending is unethical and some actions are illegal. Some violations have remedies that are inconsequential to most borrowers. After all, do you really care if Chase gets a nasty letter from a regulator, or if Wells Fargo gets cited for failure to provide triplicate copies of disclosures? No, what you care about is whether/not the error or omission or commission can now benefit you by improving your negotiating position in your loan workout.

Predatory Lending was common. Actually, experts estimate that MOST Adjustable-rate mortgages, taken during the 2003-2008 timeframe evidence violation of consumer protection laws. Whether through unintentional errors caused by haste or through greed and blatant disregard for the law, the violations may now provide the leverage you need to negotiate a good workout solution.

What are the most common violations? Here are the top 10!

1. Charging unnecessary fees
2. Charging excessive points (more than needed to buy-down rate), higher interest rates or high fees
3. Charging for private mortgage insurance when the borrower did not need it
4. Adding a single-premium life insurance policy (one that pays the mortgage if the borrower dies) and charging the premium in the loan – without prior knowledge and consent of the borrower.
5. Convincing borrowers to refinance so frequently that the fees charged “strip equity”
6. Failing to fully disclose and explain the terms of the loan
7. Using low “teaser” rates with adjustable-rate mortgages to convince borrowers to accept high-risk loans
8. Facilitating the misrepresentation of facts (income, home value, assets, etc.) on the loan application to enable the borrower to borrow more than would otherwise be the case.
9. Selling a higher rate loan when the borrower could have qualified for a lower rate
10. Targeting poor, uneducated, elderly or minority groups with unfair loan products and taking advantage of their vulnerability
11. Making loans that were “not in the borrowers’ best interest”
12. Promising refinancing in a short period of time – as a way to get borrowers to accept bad loan terms, etc.

If there is evidence that your lender acted inappropriately in selling you a high interest-rate or high fee loan, or by illegally “assisting” you in preparing the documents, or by approving a bad loan, you may have additional leverage to use in your loan modification or even in a lawsuit. What if I told you that your lender violated three laws in at least seven instances during your loan process? What if one of those violations was serious enough to warrant a lawsuit! Would that give you confidence going into negotiations for a deed-in-lieu or a modification? Oh, yes indeed.

Lenders and loan originators were pretty well versed in the law and how to skirt the fringes of the law. So, often your findings will not reveal egregious violations. Rather, the audit may uncover “pattern of inappropriate actions” that, taken altogether, show disregard for your rights and caused you damage. It is in the presentation of the “evidence” of violations that your case can be made and your purpose achieved.

I highly recommend you conduct a Forensic Loan Audit if:

1. your loan was purchased during the 2002-2008 timeframe
2. if your loan was sold to you through an independent broker (not an employee of the lender)
3. if your loan is an Adjustable-rate, negative-amortizing, “Pick-a-Pay” Option ARM, or interest-only loan payment type
4. if your loan is a sub-prime loan (more than three points higher in interest than the best loans available at the time) or an Alt-A loan
5. if your loan had/has pre-payment penalties
6. if your loan was a no-doc (stated-income) loan or low-doc (minimal documentation) loan
7. if you felt “hustled” or pressured or hurried to get your loan or sign the documents – you likely were a victim.
8. If you were promised that your loan could be re-financed after a very short period (1-3 years) as persuasion to get you to accept “less-than-optimal” terms and costs
9. If your loan payment, including principal, interest, tax, insurance and homeowner’s association fees (HOA) exceeds 40% of your gross household income
10. If you were forced to accept mandatory arbitration…to limit your legal rights.

Legal Action – Is it worth it?

The loan modification process is a negotiation and the more leverage you have the more likely it is that you will succeed. Proof of, or even evidence of lender violations of TILA, RESPA, HOEPA or any number of state or federal consumer protection laws can give you a significant edge.

Forensic Loan Audits are required to identify such violations. These are professional audits of the loan and the process used to qualify you and the property for the loan. These audits are extensive and can be expensive. They are performed by auditors, specially trained in spotting violations. The audits may be conducted by professional accounting firms who are specializing in this type of audit.

Three observations in 2010

I have become convinced that Forensic Loan Audits provide valuable leverage to homeowners in loan modifications. Time and again I’ve seen workouts concluded faster and better for borrowers who invest the time, energy and money into such audits.

Secondly, I have observed that, oftentimes, the power of the information is in its effective use. That is, even tepid results from an audit can be used effectively in negotiations. Not as a “bluff” but as a signal that you have the resolve and capacity to negotiate professionally.

Lastly, I’ve observed that often there are “low-hanging fruit” in the audit. Clear violations of a serious nature that can be readily identified. A deliberate, informed consumer can spot common violations without too much effort. Then, it’s simply a matter of finding a tru