Sample - Mortgage Analysis The Diigence Group

The Diligence Group, LLC Mortgage Transaction Analysis
Ronald H. White Linda J. White 1119 E. Buckeyewood Avenue Orange, CA 92865

Personal and Confidential
THE INFORMATION CONTAINED HEREIN IS CONSIDERED TO BE OF A PERSONAL AND CONFIDENTIAL NATURE. THIS INFORMATION IS INTENDED FOR THE EXCLUSIVE USE OF THE BORROWER(S) AND THEIR LEGAL REPRESENTATIVE
The Diligence Group, LLC 196 Orange Drive Boynton Beach, FL 33436 Phone: (305) 814-4831 diligencegroupllc@gmail.com
IMPORTANT DISCLAIMER
This report and its contents or attachments, have been created to provide accurate and authoritative information relevant to the subject matter presented or discussed; however, this publications or report contained herein has not been prepared by individuals licensed to practice law. This information and findings in this report are the opinions of a highly trained and experienced due diligence/compliance Underwriter. The Underwriter is NOT ENGAGED in rendering legal or other professional advice and this email or its contents ARE NOT a substitute for the advice of an attorney. If you require legal, or other expert advice, you should seek the services of competent attorney or other appropriate professional. The Underwriter makes no representations and warranties of any kind and assumes no liability whatsoever for any audit report findings, including incorrect findings arising from incomplete data, inaccurate data, improper classification of data, or erroneous interpretations of the data submitted for review. Use of the data contained in this report constitutes further agreement with these terms.
END IMPORTANT DISCLAIMER
Description and Logic of a Mortgage Analysis Report

The Mortgage analysis report was developed for use by an Attorney, and determines if the original lender who granted a borrower a mortgage loan, utilized sound, reasonable judgment and quantifiable industry standards during the loan approval process, and further, to determine if the loan complies with Federal and State disclosure requirements. The Federal National Mortgage Association, commonly known as Fannie Mae, was established as a stock-holder owned corporation that was chartered by Congress in 1968 as a government sponsored enterprise. The Federal National Mortgage Association was established in 1938 by amendments to the National Housing Act which was passed after the Great Depression. Fannie Maes purpose is to expand the secondary housing market by securitizing mortgages in the form of Mortgage Backed Securities, thereby expanding the availability of mortgage credit and home-ownership in the United States. Fannie Mae issued its first mortgage pass-through in 1981 and called the financial instrument it sold a mortgage backed security. To insure that the loans originally securitized by FNMA were sound, the corporation formulated implemented and enforced underwriting standards that carefully excluded all elements of excessive risk and predatory lending practices. FNMA established conservative underwriting standards for loans they financed to ensure that homebuyers could afford to repay their mortgages over the long term. The conventional underwriting standards established by Fannie Mae are considered to be the most responsible, time honored and tested underwriting standards in the world; and as they were implemented on a national scale, and were initially used by the majority of lenders who desired to sell their loans into the secondary market, they are the most widely respected and recognized underwriting standards in the mortgage industry. Fannie Maes underwriting standards have provided the mortgage industry with the underlying structure, documentation requirements, and methodologies that are employed by underwriters nationwide, and are considered to the primary source of conventional underwriting guidelines and methodologies currently in use in the United States. Even lenders whose lending standards are considered to be sub-prime employ underwriting and documentation guidelines required by Fannie Mae as their base.
The Role of the Underwriter

All credit (mortgage, consumer, commercial, or other) granted in the United States is based upon an individual Underwriters opinion. The Underwriters job is to provide a professional opinion regarding a particular loans level of risk and future performance, its adherence to the lenders guidelines, and its suitability to be added to a lenders loan portfolio or sold into the secondary market. Underwriters are provided underwriting guidelines and are taught underwriting methodologies to assist in the performance of their duties, but in the final analysis, an underwriting decision represents one persons professional opinion relative to the merits and defects of a particular loan request, and that persons interpretation of the lenders underwriting guidelines. Underwriting is not an exact science. Even those loans whose initial credit decision are underwritten via a computer program (Desktop Underwriting) require a human being to review and analyze the documentation supplied by the borrower and provide an independent professional assessment before the loan is closed. The Underwriter includes professional opinion in the audits that are performed. Her professional opinions are based upon her 32 years of experience performing underwriting, closing, due diligence and other related services for the mortgage industry. The Underwriter has performed these services upon an estimated 160,000 (one hundred sixty thousand) loans over the course of her 32 year career. When one analyzes 160,000 loans over time, one observes, and begins to understand basic facts about how the industry operates in a manner that cannot be gleaned from the study of mere guidelines. These observations are not without merit, particularly when they offer relevant insight into the guidelines and methodology the lender employed to grant a mortgage loan request.
Reading and Understanding the Report

The mortgage analysis report is segmented in the following manner: Summary Page The summary page represents a synopsis of all of the pertinent facts regarding the mortgage transaction, including the identification of the borrower(s) and the subject property; the terms to which the borrower is obligated to repay the debt, per the terms of the Note, and a synopsis of the lenders underwriting conclusions versus the underwriting conclusions of the Underwriter. Documents Submitted
The Documents submitted page represents an inventory of the mortgage and credit related documents that were provided for analysis. The date of the documents, the documents execution status and the documents level of criticality are indicated. It must be noted that the accuracy of the Exceptions and Findings contained in this report are wholly dependent upon the quality and quantity of documents that are submitted for review. Documents presented for audit that are not certified, true correct copies of the borrowers fully executed, notarized closing package, obtained directly from the Lender or Servicer of record may not accurately reflect the documents that are considered to be genuine, signed by the borrower at closing and which represent his/her contract with the Mortgagee. The Underwriter performed the following analysis in good faith, utilizing all documents provided by the borrower or interested third parties who represent the borrowers interests. The Underwriter will perform all audits based upon the assumption that the documents submitted for analysis are an accurate representation of the borrowers final, true, correct mortgage closing package or portion thereof, and that the parties who are presenting the documents for analysis are accepting responsibility for the documents authenticity. Exceptions Ratings A rating code has been assigned for each exception. The codes are defined as follows: Minor: These exceptions have a minor impact upon the overall quality of the loan. Exceptions in this category will not result in legal or monetary penalties. Major: These exceptions reflect issues that violate Federal or State regulatory requirements, or violate Conventional Underwriting standards. These issues may be eliminated upon the presentation of the required documentation. Material: These exceptions represent significant violations of Federal or State regulatory requirements, and/or Conventional Underwriting Standards that cannot be cleared via documentation. These exceptions may expose the lender to legal action or regulatory and monetary penalties. These ratings descriptions are consistent with the exception descriptions that are written in TILA and RESPA law.
Parties to the Transaction All of the private individuals and legal entities who rendered mortgage related services are listed, such as the Broker, Loan Officer, Lender, Title Agent, Title Insurer, Appraiser, Seller, Realtor, and the Borrower. The address of all individuals is provided when available. A review is performed to determine if any of the parties are affiliated or related, and to determine if the transaction was considered to be Arms Length.
Analysis Findings
Federal and State Compliance Findings An analysis of the loans compliance to Federal and State laws is performed. The loans adherence to Local laws is also performed when possible. Compliance analysis is dependent upon the receipt of the required disclosures that were required to be provided to the borrower by the Broker and/or Lender, Realtor, or any other individual or entity having an obligation to disclose. The documents are reviewed for compliance with TILA, RESPA, State, FNMA and OFAC regulations. A copy of the actual test results is included in the report. Mortgage Compliance The loans adherence to Fannie Mae Underwriting guidelines is analyzed to determine if the lender exercised sound, responsible prudent judgment when granting the subject borrowers request for mortgage credit, with a specific emphasis placed upon the borrowers demonstrated capacity to repay the debt in relation to the mortgage terms that were granted. An additional emphasis is placed upon the level of risk the transaction represented to the Lender and to the borrowers financial interests, and a determination is made regarding the Lenders performance of sound, responsible due diligence relative to the assessment of that risk. Loans that are considered to have layered risks represent loans that should have been subjected to the highest, most stringent underwriting standards, and in truth should, in all probability, not have been granted. Predatory Lending The loan terms reflected on the Note and Security instrument, the guidelines the lender used to approve the borrower for financing, and the appropriateness of the product the
borrower was granted in relation to his or her age, employment and financial situation is performed. The Underwriter attempts to determined, whenever possible, if the borrower was treated with bias, was targeted due to their age, race, gender, etc., was mislead or treated unethically, was granted usurious or unfavorable loan terms when more optimum terms were available and should have been granted, or if the borrower was provided a loan whose terms had the capacity to harm his or her financial interests. Final Conclusions The Underwriters final conclusions regarding the following are provided: The soundness of the lenders underwriting process, guidelines and methodology are quantified. The appropriateness of the mortgage product granted the borrower is quantified relative to the borrowers employment and financial situation. The defects and risks of the mortgage loan are quantified. The borrowers capacity to repay the debt and the loans default risk is quantified. Predatory aspects of the loans terms and mechanics are quantified. The loans potential to harm the borrowers financial interests is quantified. The Underwriter determines if the loan made financial sense to have been granted. The Underwriter determines if the loan provided a benefit to the borrower. The Underwriter determines if the loan should have been granted or declined.
Supporting Data
When appropriate and available, the Underwriter will include maps, graphs, charts, photos, document copies and any other data that is deemed necessary to further support the findings that are detailed in the Analysis Findings and the Case History / Optional Narrative.
References
To further aid the Attorney and/or reader of this audit, references have been included. These references include a Glossary of Terms, General References and when appropriate, the credentials of the Underwriter. General Legal References may also be provided to aid the borrowers legal representative to determine what applicable laws
BORROWER: RONALD H. WHITE Date of PRE ANALYSIS: 01/19/2012 SSN - Borrower XXX-XX-3029 SSN - Co-Borrower XXX-XX-1472 Audit Type MORTGAGE LOAN ANALYSIS LOAN INFORMATION AT CLOSING Property Address 1119 BUCKEYEWOOD AVENUE City, State, Zip Code ORANGE, CA 92865 Number of Units ONE Property Type SINGLE FAMILY Loan Purpose PURCHASE Loan Amount $ 467,920.00 Estimated Value $ 584,900.00 LTV / CLTV 80 / 80% Lender Empl / Inc. OWNER / HEALTH PRODUCTS / $7500 X 2= 15,000 Mo. Income /Review TRADER / 15,000 2ND LIEN 1st Lien Application Date TBD n/a Closing Date 5/15/2008 Funding Date TBD 1st Pay Date 07/010/2008 st 1 Rate Change Date N/A 1st Pay Change Date 7/1/2009 Maturity Date 6/1/2038 Loan Product PICK A PAY - Fixed Note Rate % 7.5500% Teaser Rate % 3.2500% Rate Floor % 7.5500% Rate Ceiling % 7.5500% Max. % Per Change 7.5000% Rate @ 1st Change N/A
CO-BORROWER: LINDA J. WHITE MIN NO: 1st Lien Originating Lender WACHOVIA MORTGAGE, FSB Original loan # 48574529 Servicer WELLS FARGO 1st Lien 1st Lien P&I Per Note / Max P&I 2,036.42 Max Est Pmnt Yr 5 2,529.84 Taxes / Insurance / HOA 746.00 Consumer Credit Debt $4,238.00 Lender Housing Ratio 2782 / 15000 = 18.54 Lender Back Debt Ratio 7020 / 15000 = 46.80 Actual Housing Ratio 2782 / 3050 = 91.12% Compliant Back Debt Ratio 7514 / 3050 = 246.36% Assets $107,158
Occupancy PRIMARY RESIDENCE
2ND LIEN n/a
2ND LIEN 2ND LIEN n/a
1st Lien Loan Term Months Loan Term in Years Amortization Term Prepayment Penalty Hard / Soft / Hybrid Index Margin Maximum Payment Rounding Factor Look Back Neg Amortization Pay Option Feature Interest Only Feature Late Charge % / # Days 360 30 NEG. AM. TO 125% OR 584,900
2% ON AMT PPD IN ANY MO. > $5000
2ND LIEN n/a
3 YEAR HARD NOT STATED NOT STATED NOT STATED NOT STATED 60 TO 90 DAYS PRIOR TO CHANGE NEG. AM. TO 125% OR 584,900 TERMS NOT DISCLOSED IN NOTE TERMS NOT DISCLOSED IN NOTE 5% / 15 Days
TERMS REFLECTED ON BORROWERS NOTE / FULLY DISCLOSED

Loan Type: Interest Rate: Wachovia Pick-a-Pay 30 year Fixed Rate Mortgage Product The borrower is required to pay 7.55% in interest as per the terms of the Note. $2,036.42 The monthly payment amount reflected on the note totaling $2,036.42 is NOT the actual 30 year, fully amortizing payment calculated at 7.55% as is usually stated on a borrowers Note, but the below market, minimum payment calculated at 3.25%. The subject Note does not alert the borrower that the $2,036.42 payment was calculated at a rate of 3.25%, not 7.550% nor does the Note advise the borrower that if they remit this payment, it will not be sufficient to pay all of the interest that is due, and that the borrowers mortgage balance will be increased by the amount of the interest payment shortage. Payment Options: Max Pay %: Not Stated on the Note Mortgage Payments can increase no more than 7.5% per year above the payments charged in the 12 months previously. 30 Years 10 Year Pay Option Feature 10 Year I/O Feature 20 Year Amortization Term Loan Terms Include Negative Amortization to 125% of original Balance or from $467,900 to $584,900 The prepayment penalty reflected on the note states: During the first 3 years of the loan, if I make one or more Prepayments that, in the aggregate, exceed $5000 in any calendar month, I must pay a prepayment charge equal to 2% of the amount such Prepayments exceed $5000 in that calendar month.
Mo. Payment Reflected on The Note:
Loan Term: Amortization:
Pre-Pay Penalty:
FACTS REGARDING THE MECHANICS OF THE NOTE THAT WERE NOT DISCLOSED ON THE DOCUMENT AND HAD TO BE UNCOVERED VIA ANALYSIS
IN ALL CASES, A NOTE, OR PROMISE TO REPAY REFLECTS THE REPAYMENT CONTRACT BETWEEN THE BORROWER AND THE FINANCIAL INSTITUTION. THE NOTE IS REQUIRED TO CLEARLY STATE ALL OF THE REPAYMENT TERMS BY WHICH THE BORROWER IS BOUND. THE SUBJECT NOTE IS CONSIDERED TO BE PURPOSELY DECEPTIVE AS IT DOES NOT DISCLOSE (UPON THE DOCUMENT) THAT THE MONTHLY PAYMENT REFLECTED THEREON, IN SECTION 3-B, PAGE 2, TOTALING $2,036.42, WAS CALCULATED AT A BELOW MARKET INTEREST RATE TOTALING 3.25%. THE PAYMENT IS NOT CALCULATED AT THE ACTUAL NOTE RATE OF 7.55%, WHICH IS THE INTEREST RATE AT WHICH THE BORROWER IS REQUIRED TO REPAY THE DEBT, AS SPECIFIED IN SECTION 2 OF THE NOTE/REPAYMENT CONTRACT. FURTHERMORE, THE MANNER IN WHICH THE NOTE RATE AND THE MONTHLY PAYMENT ARE PRESENTED ON THE DOCUMENT, MAKES IT APPEAR THAT THE MONTHLY PAYMENT WAS ACTUALLY CALCULATED USING THE 7.55% CONTRACT RATE. ADDITIONALLY THE NOTE DOES NOT PROVIDE A BREAKDOWN OF THE THREE PAYMENTS FROM WHICH THE BORROWER COULD SELECT, OR EVEN DESCRIBE WHAT THE PAYMENT OPTIONS WERE (PLEASE SEE PAYMENT OPTIONS DETAILED BELOW): BELOW MARKET PAYMENT PER THE NOTE CALCULATED USING BASE LOAN AMOUNT OF $467,920 @ 3.25% USING A 30 YEAR TERM: $2,036.42. INTEREST ONLY PAYMENT CALCULATED AT BASE LOAN AMOUNT OF $467,920, USING NOTE RATE OF 7.55%: $2,944 (THE MORTGAGE BALANCE AND INTEREST ONLY PAYMENT WILL CHANGE EACH MONTH, IF THE BORROWER CONSISTENTLY REMITS THE MINIMUM PAYMENT TOTALING $,2036.42. SEE BELOW FOR EXAMPLE OF NEW MONTHLY BALANCE CALCULATION). FULLY AMORTIZING PAYMENT CALCULATED AT $467,920 USING NOTE RATE OF 7.55% FOR AT 30 YEAR TERM: $3,287.80
1ST PAYMENT COMMENT: SHOULD THE BORROWER HAVE PAID THE BELOW MARKET MINIMUM PAYMENT STATED TO BE THE MONTHLY PAYMENT ON THE NOTE, AND NOT EVEN HAVE PAID THE INTEREST ONLY PAYMENT (ALSO NOT STATED ON THE NOTE), THE BORROWERS MORTGAGE BALANCE WOULD HAVE BEEN INCREASED BY $907.58 (THE AMOUNT OF THE INTEREST PAYMENT SHORTAGE) TO $468,827.58 UNBEKNOWNST TO THE BORROWER, WITH THE VERY FIRST PAYMENT. THE BORROWERS INTEREST ONLY PAYMENT FOR MONTH 2 WOULD BE RE-CALCULATED ON THE REVISED MORTGAGE BALANCE, NOT THE ORIGINAL BALANCE OF $467,920. THE EFFECT IS, ESSENTIALLY, THE SAME AS COMPOUNDING. ADDITIONALLY, AS THE BORROWERS PAYMENTS IN YEAR 2 WERE LIMITED TO A 7.5% CAP, ALL OF THE DIFFERED INTEREST THAT HAD TO BE PAID, BUT COULD NOT BE INCLUDED IN THE MONTHLY PAYMENT DUE TO THE PAYMENT CAP, WAS ALSO ADDED IN THE BORROWERS MORTGAGE AMOUNT, AT THE TIME OF RE-CASTING.
CALCULATION OF REVISED BALANCE FOR MONTH 1 OF LOAN: $467,920 X 7.55% $35,327.96 / 12 $2,944.00 $2,036.42 1) $907.58 + $467,920 = $35,327.96 = $2,944.00 (I/O PAYMENT MONTH 1) = $907.58 (INTEREST PAYMENT SHORTAGE MONTH = $468,827.58 (NEW LOAN BALANCE MONTH FOR 2)
CALCULATION OF I/O PAYMENT FOR MONTH 2 OF LOAN: $468,827.58 X 7.55% $35,396.48 / 12 $2,949.71 - $2,036.42 2) $468,827.58 + 913.29 = $35,396.48 = $2,949.71 (I/O PAYMENT MONTH 2) = $913.29 (INTEREST PAYMENT SHORTAGE MONTH = $469,740.87 (NEW LOAN BALANCE MONTH FOR 3)
No reasonable person, just by reading the subject Note, could understand that the monthly mortgage payment reflected thereon was actually calculated utilizing a below market minimum interest rate. To be able to determine that the monthly payment was anything but the actual monthly payment required to fully repay the debt at maturity, the borrower would have had to have sat at the closing table, armed with a mortgage calculator, and attempted to reverse engineer the mortgage payment in an effort to determine the actual interest rate that was used to establish the monthly payment. UNDERWRITER COMMENT: The underwriter reverse engineered the borrowers mortgage payment by, trial and error, testing various mortgage rates, balances and terms (due to the numerous variables that exist when one is dealing with a Pick-a-Pay loan) and after approximately an hour, the exact payment was calculated using the original loan balance and an interest rate of 3.25%. No reasonable person could deduce, just by reading the Note, that if the monthly payment reflected on the Note were remitted on a consistent basis, it would not be sufficient to repay the interest that was due, and that any interest shortage would be applied to the mortgage balance, and that all subsequent payments would be calculated on a exponentially increasing mortgage balance. The note is NOT a standard , Fannie Mae Note.
THE GOOD FAITH ESTIMATE / PRE-DISCLOSURE TO THE BORROWERS The borrowers provided a copy of the Good Faith Estimate of Closing Costs provided by the Lender. The document does not disclose the following information: 1. Loan Type the loan product is not described on the document as a Pick-aPayment mortgage loan. 2. Teaser Rate the 3.25% teaser rate (the rate the lender used to calculate the monthly mortgage payment reflected on the Note) is not reflected on the document. The interest rate disclosed on the document is 7.55%. 3. Payment Options the Good Faith Estimate does not disclose the borrowers payment options. 4. Monthly Payment the monthly payment is not disclosed on the document. Traditionally, a Good Faith Estimate discloses the Mortgage Product, the interest rate, the monthly payment and provides all information the borrower would need to understand about the mortgage product they were about to accept.
THE PURPOSE AND DESIGN OF THE PICK-A-PAY MORTGAGE LOAN PROGRAM The Pick-a-Pay mortgage loan product was designed to enable financially undeserving borrowers to have access to credit and properties that they could not possibly attain if their loan were qualified according to traditional underwriting standards. Originally, the program was designed to appeal to young professionals, such as recent medical school graduates, and professional athletes, as it enabled them to purchase a more expensive property when their earnings were temporarily low. The exploding income capacity of these select borrowers, due to the nature of their professions, enabled them keep pace with the aggressive mortgage payment increases, and as a result this small, select segment of the population fared well with the Pick-a-Pay mortgage program. Problems began when the Pick-A-Pay mortgage program was marketed to the mainstream population, to individuals whose incomes would not enjoy exponential, rapid increases. Due to the lax qualification standards and the temporary, below market payments that were offered, traditional borrowers were frequently encouraged to purchase homes that were significantly out of their price range. Borrowers ownership of these properties was frequently short lived, however, as the initial payments were low for only very short period of time, and were required to increase significantly in the loans second year if the mortgages were to be fully amortized at maturity. The income of traditional borrowers who have standard, nine-to-five jobs tends not to explode and increase rapidly in a short period of time, but tends to climb slowly and steadily over a course of years. Due to the slow and steady income appreciation traditional borrowers enjoy, the Pick-a-Pay mortgage loan program is wholly unsuitable to borrowers of
this type. The loan type is equally unsuitable to borrowers whose income is unstable or nontraditional. The only borrower for whom this product is appropriate is an individual whose income is guaranteed to increase dramatically in a very short period of time. Default on Pick-A-Pay loans granted to most borrowers tends to occur rather swiftly, due to the aggressive manner in which the borrowers mortgage balance is increased, in addition to the monthly re-casting of the borrowers interest-only payment. At the end of a 12 month period of time, a borrowers mortgage balance could have increased by tens of thousands of dollars, and their minimum monthly mortgage payment increased by a thousand dollars or more, to account for the interest that was not paid during the loans first year.
END UNDERWRITER ANALYSIS OF THE NOTE
COMPREHENSIVE TILA TEST RESULTS
Findings are based upon the following parameters: Base Loan Amount: Loan Purpose: Occupancy Type Closing Date Funding Date Lien Position Loan Type Note Rate Lenders Prepaid Finance Charges (TIL) Lenders Prepaid Finance Charges (Final HUD) Total Finance Charges (Lender Disclosed) Actual Finance Charges (TILA Test) APR per Lenders TIL APR per TILA Test $467,920 Purchase Primary Residence 05/15/2008 05/15/2008 First Lien Conventional 7.5010% $ 12,756.23 $ 12,433.01 $864,116.61 $864,116.61 7.7630 7.7960%
APR over disclosed by 0.0033% - No Issue. Finance Charges Finance Charges Understated by $323.22. No Issue. Fannie Mae 5% Points & Fees Test. Fees total 2.72615%. No Issue. Fannie Mae HOEPA APR. APR does not exceed > T-Bill + 8%. No Issue. HOEPA (Section 32) Analysis: Points & fees do not exceed 8%. No Issue. Law Points & Fees; Fees do not exceed 8% of the total loan amount. No Issue. END COMPREHENSIVE TILA TEST
PARTIES TO THIS TRANSACTION

Lender/Originator: Wachovia Mortgage, FSB 4101 Wiseman Boulevard Building #108 San Antonio, TX 78251 Mortgage Broker: Signature Capital Mortgage Khash Behnam, Owner Settlement Agent: Yorba Linda Escrow 18210 Yorba Linda Blvd., Ste 403 Yorba Linda, CA 92886 Title Insurer: Chicago Title Real Estate Agent: Steven Gables Real Estate Current Mortgage Servicer: Estimated to be Wells Fargo who purchase Wachovia Mortgage in December of 2008 Seller: Robert E. Madore 1442 E. Lincoln Avenue, #288 Orange, CA 92805 Borrower: Ronald H. White Linda J. White 1119 E. Buckeyewood Avenue Orange, CA 92885
END OF PARTIES TO THE TRANSACTION
UNDERWRITER COMMENTARY REGARDING THE ORIGINATION OF THE SUBJECT MORTGAGE LOAN The transaction presented for analysis represents the purchase of a primary residence by the subject borrowers Ronald H. White and Linda J. White. According to the primary borrower, he and his wife consider themselves to be entrepreneurs who over the course of their 43 years of life together as a married couple, have been engaged in multiple business ventures, sometimes many at the same time. According to the borrowers there have been times when they enjoyed earnings that were in the multiple six-figures, and times when they suffered multiple six figure losses, sometimes for several years at a stretch. According to the primary borrower, his Title could change from year to year, depending upon which business venture he was engaged in at the time. The borrowers have owned and sold multiple restaurants, mom-and-pop stores, sold health products, engaged in over the counter mass marketing, engaged in options market trading, and have taken advantage of many other business opportunities. Due to the borrowers rather unconventional means of earning a living, they have always had to seek out financial funding from persons who were not traditional bankers, but business entrepreneurs such as themselves. Their financial picture has always been considered to be somewhat of a roller-coaster and they have never really settled on any one business enterprise upon which to concentrate, and frequently changed businesses as opportunities presented themselves. According to the borrowers they were introduced initially, to a mortgage broker who was a friend of their son. For some reason, without explanation, the borrowers mortgage case was referred to another mortgage broker, Khash Behnam, the owner of Signature Capital Mortgage. According to the borrowers, they provided their income documents and a full explanation of their multiple business ventures and current financial circumstances to Khash. They explained that they were currently experiencing an income dry spell, but had weathered such hardships before and were confident that they would emerge from this current peccadillo without a problem. Khash reviewed the borrowers tax returns and immediately advised the borrowers that he would need to seek financing from a lender who offered programs that did not investigate a borrowers income. According to the primary borrower, he and his wife were seeking a fixed rate loan. The loan officer presented an alternate loan type, a Pick-A-Pay product to them because, according to him, based upon their tax returns, the borrowers could not be qualified to receive a traditional fixed rate mortgage product. Also, the loan officer told them that he could not offer their tax returns to a mortgage underwriter as the loan would most assuredly be declined for insufficient, unstable income. It must be noted that the Mortgage Broker seemed only to be concerned with getting the borrowers approved, and not with their ability to
actually repay the debt or retain the home they were about to purchase, once the loan was granted. The loan officers explanation of the Pick-a-Payment mortgage program was wholly inadequate as were the disclosures they were provided. The borrowers were under the impression that their proposed mortgage loans terms were benign, and that any differed interest, or interest shortage that accrued was being added up simply, not actually increasing their mortgage balance on a monthly basis. They mistakenly understood that they might be required to pay a balloon payment, at the loans maturity, but never expected the mortgage balance and payments would increase as per Compounding. The borrowers were unprepared for the $1000 per month mortgage payment increase they experienced in the loans 2nd year, and soon discovered that the mortgage payments were completely unsupportable. The borrowers contacted the mortgage lender & servicer and attempted to modify their mortgage once the loan lapsed into default. To date, their attempts have not been successful. The borrowers invested 20% of their lifes savings, as a down payment, into the subject property when it closed in 2008, and paid over $16,000 in closing costs ( a total investment of $130,837 paid at closing). They paid approximately $24,504 in the year 2008, in mortgage payments, and more in subsequent years. The borrowers state that their mortgage broker did not accurately represent the mortgage program to them, and that had they understood that the payments and mortgage balance could increase they would never have consummated the purchase transaction. They had no understanding that the mortgage payment reflected on the Note was not the actual, fully amortizing payment, but a below market payment that appeared to have been represented in a very specific manner on the Note, that would tend to encourage them to erroneously remit the below-market payment that would increase the mortgage balance, and ultimately the lenders profits overall. The borrowers state that had they not taken out the subject mortgage, the approximate $155,341 they invested in the subject property could have been invested in their business or in several properties they owned that were in need of repair. The subject mortgage loan is currently in foreclosure and has been at the brink of being sold multiple times. The borrowers not only stand to lose all of the money they invested in the subject property via down-payment, closing costs and payments remitted, but have had to retain counsel to defend themselves against the foreclosure action. In addition to the financial loss, and the damage done to their credit, the trauma of attempting to save their home from foreclosure for such an extended period of time, has caused both the borrower and co-borrower to suffer stress related illness as now the borrowers, who prior to this experience were reasonably healthy, are both being treated for hypertension, heart disease and depression. END UNDERWRITERS COMMENTARY
ISSUES AND EXCEPTIONS NOTED 1 ST LIEN ALL LOANS UNDERWRITTEN TO FANNIE MAE UNDERWRITING STANDARDS NO.
EXCEPTION
COMMENTS REGARDING POSSIBLE VIOLATION
EXCEPTION RATING 3 Material
B3-1-01 Assessment of Risk
The lender does not appear to have adequately performed the minimum duties to assess the subject loans risk. Per Fannie Mae Underwriting guidelines, lenders are fully responsible for: Evaluating the default risk of the subject loan. Proper and thorough review of the credit report to determine if the data contained therein is complete, accurate, and that the borrower had the ability to repay the debts listed. Assessing the adequacy of the property used to act as collateral for the mortgage loan requested. The lender does not appear to have properly considered the following risk factors: Equity and LTV Loan Type / Amortization Type Total Expense Ratio Sufficiency and Continuance of Income
B3-3.1 General Income Assessment
The borrowers income as reflected on their final 1003, loan application, is not consistent with the income reflected on their 1040 income tax returns and appears to have been over-stated to ensure loan approval: Lenders income per loan application: $15,000 per month Actual Income calculated per P&Ls: $3050 per month The borrowers P&Ls were used to calculate their actual monthly income for review purposes. The Underwriter is of the opinion that the P&Ls represent a more truthful picture of their actual repayment capacity when the loan was originated, than their tax returns. The tax returns reflect income earned in the past; the income reflected on the P&Ls was immediate and more exactly disclosed their actual cash-flow and expenses at origination. It must also be understood that the economy was undergoing a significant amount of flux, in 2008, that was causing Wall Street and the economy as a whole, to suffer sharp declines as the Financial Markets began their implosion. Prior years income for self employed borrowers, could not be relied upon, as the conditions under which those earnings were generated no longer existed, or was in the process of being annihilated. During that particular time of instability, Underwriters relied heavily on P&Ls for self employed borrowers, rather than tax returns, to establish a borrowers actual repayment capacity. Additionally, The borrowers tax returns reflected significant carryover losses for which no documentation was provided. As the borrowers earned income from multiple sources and income streams, and no K-1s were provided, the Underwriter could not ascertain the source or reason
3 - Material
for the losses, if the losses were paper losses or actual losses, and if the reason the losses were sustained had passed when the loan was originated. According to the borrower, he and his wifes income sustained a significant downturn in late 2007/2008 due to the conditions that prevailed in the markets and economy. The borrower stated that his actual average earnings for 2008, totaled approximately $3000 per month, which is consistent with the data stated on his P&L statement. The borrower advised that he fully expected his income to improve, in 2008, due to several business ventures upon which he was working. As a result, the $15,000 reflected on his loan application was what he conservatively anticipated he and his wife would gross if these business ventures panned out. Unfortunately for the borrowers, the business ventures did not pan out, but collapsed entirely just after the loan closed, and they were left to pay the mortgage and all other debts from their own resources. It must be noted that lenders must fully quantify a borrowers repayment capacity and must rely upon documentation to evidence a borrowers actual capacity to repay a debt. Lenders do not have the luxury of hoping a borrower will eventually have the ability to repay a debt at some future date; the lender must determine the borrowers actual capacity to repay the debt, at origination. Borrowers whose financial data reflects insufficient income or a downturn trend in earnings are considered to be poor candidates for mortgage financing, whose loan requests should be declined. 3 B3-3.1-02 Verification of Employment The lender does not appear to have verified the borrowers length of employment or: The lender does not appear to have verified two full years of self employment for the subject borrowers. The borrowers earned income from multiple income streams and a variety of business enterprises. The loan application does not accurately reflect the extent of the borrowers business operations and enterprises, and is considered to provide a wholly inaccurate and incomplete picture of their financial situation at origination. The lender does not appear to have fully reviewed the borrowers credit report or performed any sort of independent on-line inquiry that was readily available at the time, to fully research the borrowers business or business reputation. The lender, instead, appears to have relied, solely on the data provided by the Mortgage Broker, Mr. Khash Behnam, without performing any independent investigation on their own. According to the borrowers statement, the mortgage broker submitted their loan to Wachovia, because, Wachovia doesnt care. Their lack of due diligence tends to give credence to this statement. The lender does not appear to have verified the borrowers term of self employment or the length of time they had owned or operated their multiple businesses, or the strength of these business and their capacity
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to support the repayment of the mortgage debt. The lender was required to obtain: 1. 2. 3. Verification of the existence of the borrowers business within 30 calendar days of the Note, from a CPA, Regulatory Agency or Licensing Bureau. By verifying the phone listing and address of the borrowers business from the telephone book, internet or directory assistance. The lender does not appear to have verified the borrowers current employment status, for wage earning borrowers, within 10 business days of the date of the Note. 3 - Material
B3-3.2-01 Salary, Commission and Other Sources of Income
The lender does not appear to have verified that the borrowers income conforms to Fannie Mae Underwriting Requirements: Length of Employment Stability and Predictability of Income Adequacy of Income Continuity of Income
The income documentation level of the subject loan appears to be: Stated The lender does not appear to have obtained the borrowers income documentation or verified his actual capacity to repay the debt. The lender appears to have granted the subject mortgage loan based upon factors that did not include repayment capacity, and upon the stated monthly earnings provided on the loan application by the Mortgage Broker. Granting a loan without considering and verifying repayment capacity violates Fannie Mae Underwriting Guidelines, HR 4173-761, Fair Housing, HOEPA and current RESPA guidelines. 5 B3.3 Underwriting Factors and Documentatio n for Self Employed Borrowers The borrower is self employed. The lender does not appear to have correctly underwritten or documented the borrowers self employment and self employment income: Length of Self Employment Verification of Income Analysis of the borrowers Personal income Analysis of the Borrowers Business income. 3 Material
The following factors do not appear to have been properly Considered: Stability of the borrowers self employment income. Location and nature of the borrowers business. Demand for the product or service offered by the borrowers business. Financial Strength of the business.
Per the borrowers statements and income documentation, the couple earned income from a variety of sources that changed frequently from
year to year. Their income was frequently unstable and subject to severe upward and downward swings. The unsteady and insecure nature of the borrowers earnings capacity made it critical for the lender to fully underwrite their personal and business financial health and determine the loans level of risk, and to establish if they were eligible for financing of any type, much less a Pick-a-Pay product. It would appear that the lender performed no independent due diligence, and apparently did not perform any thorough investigation into the borrowers multiple business ventures, but granted nearly a half a million dollars in mortgage credit based upon stated earnings and assets supplied by the Mortgage Broker, a person who stood to gain by the closure of the subject mortgage transaction. 6 B3-6-02 Income to Debt Ratios Maximum benchmark total debt to income ratio is 36%. Benchmark can be exceeded up to a maximum of 45% with strong compensating factors. The Borrowers Income to debt ratios exceed the maximum tolerance of 28 / 36 % permitted per Fannie Mae Underwriting Guidelines. No strong compensating factors were noted: Lenders Housing Ratio: 2782 / 15000 = 18.54 Lenders Back Debt Ratio: 7020 / 15000 = 46.80 Actual Housing Ratio: 2782 / 3050 = 91.12% Actual Back Debt Ratio: 7514 / 3050 = 246.36% Need loan application or credit report to calculate back debt ratio. Despite lack of data, the borrowers housing ratio reflects the borrowers monthly income was less than the monthly mortgage payment. The borrower had no capacity to repay the debt when the loan was originated. The income-to-debt ratios were calculated utilizing the income and debt figures reflected on the Lenders final 1003, and are the same figures the lender appears to have used to approve the borrower for financing. Loans whose ratios exceed the maximum 28 / 36% maximum tolerance present a higher than average risk of entering into default. The lender appears to have disregarded this borrowers demonstrated inability to repay the subject mortgage debt. Front Debt Ratio: Also known as the total monthly housing ratio. The borrowers housing ratio is calculated by adding the monthly mortgage payment reflected on the Note, in addition to the monthly tax, insurance, PMI, HOA dues and any other financing that must be paid on the borrowers primary residence. The sum of these figures is divided by the borrowers gross monthly income figure. The ratio represents the percentage of the borrowers gross monthly income that must be devoted to the repayment of the housing debt exclusively.
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Back Debt Ratio: Also known as the Total Monthly Back Debt Ratio. The borrowers total back debt ratio is calculated by adding the borrowers total monthly housing payment to all other monthly consumer debts the borrower is obligated to pay, including auto loans, credit card payments, and mortgage loans taken out on other properties owned. This figure is divided by the borrowers gross monthly income. The Back Debt Ratio represents the percentage of the borrowers total monthly gross income that must be devoted to repayment of to the housing debt, in addition to all other monthly consumer related and mortgage debts the borrower is obligated to pay. Note: Federal Income Taxes, Social Security and Medicare payments are calculated and deducted from an individuals gross wage. Employers may also deduct health insurance premiums and other benefit related expenses from the borrowers wage. The borrowers final Net take home pay (the remainder of their pay the borrower actually receives and uses to pay living expenses) is usually 30% - 50% less than their Gross income. The qualification of the borrowers assets does not appear to meet the following criteria (1-4 Unit Residence): Source of Earnest Money Deposit. Sufficiency of Liquid Financial Reserves. Acceptable Sources of Reserves (or sources are considered to be unacceptable). Gift funds or Seller Concessions Exceed Maximum tolerances 80% or less; 100% must come from borrowers own funds. 80% LTV - 100% gift permitted. 30% equity or more 2 months PITI reserves are required. Less than 30% equity 6 months PITI is required.
B3-4.1-01 Minimum Reserve Requirements General Asset Assessment
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1. 2.
The documentation level of the subject loan was stated. The lender does not appear to have verified the borrowers sufficiency of cash to close or its source. The lender also does not appear to have verified if the borrowers had adequate reserves post close, to act as a cushion in the event of a financial emergency. 8 B3-6-01 Liability Assessment The lender does not appear to have properly included all of the borrowers liabilities and financial obligations during the qualification process. The borrowers mortgage for the prior residence they owned was not fully included in the income-to-debt calculations. The loan application states that the property was rented, and the lender used the rule of 75 to determine the borrowers net income loss. Only a portion of the mortgage payment was included in the DTI calculations, not the full amount of the debt. Per the borrower, the property was not rented out when the subject mortgage was originated, but was vacant and he and the co-borrower were earning no income from the property.
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Predatory Lending Violation Civil Rights of
The borrower may have been singled out for predatory financing. Singled out for predatory financing by the Broker, Lender, Loan Officer. The borrower appears to have been denied adequate access to basic loan information that was required for the borrower to make an intelligent, well informed decision with regard to the type of mortgage financing that was offered or available. Was denied the ability to apply for a loan whose terms were superior or more advantageous than the subject loan granted to the borrower. Was granted a loan whose terms and mechanics were actively misrepresented, or not adequately explained by the Broker, Loan Officer, Lender or other interested party. Was subjected to bait and switch tactics and provided an inferior loan type or terms, when the borrower had applied for, and was expecting to receive a superior mortgage product. The amendment to the borrowers loan type appears to have been arbitrarily performed, and the borrower does not appear to have been given notice, in advance of the closing, of the loan product change. Was knowingly granted a loan that the borrower could not repay due to insufficient income. Appear to have been subjected to steering tactics and were placed in a harmful, predatory mortgage loan the loan officer knew they could not afford to repay.
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10
Predatory Lending
The loan product granted the borrower does not appear to be appropriate for his/her AGE, EMPLOYMENT OR INCOME SITUATION. The loan interest rate and payments have the capacity to increase beyond the borrowers ability to repay. The borrowers were granted a Pay Option, Fixed Rate loan. The loan terms provided multiple payment options. These payment options were not disclosed or detailed on the Note. The payment options ranged between a minimum, below market payment that was calculated at an interest rate that was 4.3% below the contract/note rate they were actually required to repay, an interest only payment, and a fully amortizing payment. The borrowers were not qualified using the fully amortizing payment, or the interest-only payment, but the initial, below market payment that would be in effect for only one year, and be required to increase in year two, when the mortgage payments were re-cast. The borrowers income was unstable and was actually in decline when the mortgage loan was originated. Offering such a mortgage product to borrowers who were financially stressed, is tantamount to granting a loan that is a foreclosure waiting to happen. As the mortgage product the borrowers were granted was wholly inappropriate to their employment and income situation, the borrowers currently ARE in foreclosure and stand to be evicted from the subject
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property and lose 100% of their financial investment, in addition to the legal fees they have incurred attempting to fight the foreclosure action. The payment options that the borrowers were granted are as follows:
BELOW MARKET PAYMENT PER THE NOTE CALCULATED USING BASE LOAN AMOUNT OF $467,920 @ 3.25% USING A 30 YEAR TERM: $2,036.42. INTEREST ONLY PAYMENT CALCULATED AT BASE LOAN AMOUNT OF $467,920, USING NOTE RATE OF 7.55%: $2,944 (THE MORTGAGE BALANCE AND INTEREST ONLY PAYMENT WILL CHANGE EACH MONTH, IF THE BORROWER CONSISTENTLY REMITS THE MINIMUM PAYMENT TOTALING $,2036.42. SEE BELOW FOR EXAMPLE OF NEW MONTHLY BALANCE CALCULATION). FULLY AMORTIZING PAYMENT CALCULATED AT $467,920 USING NOTE RATE OF 7.55% FOR AT 30 YEAR TERM: $3,287.80
The nature of the loan product WHICH WAS DESIGNED TO MEET THE NEEDS OF A VERY SMALL PERCENTAGE OF HIGHLY SELECT, PREMIUM BORROWERS, places the subject borrower at increased and unnecessary risk of entering into default, and losing any investment made in this major financial asset. The terms of the subject mortgage loan was intended to service the needs of individuals whose industry virtually guarantees them substantial earnings increases from year, to year, such as recent medical school graduates or professional athletes. The product was never intended to be made available to all borrowers universally. The inappropriate sale of this loan product to this borrower is considered to be harmful to the borrowers financial interests, and should never have been granted by the lender under any circumstance. 11
Predatory Lending
The subject transaction does not appear to benefit the borrower. Despite the closure of the subject transaction, the borrowers capacity to actually retain the subject property was never a realistic possibility, due to insufficient income. As a result any investment the borrower made, via the mortgage payments that were paid on a monthly basis, or any down payment that was made, was sure to be lost. A loan that is granted by a lender without regard to the benefit the loan represents to the borrower meets the current definition of a predatory loan that should not have been originated by the lender.
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12
Mortgage Compliance
The loan application appears to be incomplete and is considered to be non-compliant. One cannot accurately determine the loans level of risk based upon an examination of the loan application solely. The loan application is required to be the most accurate document located in a borrowers credit file. The loan terms, property information, employment data, income data, assets, and liabilities should have been corrected as the loan was processed and underwritten, so that any person, who desired to determine the loans level of viability and risk, would be
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required to do nothing more than perform an examination of that document, exclusively, and no other data in the loan file. In this instance, the following sections of the loan application are incomplete, contain errors or are blank: Employment Income Assets Liabilities
No reasonable person, just by performing a review of the borrowers loan application, can determine the loans actual level of risk. 13 Predatory Lending The Lender appears to have qualified the borrower utilizing the lowest potential mortgage payment, not the fully indexed, fully amortizing payment as required per Fannie Mae Guidelines. The borrowers monthly payment has the ability to increase to: $4729.81 should the loan balance increase by 125%. The borrowers capacity to repay the mortgage debt will be severely compromised once the loan becomes fully amortizing and/or indexed and represents a high default risk. 14
Mort-gage Compliance Fannie Mae B3-1-01 Comprehensive Risk Assessment Primary Contributory Risk Assessment High Comprehensive Risk.
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The subject loan appears to have significant, multiple risk factors, i.e., Layered Risk. 1. The subject income documentation level of the loan appears to be Stated. The lender does not appear to have investigated the borrowers multiple business ventures or income, or their capacity to repay the debt. The Borrowers are not only self employed but are engaged in multiple business ventures that can change from year to year. The borrowers annual earnings are considered to be unstable and were actually in decline when the loan was originated. The borrowers monthly income appears to have been over-stated on the loan application in an effort to guarantee loan approval. The monthly income reflected on the loan application totals $15,000 per month. The borrowers actual monthly income totaled $3050 when the loan was originated. The borrowers income does not appear to be sufficient to repay the subject mortgage debt. The loan application does not accurately reflect all of the liabilities that the borrowers were required to repay. The lender did not include the mortgage payment for the borrowers prior residence. The lender gave the borrowers credit for receipt of rental income on the home. According to the borrowers the home was vacant and they received no monthly income what would permit the payments to be offset. The borrowers back debt ratio, calculated to be approximately 246.36%, exceeds the maximum 36% by 210.36%.
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2. 3. 4.
5. 6.
7.
8.
The loan does not appear to benefit the borrowers interests.
Borrowers who have multiple risk factors, also known as Layered Risk, have a high probability of entering into default. The multiple risk factors inherent in this borrowers loan profile reflect that this borrower was not a candidate for mortgage financing, whose request should have been declined. 15 Predatory Lending The loan appears to meet the current definition of a predatory loan as defined in 12 C.F.R. Part 226, Regulation Z; Docket No. R-1366. 1. The subject income documentation level of the loan appears to be Stated. The lender does not appear to have investigated the borrowers multiple business ventures or income, or their capacity to repay the debt. 2. The Borrowers are not only self employed but are engaged in multiple business ventures that can change from year to year. 3. The borrowers annual earnings are considered to be unstable and were actually in decline when the loan was originated. 4. The borrowers monthly income appears to have been over-stated on the loan application in an effort to guarantee loan approval. The monthly income reflected on the loan application totals $15,000 per month. The borrowers actual monthly income totaled $3050 when the loan was originated. 5. The borrowers income does not appear to be sufficient to repay the subject mortgage debt. 6. The loan application does not accurately reflect all of the liabilities that the borrowers were required to repay. The lender did not include the mortgage payment for the borrowers prior residence. The lender gave the borrowers credit for receipt of rental income on the home. According to the borrowers the home was vacant and they received no monthly income what would permit the payments to be offset. 7. The borrowers back debt ratio, calculated to be approximately 246.36%, exceeds the maximum 36% by 210.36%. 8. The loan does not appear to benefit the borrowers interests. 9. The Good Faith Estimate did not accurately disclose the product type, or indicate the amount of the teaser rate, which was 3.25%. 10. The Contract/Note did not disclose that the monthly payment reflected thereon was calculated at a teaser rate totaling 3.25%, not at 7.55% which is the actual rate at which repayment of the mortgage loan must be calculated. 11. The Note does not disclose that if the payment reflected on the Note were remitted, the borrower would not have paid all of the interest that was due, and the interest payment shortage would have been immediately added to the borrowers mortgage balance. The balance increase would have occurred with the very first payment remitted, if the borrower paid the below market payment reflected on the Note. 12. The terms of the payment options were not disclosed on the Note, in any respect. The borrower had the ability to select a
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different payment option each month, however the repayment options were not described, nor were their potential consequences detailed on the Note. The loan granted to this borrower maximizes the potential profits the lender/investor can garner, while actively harming the borrowers financial interests. 16 Unfair and Deceptive Trade Practices The Loan Officer, Mortgage Broker, Realtor or Lender appears to have engaged in business practices which appear to have been designed to deceive and/or defraud. Per the borrowers statements, they fully discussed the nature of their business and their income with the Mortgage Broker when the loan was originated. They actually provided the Mortgage Broker with copies of their tax returns and asset documents. The loan officer stated that the income losses reflected on their tax returns would prove extremely problematic and, he felt, that in all probability, any loan request that was made where income had to be evidenced would be declined. The mortgage broker opted to place the borrowers in a stated income loan and purposely placed their loan request with a lender, who in his words didnt care. The borrowers income was actually in decline when the loan was granted and their actually monthly earnings averaged about $3050 per month, not $15,000 as was stated by the Mortgage Broker. The borrowers who were used to their roller coaster income streams were not personally concerned about their ability to repay the debt, but really had no way to guarantee that their financial fortunes would improve they simply had faith that improvement would occur. The mortgage broker overstated the borrowers income on the loan application, to ensure that the loan would be granted, knowing that the Lender would not perform any due diligence to verify if the data he supplied was accurate. Additionally, the mortgage broker does not appear to have accurately represented the mortgage loan he was proposing they accept. The borrowers were lead to believe that the mortgage they were about to commit themselves to repay, was wholly benign and that any unpaid interest payments would be tallied up at the loans maturity and they would be required to pay a balloon payment. The borrowers were not informed that the payment reflected on the Note was calculated using a below market interest rate, and that if that payment were remitted, the loan balance would increase with the very first payment. The borrowers appear to have been subjected to potential steering tactics as they were knowingly steered to a mortgage loan that the loan officer knew they could not afford. The loan officer well knew and understood the mechanics of the mortgage product he was selling and understood that the mortgage payment he was suggesting they pay, was not sufficient to repay even the interest that was due on the loan. The loan officer understood that the loan was a potential ticking time-bomb
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whose fuse was short. The loan officer, by his comments to the borrowers, seems to have understood that they were being granted a loan that they could not afford to repay, and simply enabled the borrowers to purchase a home that he knew they would eventually lose. The loan officer received $4,679 in Yield Spread compensation from the lender, for selling the subject mortgage loan to the borrowers. Due to the loans capacity for negative amortization, the lender stood to gain rather significantly. The loan officer, throughout the mortgage origination process, appears to have been engaged in sales and origination tactics that were designed to conceal. The lender also appears to have been engaged in concealment tactics as the Note does not accurately describe the mortgages actual terms to the borrower. The borrowers could not read the Note, and understand the actual mechanics of the mortgage loan, or make an intelligent decision regarding the financial instrument whose repayment they were about to commit themselves. As a result of these practices, the borrowers financial interests have been significantly harmed. 17 H.R. 4173-761 Dodd/Frank Financial Reform Bill Title XIV Mortgage Reform and Anti-Predatory Lending Act Sec. 1402 & 1403 Subtitle A. Residential Mortgage Loan Origination Standards 129B.Residential Mortgage Loan Origination (b) Duty of Care (A) Be qualified and, when required, registered and licensed as a mortgage originator in accordance with the applicable state or Federal Law including the Secure and Fair Enforcement for Mortgage Licensing Act of 2008; and (B) include on all loan documents any unique identifier of the mortgage originator provided by the Nationwide Mortgage Licensing System and Registry. SEC. 1403.PROHEBITIOIN ON STEERING INCENTIVES Section 129B of the Truth in lending act (as added by section 1402(a) is amended by inserting after subsection (b) the following new subsection: (C) PROHIBITION ON STEERING INCENTIVES.(1) IN GENERAL. For any residential mortgage loan, no mortgage originator shall receive from any person, and no person shall pay to a mortgage originator, directly or indirectly, compensation that varies based on the terms of the loan (other than the amount of the principal). (3) REGULATIONS. The Board shall prescribe regulations to prohibit (A) mortgage originators from steering any consumer to a residential mortgage loan that(i) the consumer lacks a reasonable ability to repay (in accordance with regulations prescribed under section 129C(a)): or (ii) has predatory characteristics or effects (such as equity stripping, excessive fees or abusive terms); (B) mortgage originators from steering any consumer from a residential mortgage loan for which the consumer is qualified (as defined in section 129C(b) (2)) to a residential mortgage loan that is not a qualified mortgage; ( C ) abusive or unfair lending practices that promote disparities among consumers of equal creditworthiness but of different race, ethnicity, 3 Material
gender or age; and (D) mortgage originators from(i) mischaracterizing the credit history of a consumer or the residential mortgage loans available to a consumer; (ii) mischaracterizing or suborning the mischaracterization of the appraised value of the property securing the extension of credit; or (iii) if unable to suggest, offer, or recommend to a consumer a loan that is not more (less) expensive, a loan for which the consumer qualified, discouraging a consumer from seeking a residential mortgage loan secured by a consumers principal dwelling from another mortgage loan originator. (4) RULES OF CONSTRUCTION. No provision of this subsection shall be construed as (A) Permitting any yield spread premium or any other similar compensation that would, for any residential mortgage loan, permit the total amount of direct and indirect compensation from all sources permitted to a mortgage originator to vary based upon the terms of the loan (other than the amount of the principal); (B) limiting or affecting the amount of compensation received by a creditor upon the sale of a consummated loan to a subsequent purchaser; ( C ) restricting a consumers ability to finance, at the option of the consumer, including through principal or rate, any origination fees, or costs permitted under this subjection, or the mortgage originators right to receive such fees or costs (including compensation) from an y person, subject to paragraph (2) (B), so long as such fees or costs do not vary based on the terms of the loan (other than the amount of the principal) or the consumers decision about whether to finance such fees or costs; or (D) prohibiting incentive payments to a mortgage originator based on the number of residential mortgage loans originated within a specified period of time.. 18 H.R. 4173-761 Dodd/Frank Financial Reform Bill Title XIV Mortgage Reform and Anti-Predatory Lending Act Sec. 1411 Minimum Standards For Mortgages SEC. 1411. ABILITY TO REPAY. 129.C Minimum standards for residential mortgage loans (a) Ability to Repay. (1) IN GENERAL. In accordance with regulations prescribed by the Board, no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance (including mortgage guarantee insurance), and assessments. (2) MULTIPLE LOANS. If the creditor knows, or has reason to know that 1 or more residential mortgage loans secured by the same dwelling will be made to the same consumer, the creditor shall make a reasonable and good faith determination, based upon verified and documented information, that the consumer has a reasonable ability to repay the combined payments of all loans on the same dwelling according to the terms of those loans and all applicable taxes, insurance (Including mortgage guarantee insurance), and assessments. (3) BASIS FOR DETERMINATION. A determination under this subsection of a consumers ability to repay a residential mortgage loan shall include consideration of the consumers credit history, current income, expected income the consumer is reasonably assured of 3 - Material
receiving, current obligations, debt-to-income ratio or the residual income the consumer will have after paying all non-mortgage debt and mortgage related obligations, employment status and other financial resources other than the consumers equity in the dwelling or real property that secures repayment of the loan. A creditor shall determine the ability of the consumer to repay using a payment schedule that fully amortizes t he loan of the the term of the loan. (4) INCOME VERIFICATION. A creditor making a residential mortgage loan shall verify amounts of income or assets that such creditor relies on to determine repayment ability, including expected income or assets, by reviewing the consumers Internal Revenue Service Form W-2, tax returns, payroll receipts, financial institution records, or other thirdparty documents that provide reasonably reliable evidence of the consumers income or assets. In order to safeguard against fraudulent reporting, any consideration of a consumers income history in making a determination under this subsection shall include the verification of such income but the use of (A) Internal Revenue Service transcripts of tax returns; or (B) a method that quickly and effectively verifies income documentation by a third party subject to rules prescribed by the Board. (6) NONSTANDARD LOANS. (A) VARIABLE RATE LOANS THAT DEFER REPAYMENT OF ANY PRINCIPAL OR INTEREST. For purposes of determining, under this subsection, a consumers ability to repay a variable rate residential mortgage loan that allows or requires the consumer to defer the repayment of any principal or interest, the creditor shall use a fully amortizing repayment schedule. (B) INTEREST-ONLY LOANS. For purposes of determining, under this subsection, a consumers ability to repay a residential mortgage loan that permits or requires the payment of interest only the creditor shall use the payment amount required to amortize the loan by its final maturity. ( C ) CALCULATION FOR NEGATIVE AMORTIZATION. In making any determination under this subsection, a creditor shall also take into consideration any balance increase that may accrue from any negative amortization provision. (D) CALCULATION PROCESS. For the purposes of making any determination under this subjection, a creditor shall calculate the monthly payment amount for principal and interest on any residential mortgage loan by assuming (i) the loan proceeds are fully disbursed on the date of the consummation of the loan; (ii) the loan is to be repaid in substantially equal monthly amortizing payments for principal and interest over the entire term of the loan with no balloon payment, unless the loan contract requires more rapid repayment (including balloon payment), in which case the calculation shall be made (I) in accordance with regulations prescribed by the Board, with respect to any loan which has an annual percentage rate that does not exceed the average prime offer rate for a comparable transaction, as the date the interest rate is set, by 1.5 or more percentage points for a first lien residential mortgage loan; and by 3.5 or more percentage points for a subordinate lien residential mortgage loan; or (II). Using the contracts
repayment schedule, with respect to a loan which has an annual percentage rate, as of the date the interest rate is set, that is at least 1.5 percentage points above the average prime offer rate for a first lien residential mortgage loan; and 3.5 percentage points above the average prime offer rate for a subordinate lien residential mortgage loan; and (iii) the interest rate over the entire term of the loan is a fixed rate equal to the fully indexed rate at the time of the loan closing, without considering the introductory rate. 19 HOEPA TITLE 15 > CHAPTER 41 > SUBCHAPTER I > Part B > 1639. Requirements for certain mortgages. Per the loan approval located in the credit file, the borrower was not required to evidence his capacity to repay the subject mortgage debt. An analysis of the borrowers tax or income documents indicate that his income was not sufficient to repay the debt when the loan closed. The credit approval appears to have been granted based upon the strength of the borrowers FICO scores and the appraisal, not based upon his demonstrated capacity to repay the debt. (h) Prohibition on extending credit without regard to payment ability of consumer. A creditor shall not engage in a pattern or practice of extending credit to consumers under mortgages referred to in section 1602 (aa) of this title based on the consumers collateral without regard to the consumers repayment ability, including the consumers current and expected income, current obligations, and employment. 20 FDIC Law, Regulations, Related Acts 6500 Consumer Protection Part 3500 Real Estate Settlement Procedures Act 3500.7 Good faith estimate or GFE. The good faith estimate does not accurately disclose the terms of the subject mortgage loan, does not accurately describe the mortgage amount that was granted, or discloses that the mortgage payments reflected on the Note were calculated using a temporary, below market interest rate. (a) Lender to provide. (1) Except as otherwise provided in paragraphs (a), (b), or (h) of this section, not later than 3 business days after a lender receives an application, or information sufficient to complete an application, the lender must provide the applicant with a GFE. In the case of dealer loans, the lender must either provide the GFE or ensure that the dealer provides the GFE. (2) The lender must provide the GFE to the loan applicant by hand delivery, by placing it in the mail, or, if the applicant agrees, by fax, e-mail, or other electronic means. (e) Tolerances for amounts included on GFE. (1) Except as provided in paragraph (f) of this section, the actual charges at settlement may not exceed the amounts included on the GFE for:
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2 - Major
(i) The origination charge; (ii) While the borrower's interest rate is locked, the credit or charge for the interest rate chosen; (iii) While the borrower's interest rate is locked, the adjusted origination charge; and (iv) Transfer taxes. (f) Binding GFE. The loan originator is bound, within the tolerances provided in paragraph (e) of this section, to the settlement charges and terms listed on the GFE provided to the borrower, unless a revised GFE is provided prior to settlement consistent with this paragraph (f) or the GFE expires in accordance with paragraph (f)(4) of this section. If a loan originator provides a revised GFE consistent with this paragraph, the loan originator must document the reason that a revised GFE was provided. Loan originators must retain documentation of any reason for providing a revised GFE for no less than 3 years after settlement. (1) Changed circumstances affecting settlement costs. If changed circumstances result in increased costs for any settlement services such that the changes at settlement would exceed the tolerances for those charges, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances actually resulted in higher charges. (2) Changed circumstances affecting loan. If changed circumstances result in a change in the borrower's eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges. May be cleared with evidence of documentation.
21
RESPA
The Mortgage Servicing Transfer disclosure is not in the file. RESPA 12 USC 2601 24 CFR 3500.7 Good Faith Estimate: Except as provided in this paragraph (a) or paragraph (f) of this section, the lender shall provide all applicants for a federally related mortgage loan with a good faith estimate of the amount of or range of charges for the specific settlement services the borrower is likely to incur in connection with the settlement. The lender shall provide the good faith estimate required under this section (a suggested format is set forth in Appendix C of this part) either by delivering the good faith estimate or by placing it in the mail to the loan applicant, not later than three business days after the application is received or prepared. If a mortgage broker is the exclusive agent of
2- Major
the lender, either the lender or the mortgage broker shall provide the good faith estimate within three business days after the mortgage broker receives or prepares the application. Mortgage broker to provide. May be Cleared if Documentation is Located. 22 ECOA ECOA It appears that the borrower was not provided the Notice of Right to Receive a Copy of an Appraisal. This disclosure is provided to you pursuant to Regulation B, the implementing regulation for the Equal Credit Opportunity Act (12 C.F.R. 202.14(a) (2) (i). You have the right to a copy of the appraisal report used in connection with your application for credit. If you wish a copy, please write to us at the mailing address below. We must hear from you no later than 90 days after we notify you about the action taken on your credit application or you withdraw your application. May be Cleared if Documentation is Located. 2 - Major
END ISSUES & EXCEPTIONS
UNDERWRITERS FINAL CONCLUSIONS SOUNDNESS OF LENDERS UNDERWRITING PROCESS, GUIDELINES AND METHODOLOGY.
Notes: The processes and methodology the lender employed to approve the subject mortgage loan are considered to be unsound and in violation of Fannie Mae Underwriting Guidelines. As the entity responsible for granting credit and lending money belonging to its shareholders, the ultimate responsibility for verifying and underwriting all aspects of a borrowers loan request reside with the lender. While the borrower may have worked with a mortgage broker who solicited the borrowers business, took the borrowers application, and who collected and forwarded documents to the lender, the mortgage broker, who has no money to lend personally, has no capacity to underwrite, approve or fund a mortgage loan. In all circumstances, a broker must submit a borrowers documentation and credit file to a lenders underwriting department for review and approval. Lenders who are not satisfied with the documentation provided by the Mortgage Broker or Loan Officer, may request that the broker provide new or better documentation if the loan is to be approved. The lender, as the entity who is assuming 100% of the financial risk associated with granting credit, has the ability and right to amend the borrowers mortgage program, submit a loan counter-offer changing the terms that were originally requested, reduce the loan amount or decline the mortgage request entirely. Underwriters are required, industry wide, to perform extensive checks for fraud, and are required to decline any loan request where they suspect fraudulent activity may have taken place. While the appraiser may perform the valuation of the subject property, the Lenders loan Underwriter is responsible for underwriting and reviewing the appraisal document, and either accepts or declines the Appraisers value judgment based upon his or her professional assessment of the data contained therein. Underwriters are required to perform independent investigations of a propertys market to determine if the data contained in an appraisal has accurately represented the property, the comparables and the subjects market area accurately. Underwriters may request that the appraiser provide additional comparable properties, provide additional reasoning to support a value conclusion or reject the appraisal outright and require that another appraisal be performed by another appraiser, entirely. As stated above, as the entity that holds the purse strings, and assumes all of the financial risk, the lender has complete control over the guidelines and processes that are used to approve mortgage financing, the documents that are gathered and accepted, and whether or not a loan request will be granted at all. Additionally, as the majority of lenders pool and sell the mortgage loans they originate into the secondary market, they have an obligation to perform full due diligence to verify that the loans they package and sell are sound investments that will perform over time as represented to prospective investors in their Prospectus. It must be noted that the act of processing, underwriting and closing a mortgage loan is consistent from lender to lender. Best Processes and Practices have been adopted, industry wide, and have been established from lender to lender. This means that no matter where a Mortgage Underwriter, Closer, Loan Officer or Processor may work, the job functions they are responsible to perform are fairly consistent from lender to lender.
Compensation in the industry is also fairly consistent as are job descriptions; mortgage loan originators are sales people who are compensated for soliciting and acquiring mortgage business, whether it is for a mortgage broker, or directly for a lender. Mortgage processors are responsible for gathering and performing a pre-assessment of the documents that are necessary for a borrower to be granted loan approval, based upon the underwriting guidelines that are to be utilized. Mortgage loan Underwriters are responsible for performing the credit/appraisal analysis necessary to determine a loans level of risk and are ultimately responsible for making the decision to either lend or deny credit to a borrower. Mortgage loan closers prepare the closing documents and are responsible for ensuring that all outstanding loan conditions are satisfied and the loan complies with RESPA and TILA law, and the lenders closing requirements. Post-Close departments review the signed closing packages to ensure that all documents are properly executed, notarized and meet all requirements as prescribed by law, and to ensure that all documents and closing requirements are returned. Loan forms have also been standardized; Loan Applications all require the same information and are all based upon Fannie Maes 1003 loan application document. The form upon which an appraisal is performed is the same from lender to lender, and requires that the same data be supplied and the same process be performed to arrive at a value conclusion. The 1008, loan transmittal, which is the document an Underwriter uses to demonstrate her income-to-debt and loan approval calculations, and explain his or her rationale for approving or declining a mortgage loan request, demands that the same information be completed for each loan, industry wide, that is subjected to an underwriting review. Securitization is the reason for the consistency and homogony that exists in the mortgage industry today. Without the establishment of industry-wide standards, large scale securitization would not be possible. The chaos that would ensue if lenders all utilized different data, different forms, and different underwriting criteria and processes to approve and sell mortgage loans would be insurmountable. The entities that govern lending practices are the FTC, FDIC, SEC, the US Treasury Department, the FFIEC, the Federal Reserve Board, NCUA, NTIS, the OCC, and the OTS. While these government entities oversee lending operations nationwide, and have helped establish best practices and processes, Lenders, until recently, have had near complete autonomy relative to the establishment of their own business models, guidelines, and the pursuit of lending business with a minimum amount of government interference, as long as it was perceived that the pursuit of such business did not place their financial institutions at undue risk. As has been seen in recent years, however, the irresponsible and unsound actions of Lenders in the United States, and the firms responsible for packaging and selling the loans that were generated, frequently acted in opposition to the best interests of the American borrower, the entities that invested in the mortgage backed securities that were purchased, and ultimately to the American public, at large, and the world community as a whole. The trillions of dollars in unsound mortgage loans that were generated brought the American and world economies to near collapse. As of the date of this writing, the havoc that was wrought as a result of the irresponsible actions of American Lenders continues to threaten governments and nations around the world. In response to the threat to the national and world security that irresponsible lending practices posed, financially unsound banks, and lenders were taken over by the Federal Government, and the United States Congress established new laws that effectively established minimum underwriting standards and requirements, and that strengthened consumer protection laws nationwide. Government entities currently have enhanced power to
take over and sell any financial entity that conducts itself in a manner that is considered to be incompetent, financially unsafe or unsound or operates in opposition to the public interest.
The lender, in this current circumstance, voluntarily violated sound lending principals and practices by not performing the minimum due diligence necessary to determine the level of risk the subject mortgage actually represents: 1. The income documentation level of the subject loan is Stated. The lender did not require the borrower to produce income documentation to support the income figure reflected on the loan application. The lender took, at face value, the $15,000 per month income figure provided by the Mortgage Broker. The Mortgage Broker, in this instance, appears to have overstated the borrowers income in an effort to ensure loan approval. The borrower actually earned $3050 per month, not $15,000. In point of fact, the borrowers monthly liabilities, including the subject mortgage payment exceeded his monthly income. 2. The lender had the means to investigate the borrowers various business ventures, and their financial soundness by various means that are offered via the Internet. The lender also had the ability to investigate the borrowers various business ventures by performing a very accurate review of the credit report. The lender does not appear to have performed the minimum due diligence to verify the strength of the borrowers business, their term of self employment or their capacity to repay the debt. APPROPRIATENESS OF THE MORTGAGE PRODUCT GRANTED THE BORROWER RELATIVE TO THE BORROWERS EMPLOYMENT AND FINANCIAL SITUATION. The loan product the borrowers received is wholly inappropriate to their income and financial situation. DOES THE SUBJECT LOAN MAKE FINANCIAL SENSE? As the loan represented a 100% capacity of entering into default, the loan cannot be considered to be of any benefit to the borrowers immediate or long term financial interests, despite any temporary benefit the borrower may have received as a result of receiving purchasing the subject property. Loans that represent a high risk of entering into default are never in the borrowers best interest to originate. The subject mortgage should have been declined by the lender for possessing significant elements of layered risk. LEVEL OF DEFAULT RISK THIS LOAN REPRESENTED AT ORIGINATION: 100% - The loan is currently in default and is under threat of being lost to foreclosure. SHOULD THE LOAN HAVE BEEN GRANTED OR DECLINED? The loan should have been declined for: -Insufficient income -Excessive Debt to Income Ratios -Continuance and reliability of income -Borrowers debts exceed his monthly income by $-68 per month -Inappropriate loan product END UNDERWRITERS FINAL CONCLUSIONS
Relationship Between the Broker and the Lender To facilitate its mortgage lending operation, The Lender established lending guidelines, hired mortgage processing and underwriting professionals and personnel, and established relationships with mortgage brokers and wholesale lenders to advertise and sell their mortgage products to the general public. The job of a Mortgage broker is to advertise to attract mortgage clients on behalf of a lender or group of lenders, and act as a conduit between the borrower and the lender. Lenders perform due diligence upon all mortgage brokers who seek to represent them, and offer their mortgage products for sale through the broker, to the general public. Per recent legal precedent, Lenders are ultimately considered to be responsible for the actions committed by the mortgage brokers who sell a lenders mortgage products to the general public, particularly if the activities of the mortgage broker violate any aspect of Fair Lending Laws. Mortgage products are created by mortgage lenders. Lenders create mortgage products for specific target markets and create minimum underwriting standards and produce guidelines to insure that t specific mortgage products are sold appropriately, to borrowers who can afford to repay the loans once the loans are generated. END OF UNDERWRITERS FINAL CONCLUSIONS
DOCUMENTS OF INTEREST:
The documents listed below were reviewed the Underwriter and appear to contain errors, omissions and/or other defects. These document violations are noted in the Exceptions and Comments, and the Analysis Narrative sections previously listed, and should be considered to be Exhibits of this report. Required missing documents are not listed in this section, but are noted at the beginning of this report on the Documents provided page. Required missing documents may also be referenced in the Exceptions and Comments, and the Analysis Narrative sections. It must be noted that the accuracy of the exceptions and findings contained in this report are wholly dependent upon the quality and quantity of documents that are submitted for analysis. Documents presented for audit that are not certified true correct copies of the borrowers fully executed, notarized closing package, obtained directly from the Lender or Servicer of record, may not accurately reflect the documents that are considered to be genuine, signed by the borrower at closing and which represent his/her contract with the Mortgagee. The Underwriter performed this analysis, in good faith, utilizing all documents provided by the Borrower or interested third parties who represent the borrowers interest. The Underwriter will perform its audits based upon the assumption that the documents submitted for analysis are an accurate representation of the borrowers final, true, correct closing package, or portion thereof, and that the parties who are presenting the documents for analysis are accepting responsibility for the documents authenticity. Note Mortgage and Riders Final HUD-1 Final Truth in Lending Loan Application 1040 Income tax returns Misc. Closing documents and Disclosures END OF DOCUMENTS OF INTEREST
Florence Skerratt Senior Mortgage Underwriting QC, Mortgage Due Diligence Officer Areas of Residential Mortgage Expertise: Appraisal Analysis Mortgage Underwriting QC and Due Diligence Professional Servicing Compliance Compliance Analysis Non Performing Loan Portfolio Analysis Fraud Analysis Highlight of Professional Accomplishment: Residential mortgage underwriting professional with 30 years of experience. One of the countrys leading underwriting professionals who attained the highest level of authority and responsibility as a former Senior Quality Control & Due Diligence Underwriter. Ms. Skerratt performed underwriting and due diligence assignments for Clayton Holdings, Morgan Stanley, RPI, Allon Financial, Washington Mutual, Wells Fargo and other nationally known Lenders, due diligence firms and Mortgage Loan Securitizers. During a three (3) year period rated over $350 billion of company insured loans bundled as Mortgage backed securities. Was chosen to perform to perform QC analysis on company insured loans (loans not insured by AIG). Only the most experienced underwriters were selected to perform underwriting and QC functions that were required, to satisfy the higher level of scrutiny demand by investors. These mortgage backed securities were often sold on the secondary market to overseas governments. Performed underwriting and QC analysis upon approximately 8,500 loans between September of 2004 and August of 2007. Ms. Skerratts duties included in depth mortgage and appraisal analysis, fraud detection and the cure of underwriting deficiencies. Assisted Senior Management teams develop mortgage underwriting policies and procedures. Authored two fraud detection training manuals. Implemented one of the industrys most successful fraud review policies that were instrumental in reducing fraud by over 40%. Expert in all areas of compliance and loan servicing. Ability to review lenders servicing records to detect if federal regulations were violated during a Servicers collection efforts. Hired for many high profile projects. Acted as Assistant to Senior Management teams. Professional Summary Residential mortgage underwriting professional with 28 years of experience. As a self employed mortgage contractor since April of 2001, was hired for several extensive long assignments from Long Island to Hawaii. Generally hired for high volume nationwide
lenders and due diligence firms. As a mortgage contractor, served clients such as Wells Fargo, Washington Mutual, RPI, The Clayton Group, Morgan Stanley and others. Recently hired by Allon Hill to analyze performing & non-performing loan portfolios. Duties included an analysis of the lenders initial underwrite during the origination phase of the mortgage process to determine if the lender utilized appropriate standards and sound practices to grant mortgage loan financing. Due diligence and loan securitization skills include collateral review, fraud analysis, compliance review, non-performing loan portfolio analysis, and Quality Control reviews. Experience with conventional, sub-prime, construction and government loans and have additional experience with Mortgage Modification. Ms. Skerratt has extensive experience in all areas of mortgage origination including: processing, underwriting, closing, servicing, and post closing. As a former Senior Loan Closer, Ms. Skerratt also has extensive experience in title review, and survey an analysis. Ms. Skerratt is an expert in the review of non-performing loan portfolio analysis and has extensive experience reviewing pay histories and servicing comments, as well as performing compliance and fraud related analysis. Non-performing loan portfolio analysis included a written report to the client regarding the loans deficiencies, an estimate of the loans anticipated level of future performance and cure recommendations to resolve delinquency issues.
Supplemental Fraud Review and Appraisal Training and Education The Morgan Stanley Conduit Operation located in Boca Raton, Florida proved to be a unique and effective training ground for learning all facets of high level, mortgage loan fraud detection and appraisal review. All of the loans securitized by Morgan Stanleys Alt A Conduit were self insured by the firm, whose informational accuracy and quality were required to be of unsurpassed quality. It was not sufficient for underwriters to merely be experienced; underwriters and QC were required to perform loan, fraud and appraisal review analysis to the highest possible professional standards, on loans originated in widely divergent markets. Training for Underwriters and QC was performed by leading experts in the industry, and was on-going to insure that all personnel employed in an Underwriting or Quality Control capacity were fully up-to-date in the latest appraisal investigation and fraud detection techniques. Personnel were provided with the up-to-the-minute tools and technology to assist us in the performance of our duties, and to further insure that the portfolios sold by Morgan Stanley, to its Investors, were of the highest possible quality. Personnel were taught to perform in depth appraisal analysis on loans whose markets spanned the length and breadth of the Continental United States, in addition to loans originated on the Islands of Hawaii, and the U.S. Territory of Puerto Rico. Personnel were kept abreast of individual mortgage and appraisal markets were high levels of fraud were reported, and to detect such fraud in all instances. The level of training that was received and the high level of exposure to loans located in divergent markets to which we were subjected, and the sheer number of loans that were reviewed, far exceeds the experience of the average Mortgage Underwriting or Appraisal professional, and is what qualifies this individual to perform in an expert capacity.
END OF REPORT

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The Diligence Group, LLC Mortgage Transaction Analysis

Ronald H. White Linda J. White 1119 E. Buckeyewood Avenue Orange, CA 92865

END IMPORTANT DISCLAIMER

Description and Logic of a Mortgage Analysis Report

The Role of the Underwriter

Reading and Understanding the Report

2ND LIEN n/a

2ND LIEN 2ND LIEN n/a

2ND LIEN n/a

TERMS REFLECTED ON BORROWERS NOTE / FULLY DISCLOSED

Mo. Payment Reflected on The Note:

Loan Term: Amortization:

END UNDERWRITER ANALYSIS OF THE NOTE

COMPREHENSIVE TILA TEST RESULTS

PARTIES TO THIS TRANSACTION

END OF PARTIES TO THE TRANSACTION

COMMENTS REGARDING POSSIBLE VIOLATION

EXCEPTION RATING 3 Material

B3-1-01 Assessment of Risk

B3-3.1 General Income Assessment

B3-3.2-01 Salary, Commission and Other Sources of Income

B3-4.1-01 Minimum Reserve Requirements General Asset Assessment

Predatory Lending Violation Civil Rights of

The loan does not appear to benefit the borrowers interests.

END ISSUES & EXCEPTIONS

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