The California State Senate has passed Senate Bill 94 (”SB 94?), legislation proposed by Sen. Ron S. Calderon (D-Montebello), Chairman of the Banking, Finance & Insurance Committee. The senate passed the bill on May 21, 2009, by a vote of 21 to 14. It is now in the state assembly where it has been read once and “held at desk,” which means that it’s awaiting referral to a committee.

Senate Bill 94 is intended to protect California homeowners from scam loan modification companies.

In my view, the problems with SB 94, as written include:

1. It was created to protect consumers from loan modification “scammers” who charge distressed homeowners up front fees and deliver nothing in return, but it was written without the benefit of accurate data on the contribution being made by the legitimate loan modification industry in California. Without knowing how many homeowners the private sector loan modification firms save each month, or the sustainability of the modifications obtained by the private sector, it would not be possible to design a solution in the best interests of homeowners and the state’s economy.

2. The SB 94 bill, as written, is based on a fundamental misconception. As stated in the in bill’s narrative:

“It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge.”

While both of these statements are technically true, this language ignores the fact that there are also reputable private sector firms that homeowners may choose to hire to help them negotiate with their banks when seeking a modification of their mortgages. Private sector firms, including those licensed by the state’s Department of Real Estate and/or law firms offering that such services, have helped tens of thousands of California homeowners get their mortgages modified. With the number of foreclosures continuing to increase each month, it would seem clear that the state’s homeowners would not benefit from any legitimate avenue being overlooked or unfairly maligned.

3. Defrauding a homeowner has always been against California law, so in that sense, SB 94 is redundant. When you consider that “scammers” who did in fact defraud consumers in conjunction with the promise of a loan modification, did so in violation of existing law, it would seem that a new law making it illegal to charge an advance fee when offering to assist a homeowner with a loan modification would be unlikely to prevent future scammers from attempting to do the same.

4. Legitimate firms offering to assist troubled homeowners could be regulated and monitored, without requiring these firms to operate at a financial disadvantage by disallowing advance fees. The process of obtaining a loan modification is not similar to other real estate transactions in several key ways:

A. The process can take six weeks, or six months… and in some cases even longer. The lenders and servicers are not consistent in how loan modifications are handled or on what basis they are granted.

B. There is no escrow, or objective standard for “satisfaction,” in conjunction with a loan modification transaction, and therefore there is no assurance that a company would receive payment from the homeowner once the mortgage has been modified.

These are just a few of the issues with SB 94. The law is attempting to protect homeowners, but is actually protecting the lender guaranteeing that homeowners will not be adequately represented when dealing with the lender. The lenders will take advantage of this and will offer homeowners loan modifications that do not help their situation.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Stephen Hoshida, Manager of National Loan Auditors’ Online Legal Portal, continues his discussion of the loan modification process in Part II of this interview series:

4. What factors are taken into consideration by the mortgage lender when determining whether or not a borrower qualifies for a loan?
• There are a number of factors that the lender takes into account when considering a loan modification. The primary concern for lenders may be the financial status of the homeowners. The lender needs to know what the financial situation of the homeowners is to know how they need to modify the loan. The lender will consider the violations that are found in the homeowner’s forensic loan audit. There are also external considerations on the lender such as federal programs, economic climate, and the will of the investors. All of these will be incorporated into the lenders decision on how to modify a loan.

5. What challenges can homeowners expect to face during the loan modification process?
• The hardest part of a loan modification is the waiting period. The process may take some time and loan modification departments of the lenders are being over worked. If the homeowner is already experiencing financial hardship, the time it takes to negotiate a loan modification will compound the problem. Another challenge a homeowner may experience is in dealing with the lender. Lending companies have many different departments, each with a different agenda, and often time these departments are not informed as to what the other branches are doing. Also, with the unstable financial climate, banks are absorbing other banks and restructuring their own departments which results in a continual change in internal procedure.

6. How would a loan audit from National Loan Auditors benefit an attorney or other mortgage industry professional?
• Forensic loan audits from NLA can specifically benefit attorneys and other mortgage professionals by giving them a quick legally sound distilment of a borrower’s case that they can use to plan their strategy on how to litigate the case or to approach a loan modification.

7. What sets National Loan Auditors apart from other forensic loan audit providers?
• National Loan Auditors provides the best forensic loan audit on the market. NLA’s forensic loan audit contains over 125 checks to insure that the lender adhered to all the statutory regulations when issuing a loan. The Forensic Loan Audit Pro is the only “legal-centric” audit. This means that the audit not only outlines the lender violations that occurred in the loan, but also provides supporting statute an case law to explain why a violation occurred and how the violation can be used in a court of law.

8. How long does it take to complete a forensic loan audit?
• A forensic loan audit only takes about 1 day to actually complete the audit. However with the demand for audits right now it takes about 5 days for a borrower to receive their audit.

9. With new legislation designed to support and protect homeowners, how will government efforts, like the Make Homes Affordable program, affect the loan modification process?
• The MHA Program has been a huge step in the right direction to address the needs of the homeowners. MHA streamlines the process for homeowners to workout a loan modification. That being said they are still not a cure all. MHA only address a fraction of the problem loans out there because it only applies to Frannie and Freddie loan. There are still millions of homeowners out there who will not qualify through this plan. Lenders are doing what they can to come up with their own loan modification plans that address the remaining loan but they are swamped and understaffed so this process is slow.

10. Are National Loan Auditors’ forensic loan audits available only in California?
• No, NLA provides forensic loan audits nationwide. We are even developing international audits for other countries.

11. What changes occur within the mortgage after a loan modification?
• The changes to the mortgage are a modification of the terms of the agreement, hence the name loan modification. The original loan is still in effect and all the associated terms still stand, but the specific terms negotiated in the modification process are changed to reflect the new agreement. At it’s core a loan modification is a simple contract change.

12. Who should homeowners contact to receive help and more information?
• National Loan Auditors
• 877-NLA-6676
• 1820 Bonanza St. Suite 201
• Walnut Creek, CA 94596
• www.NLAudit.com
• ——————–
• eModify Inc. a Legal Advocacy Group
• 877-4-EMODIFY
• 1820 Bonanza St. Suite 201
• Walnut Creek, CA 94596
• www.eModify.net

About National Loan Auditors:

National Loan Auditors is the Nation’s leading and most reputable provider of comprehensive forensic loan audit reports, offering superior services with unsurpassed results. Founded by August Blass, a financial services veteran with more than 20 years of executive experience in the field, the Walnut Creek, CA-based company provides quality control pre-close and post-close auditing, risk assessment consulting and fraud prevention services to the mortgage and banking industries.

Stephen Hoshida is a graduate of California State University Chico, with a Bachelor of Arts in Political Science and has completed his Jurist Doctorate at Golden Gate University of San Francisco. While attending law school, Stephen focused primarily on criminal law, working in the San Francisco County and Butte County District Attorney’s Offices.

Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Learn about the loan modification process and discover how a forensic loan audit from National Loan Auditors may lead to a successful workout solution in this interview with NLA’s Legal Portal Manager, Stephen Hoshida:

As the Nation’s housing crisis continues, thousands of homeowners struggling with unmanageable mortgage debt are desperate for a solution that will bring them financial relief. Predatory lending practices and subprime loans have forced an overwhelming number of loan borrowers into bankruptcy and foreclosure, and economists predict an even further decline in the real estate market as the country remains in recession. Despite the unpromising outlook foreseen by residential property analysts, there is still hope for America’s mortgage holders – relief is available and National Loan Auditors can help.

With recent legislation and lenders willing (or even required by law) to negotiate, the terms of a home loan can be modified in favor of the borrower to allow reduced monthly payments, an extension of the loan terms, or even the lowering of an entire balance due on the mortgage itself. A forensic loan audit, performed in the initial stages of the loan modification process, may uncover violations in the loan that would obligate the lender to modify mortgage terms and give borrowers legal recourse against the mortgagee should a lawsuit be filed. The forensic experts at National Loan Auditors thoroughly examine financial documents for validity and utilize state-of-the-art technology to ensure accurate and reliable results. Both a comprehensive forensic loan audit and a successful loan modification can alleviate budget strains and help families avoid bank foreclosure.

If a forensic loan audit can spot predatory lending practices and a loan modification can prevent a foreclosure sale, why don’t all homeowners modify their loans? The primary reason, unfortunately, may be that obtaining a loan modification can be a lengthy and difficult process to manage alone. Most debtors, a majority of whom do not have a legal background, have questions that require answers before taking any action, and rightfully so – failure to successfully bargain with a mortgage holder could mean foreclosure in the future.

Like any case involving legally binding contracts, the help of an experienced professional is often necessary. An attorney or loan modification company specializing in mortgage law can provide the assistance needed in order to reach an agreement with the lender. With a mutual goal of helping homeowners save their homes and avoid foreclosure, National Loan Auditors works with top attorney-based modification firms to deliver the only legally-reviewed forensic loan audit report available in the mortgage industry.

Stephen Hoshida, Manager of National Loan Auditors’ Legal Portal, understands the concerns of homeowners and recognizes the issues that attorneys and modification companies may face. In this two-part interview, Mr. Hoshida answers some important questions that explain the loan modification process and how a forensic loan audit from National Loan Auditors can lead to a successful loan workout solution.

1. What advice do you have for homeowners seeking a loan modification in order to avoid foreclosure?
• My advice to homeowners contemplating loan modification would be to act sooner rather than later. If you are already late on your payments then the lender has already put into motion the inevitable foreclosure. Loan modifications take time so you do not want to wait until the last moment to seek help. Even if you are not late, but you foresee financial difficulties in the future, take proactive action to obtain a loan modification.

2. What steps should a homeowner take to prepare for the loan modification process?
• Get organized. There are 3 areas of information that are crucial to obtaining a loan modification.
• The first is the documents pertaining to the original mortgage transaction. Homeowners should get as much documentation from when their loan was originated and have it ready to be used as the basis of a forensic loan audit. This will include digging out the old shoe box of loan documents from when you originally obtained the loan. I would also suggest the homeowner requests a set of the lenders documents before you perform a forensic loan audit. This may not always be feasible since this takes 30-60 days, but if you can obtain the lenders package it will save time later on.
• Secondly the homeowner needs to have all the information about what has happened to the loan since it was originated. Has the loan been sold? Was the homeowner ever charged late fees? Has the interest rate adjusted? All of this information is relevant and should be documented in some way. By getting these together before starting your loan modification you will expedite the process.
• Third the homeowner needs to have a firm grasp on their financial situation and have supporting documentation to prove their income. This will take the form of pay stubs, tax returns, and bank statements.

3. How does an audit contribute to the loan modification process?
• A forensic loan audit is an integral part of a loan modification. The forensic loan audit allows a homeowner to see what statutory regulations a lender violated when originating the mortgage. This allows the homeowner to work with the lender from a position of strength. The homeowner tells the lender, “There were serious violations made when my loan was originated, I could sue you and create a huge legal battle, or you could just give me a good loan modification.” Basically, the forensic loan audit gives the homeowner more leverage in working with the lender.

NEXT: Stephen Hoshida answers more questions about forensic loan auditing and the loan modification process in Part II of our interview series. Get free updates! Subscribe to this blog for the latest news and features from National Loan Auditors!

Source: National Loan Auditors, Inc.
http://www.NLAudit.com