Loan Modification Fraud Audit

Does your loan modification contain legal violations, overcharges, or fraud? Get a loan modification fraud audit and get the facts & evidence you need to get the legal remedy you deserve today. Our research reveals there are enough reasons for homeowners to have their loan modification agreements audited, including: Balloon payment not stated or not specified, double-charging of interest, no accounting for modified balance, total payments as a per cent of modified balance not disclosed, as well as other financial and legal violations.

Our investigation examined 72 loan modification agreements. Each of these reports is assigned a case number and listed in the Summary of Findings. This explainer pertains to the reports for Case Nos. 3, 5, and 39 which serve as examples and the Summary of Findings you can expect to find in your loan modification audit.

The summary shows five types of exceptions and each case that has any of these exceptions is marked “X”. In addition, the computed amounts are shown for the exception “Interest for Month Prior to Effectivity Date Charged Twice”.

One of our loan modification auditors reviewed 72 home loan modification agreements and found that in 43 (60%), the lenders or servicers charged their borrowers twice for the interest for the months prior to the effectivity dates of the agreements. The average amount is $994.

If these numbers are applied on the reported 4.6 million modifications, this double-charging of interest has affected 2.76 million borrowers nationwide for the total amount of $2.743 billion. This is criminal fraud on a massive scale. There are also findings on non-disclosure of balloon payments.

Summary of Loan Modification Audits 

1. Double-Charging of Interest
1.1. In General
There is double-charging of interest when:
1.1.1. All unpaid interest prior to modification effectivity date was compounded with, or added to the loan balance, or “capitalized.” The new balance becomes the modified balance; and
1.1.2. The first monthly installment is due right on modification effectivity date. In a payment scheme that calls for equal monthly installments to be applied to interest and principal, each payment covers the interest for the previous month.
1.2. Specific Occurrences
1.2.1. In Case No. 3, the first example report, the modification effectivity date was January 1, 2011. All unpaid interest up to December, 2010 was included in the modified balance of $977,214.53 (page 4).
The first monthly installment was due on January 1, 2011, the modification effectivity date.
Interest for the month of December, 2010 was charged twice because (a) this interest was already added to the balance as of January 1, 2011 and (b) included in the first installment. The amount is $1,628.69 (page 10; Amortization Spreadsheet, Month No. 1).
1.2.2. In Case No. 5, the modification effectivity date was February 1, 2011. All unpaid interest up to January, 2011 was included in the balance of $488,507.20 (page 4).
The first monthly installment was due on February 1, 2011, the modification effectivity date.
Interest for the month of January, 2011 was charged twice because (a) this interest was already added to the balance as of February 1, 2011 and (b) included in the first installment. The amount is $1,424.81 (page 10; Amortization Spreadsheet, Month No. 1).
1.2.3. In Case No. 39, there is no double-charging of interest. The agreement took effect on January 1, 2012 (page 3). All unpaid interest up to December 22, 2011 was included in the balance of $535,508.47 (page 4).
The first monthly installment was due on February 1, 2012, one month after the modification effectivity date. This covers the interest for the month of January, 2012.
1.3. In the Summary of Findings,
1.3.1. Case No. 3 involves BAC Home Loans and is listed on Page 1. It is marked “X” under “Count, Interest for Month Prior to Modification Effectivity Date Charged Twice”, meaning that it is one of the 43 (60%) of 72 agreements in which double-charging is present. The amount of interest that was charged twice is $1,628.69.
1.3.2. Case No. 5 also involves BAC Home Loans and is also marked “X” under “Count”. The amount of interest that was charged twice is $1,424.81.
1.3.3. Case No. 39 is not marked “X” under “Count”.

2. Balloon Payment Not Stated or Not Specified
A balloon payment is an amount that is usually larger than a monthly installment. It needs to be paid on maturity date in order to fully pay off the loan.
If a balloon payment is required, the exception is either that (a) a balloon payment is not mentioned in the agreement or (b) a balloon payment is mentioned but the agreement does not specify an amount.
2.1. Balloon Payment Not Stated
2.1.1. In General
A balloon payment is considered “not stated” when the agreement does not state that it is required but a “walk-through” of the scheduled monthly amortizations using the agreed amounts of amortizations and interest rates would reveal that the loan will not be fully paid at the end of its term.
2.1.2. Specific Occurrence
a. In Case No. 3, there is no such undisclosed balloon payment.
b. In Case No. 5, the undisclosed balloon payment is of a different classification.
c. In Case No. 39, the amount of undisclosed balloon payment is $181,826.86 (page 19; Amortization Spreadsheet, Month No. 309). This amount is 34% of the total to be paid in order to fully pay the loan (page 7).
2.1.3. In the Summary of Findings,
a. Case Nos. 3 and 5 are not marked “X” under “Balloon Payment Not Stated”.
b. Case No. 39 is marked “X”, meaning that it is one of the two (5%) of the 40 agreements that require balloon payments in which this type of exception was noted.
2.2. Balloon Payment Not Specified
2.2.1. In General
A balloon payment is considered “not specified” when the agreement states that a balloon payment is required for some reason, but does not specify the amount. A “walk-through” of the scheduled monthly amortizations using the agreed amounts of amortizations and interest rates would reveal that the loan will not be fully paid at the end of its term.
2.2.2. Specific Occurrence
a. In Case No. 3, there is no such unspecified balloon payment.
b. In Case No. 5, the amount of unspecified balloon payment is $219,104.20 (page 16; Amortization Spreadsheet, Month No. 313). This amount is 45% of the total to be paid in order to fully pay the loan (page 7).
c. In Case No. 39, the undisclosed balloon payment is of a different classification.
2.2.3. In the Summary of Findings,
a. Case Nos. 3 and 39 are not marked “X” under “Balloon Payment Not Specified”.
b. Case No. 5 is marked “X”, meaning that it is one of the 13 (33%) of the 40 agreements that require balloon payments in which this type of exception was noted.

3. No Accounting for Modified Balance
3.1. In General
The examination included a comparison of the modified loan balance with the original loan balance. The comparison usually showed increases despite years of monthly payments by the borrower. A detailed accounting of the items that caused the increase was typically not a part of the agreement. The undisclosed information is similar to those stated in an Itemization of Amount Financed for a new loan.
3.2. Specific Occurrences
3.2.1. In Case No. 3, there was a gap of more than four years between the granting of the original loan and the time of modification, yet the modified principal balance represents an increase of $152,589.53 or 19% over the original loan (page 6).
3.2.2. In Case No. 5, the gap is four years, yet the modified principal balance represents an increase of $85,507.20 or 21% over the original loan (page 6).
3.2.3. In Case No. 39, the gap is five years, yet the modified principal balance represents an increase of $35,508.47 or 7% over the original loan (page 6).
3.3. In the Summary of Findings, Case Nos. 3, 5 and 39 are all marked “X” under “No Accounting for Modified Balance”, meaning that they are among the 69 (100%) agreements in which this type of exception was noted.

4. Total Payments as a Per Cent of Modified Balance Not Disclosed
4.1. In General
The examination included a comparison of the total payments required to fully pay off the loan with the modified loan balance. The comparison shows the total payments as a percent of the modified balance. The undisclosed information is similar to those stated in a TILA Disclosure Statement for a new loan.
4.2. Specific Occurrences
4.2.1. In Case No. 3, the total payments is $1,826,268.96 or 187% of the modified principal balance (page 7).
4.2.2. In Case No. 5, the total payments is $915,839.45 or 187% of the modified principal balance (page 7).
4.2.3. In Case No. 39, the total payments is $999,586.76 or 187% of the modified principal balance (page 7).
4.3. In the Summary of Findings, Case Nos. 3, 5 and 39 are all marked “X” under Total Payments as a Per Cent of Modified Balance Not Disclosed”, meaning that they are among the 70 (100%) of the agreements in which the terms of payment have been modified but the total payments as per cents of the modified balances were not disclosed.

Summary of investigation

Number of home loan modification agreements reviewed – 72
Agreements found with double-charging of interest – 43; average 60%
Amount of interest double-charged, range – $236.56 to $2,386.17; average – $994.56
Number of states with affected modifications – 12
Number of lenders/servicers involved – 18
Range of effectivity dates of the affected modifications – Feb 1 2009 to May 1 2019

Effect of the above statistics on the number of loan modifications nationwide:
Total number of reported loan modifications – 4.6 million
Estimated number of modifications with double-charging of interest – 2.76 million (60% of 4.6 million
Estimated total amount of interest double-charged – $2.745 billion (2.76 million multiplied by $994.56)

Other findings:
Balloon payment not stated in the agreement – 2 of 40; average 5%
Balloon payment not specified – 13 of 40; average 33%
No accounting for modified balance – 70 of 70
Total payments as % of modified balance not disclosed – 69 of 69
More than five or ten years may have already lapsed on some agreements but these are still in effect
so fiduciary relationship still exists between the lender or the servicer and the borrower. The element
of discovery can also be considered in case of the filing of a class action suit. Most of all, this was a
continuing crime – the same type of crime that has been committed 12 years ago was still being
committed two years ago. The gap of ten years without the double-charging being rectified could be
the real proof of fraudulent motive.

1. The lender or servicer may have charged the borrower twice for the interest for the month
prior to the effectivity date of the agreement. The chance of finding this exception in an
agreement is 60%.

2. A balloon payment may be necessary to be paid in order to fully pay the loan at the end of
its term, but the agreement does not say so; 5%.

3. The agreement says that a balloon payment is necessary, but does not specify an amount;
33%.

4. A detailed accounting of the items that were added to or compounded with the previous
balance in order to arrive at the modified balance, or information that is similar to those
stated in an Itemization of Amount Financed for a new loan was not part of or attached to
the agreement; 100%.

5. A statement and breakdown of the total amount that the borrower will have to pay on the
loan under the agreement, or information that is similar to those stated in a TILA Disclosure
Statement for a new loan, was not part of or attached to the agreement; 100%.

Summary of loan modification audits_1-2

Sample loan modification audit  FRAUD STOPPERS Loan Modification Audit

Sample home financial report Sample home financial report

Sample federal mortgage fraud audit Sample federal mortgage fraud audit 

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