012011Hemric4836 Forensic Audit

8/7/2019 012011Hemric4836 Forensic Audit

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Forensic Audit Report

Prepared For

Rachel L Hemric4836 Collins Rd

Hamptonville NC, 27020

"I have reviewed the foregoing contents and affirm the resultscontained herein to be true and correct according to my knowledge."

LAKISHA MORRIS, J.D., ESQ.. WSBA# 41365

Lead InvestigatorFEDERAL TRUSTEE SERVICESPO BOX 11098TACOMA, WA 984111-800-552-9313

This document is Copyrighted property. Unauthorized use is not allowed. 2008-2011 Page 1


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Re: Forensic Audit

Dear

The loan transaction for the above-referenced borrower/property has been audited forviolations of Truth in Lending Act [16 U.S.C. 1601] (TILA), Home Ownership

Equity Protection Act [12 C.F.R. 226.32 et seq.] (HOEPA), California Financial Code

4907 et seq., the Real Estate Settlement Procedures Act [12 U.S.C. 2601], and to the

extent applicable, violations of other state and federal laws discussed below.

This report was based exclusively on the documentation provided. It also required that we

make reasonable assumptions respecting disclosures and certain loan terms that, iferroneous, may result in material differences between our findings and the loan's actual

compliance with applicable regulatory requirements. While we believe that our

assumptions provide a reasonable basis for the review results, we make no

representations or warranties respecting the appropriateness of our assumptions, thecompleteness of the information considered, or the accuracy of the findings.

The contents of this report are being provided with the understanding that we are not

providing legal advice, nor do we have any relationship, contractual or otherwise, with

anyone other than the recipient. We do not, in providing this report, accept or assume re-

sponsibility for any other purpose.

Sincerely,

John Northrup

Senior Auditor


01/31/11

Rachel L Hemric4836 Collins RdHamptonville NC, 27020

Rachel L Hemric,Rachel L Hemric,Rachel L Hemric,Rachel L Hemric,


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Borrower: Rachel L HemricSubject Property: 4836 Collins Rd

Hamptonville, NC 27020OriginationLender:

Regions Bank dba Regions MortgagePO Box 11026Orange CA 92856

Origination Loan#:

0-896438959

MIN #: ALoan Amount: $194,480.00Application Date: 11/29/2005 see assumptionClosing Date: 12/29/2005

Funding Date: 12/29/2005Sales Price: /A = refinanceAppraised Value: $213,100.00 per loan applicationSeller: /A = refinanceMortgageBroker:

First Carolina Mortgage Inc102 Dolly Madison RdGreensboro, NC 27407

Interviewer: John Passnore 800-986-2462Appraiser: Unknown = missing appraisalClosing Agent: unknown missing final HUD-1Escrow Officer: unknown missing final HUD-1Escrow Number: unknown missing final HUD-1Title Insurance: unknown missing final HUD-1Cash OutProceeds:

$14,337.38 per loan application

Loan Summary: 87%LTV/CLTV cash out refinancePrimary Residence, Single family homeStated income / stated assets



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Summary of Violations

Below are a summary of violations found in the audit. Full details are listed on the correspondingpage after the violation.

1. Underwriting Violation: Incorrect PITI used to qualify borrower. PG 5

2. Underwriting Violation: Predatory Lending Practices. PG 7

3. Compliance Violations: Missing Documents. PG 7

4. Compliance Violations: Missing Underwriting Documents. PG 7



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Examiner Notes for File:

Loan Auditor is missing the HUD-1 and therefore cannot determine the following: TILA Rescission period for the loan. Fees for HEOPA test TILA Finance Charge test. GSE Predatory guidance, allowable fees and points and higher points and fees test.

Zillow shows no historical information on the subject property.

Loan Application shows the value at the time of closing at $213,100.00

The borrowers occupation on the loan application is Retired and Owner /self employed.

Forensic Examination Assumption:

The application is signed by the Attorney in factfor the borrower, but is not signed by the

interviewer with a date of 12/29/2005. This represents the final loan application therefore we

made the following assumption.

The application date is one of the Compliance Analyzer system required data fields. Therefore,

we have made an assumption that the application date is 11/29/2005 (Assuming 30 days before

the date of the Note of 12/29/2005). The closing/settlement date in the Compliance Analyzer

(CA) system web form is the loan document signing date; therefore, we have made an

assumption that the document signing date is the same as the date of the note.

UNDERWRITING VIOLATION: INCORRECT PITI USED TO QUALIFY BORROWER

The lenders underwriter failed to follow generally accepted underwriting practices by

miscalculating the borrowers total housing expenses. The underwriter used an incorrect monthly

payment amount on the borrowers first mortgage financing of $1265.73 PITI when the correct

payment amount was $2130.18 PITI. The underwriter used the initial interest rate prior to the

adjustment period. Since the borrower is listed as retired they are on a fixed income and

unable to compensate for future adjustments.



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DTI RATIO AS FOLLOWS TO QUALIFY FOR THE SUBJECT LOAN

Loan Auditor listed the below information used to qualify the borrower as well below this

showing the minimum ratios to qualify:

$1154.75 Initial P&I payment per loan application

$49.00 hazard insurance

$62.00 real estate taxes

$1265.73 PITI divided by borrowers stated income of $12173 = 10.40% housing ratio

$1265.73 PITI

$1099.00 consumer debt listed on loan application1

$2364.73 divided by borrower stated income of $12173= 19.43% total debt burden ratio

Using the adjusted payment since borrower is on a fixed income:$2130.18

$1099.00 consumer debt listed on loan application2

$3229.18 divided by borrower stated income of $12173= 26.53% total debt burden ratio

Both of these ratios are above the 28/36 ratio guidelines.

1The auditor would like to make the reader aware that on the same date the loan applicationfor the Meadowbrook property the loan application stated consumer debt of $1943.00

2The auditor would like to make the reader aware that on the same date the loan applicationfor the Meadowbrook property the loan application stated consumer debt of $1943.00



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UNDERWRITING VIOLATION: PREDATORY LENDING PRACTICES

Practices widely identified as predatory include:

fraudulent practices that conceal the facts of the borrower's obligation and/orincome;

steering a borrower to a high-cost loan when they could qualify for a lower-costloan;

making a loan that the borrower cannot afford to repay;

making a loan to a borrower that provides no actual benefit for the borrower;

flipping loans by inducing repeated refinancing, without benefit to the borrower,

in order to generate fees.

The lender processed and approved this loan under a Stated Income program that requiresemployment verification but does not require income verification. However, the lender has aresponsibility to determine the reasonableness of the stated income.

COMPLIANCE VIOLATIONS: MISSING DOCUMENTS

As noted below, this file did not include various initial disclosures that are mandated

under both State and Federal laws. If a broker does not deliver the initial disclosures to

the borrower, it becomes incumbent for the lender to ensure that these disclosures were

delivered to the borrower. If the borrower was not provided with these disclosures within

three business days from the date of the original loan application, the borrower will need

to complete a sworn statement testifying to that effect.

COMPLIANCE VIOLATIONS: MISSING DOCUMENTS

File is missing ALL initial disclosure documents and MOST final disclosures, including but not

limited to:

Per RESPA (Real Estate Settlement Procedures Act 12 USC 2601 et seq.)

Good Faith Estimate

Affiliated Business Arrangement Disclosure

Servicing Disclosure StatementEscrow Account Disclosure

Final HUD-1

Per ECOA (Equal Credit Opportunity Act Reg B 12 CFR 202):

Initial signed & dated Uniform Residential Loan Application (1003)



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Supporting Case Law Am. Bankers Ins. Co. v. Wells, 819 So. 2d 1196 (Miss. 2001) Barrett v. Bank of Am. 229 Cal. Rptr. 16 (Ct. App. 1986)

Charleswell v. Chase Manhattan Bank, N.A., 308 F. Supp. 2d 545 D. V.I.2004)

Chedick v. Nash, 151 F. 3d 1077 (D.C. Cir. 1998)Hilgeman v. Am. Mortg.

Securities, Inc., 994 P. 2d 1030 (2000) Choi v. Chase Manhatten Mortg. Co., 63 F. Supp. 2d 874 (N.D. Ill. 1999) Citicorp. Mortg. Inc., v. Upton, 42 Conn. Supp. 302 (Conn. Super. 1992) Farm Credit Servs. Of America v. Dougan, 2005 S.D. 94 (2005) Foley v. Interactive Data Corp., 765 P.2d 373 (Cal. 1988) In re Hart, 246 B.R. 709 (Bankr. D. Mass. 2000) Whittingham v. Mortg. Elec. Registration Servs., 2007 WL 1362669

(D.N.J. May 4, 2007)

Also, please see the Alternative Causes of Action at the end of this report. Additional or

missing documents may be provided with in 14 days of receipt of this audit report and the

audit report will be updated and sent that reflects any changes.



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We have researched the subject of TILA violation from the lender to the borrower

on stated loans to the best of our ability. If there is any further related case law or other

support that you can share with us, please feel free to let us know and we will incorporate

it.

We are continually striving to bring the best and most up to date audit to our

customers.

Stated Loans and Lending Misconduct

The use of the stated loan has been the seed that led to a great deal of broker

misconduct in the lending industry. The broker would find a borrower who had already

found a home and would tell them that with their actual income they could not qualify for

the loan needed to finance the purchase of the home. The broker would then tell the

borrower that if they use a stated loan and fudge the numbers then the borrowers could

qualify for a loan large enough to purchase the home they want. The broker knew two

things about the borrower. First, the broker knew that the borrower was not making as

much as had been put on the stated income. Secondly, the broker knew that the

borrowers debt to income ratio was well over the limits allowed by lending regulations.

The broker knowingly put the borrower into a loan that they could in no way afford, and

there was a large indication that the borrower would never be able to keep up with the

payments. This raises a number of legal issues.

In terms of our forensic loan audits, we look at the borrowers actual W-2 and tax returns

to determine their true debt to income (DTI) ratio at the time the loan was originated. We

then compare that figure to what the stated income was put on the actual loan application.

If the two numbers do not match up then the borrower can bring the following causes of

action against the lender.

Breach of Fiduciary Duty

Traditionally, a credit transaction has been considered an arms length transaction in

which there has been no special duty read into the creditor-debtor relationship. Most

courts, however, have held that the presence of certain factors in the creditor-debtor

relationship may give rise to a fiduciary duty.

For example, a fiduciary relationship can arise when a party, generally a weaker party in

the sense of the ability to protect itself, places trust and confidence in another. Such a

duty of confidence arguably can arise if a lender acts in the role of advisor and knows

or should have known the borrower trusted him. When such a relationship exists itcreates a duty to disclose.

This duty of confidence arises in most creditor lender relationships, but it occurs

exponentially more in situations where the loan is a stated loan. The borrower is the

weaker party in the transaction due to their inability to negotiate many of the primary



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terms of the loan. The loan is being offered to the borrower in a take-it-or-leave-it

fashion where they have no ability to negotiate major terms such as APR or payment

schedule. Also in terms of legal strength the lender will have an entire legal department

at their disposal, where some borrowers will not even be able to afford an attorney. Due

to these disparities in negotiating power, the borrower puts their trust in the lender to

advise them as to the best course of action. This creates a fiduciary relationship which

requires the lender to disclose all material information.

If established, the existence of a fiduciary duty gives rise to a duty of fair and honest

disclosure of all facts which might be presumed to influence the consumer to act. Barrett

v. Bank of Am. 229 Cal. Rptr. 16 (Ct. App. 1986). The lender must adhere to their duty

to be fair and honest in their disclosures of all facts which might be presumed to

influence the borrowers decision to accept the loan. In most cases the lender will beusing the stated loan to get the borrower into a loan that they otherwise could not

afford. The lender knows the reason the borrower could not qualify for the needed loan

based on their actual income is because there is a high probability that they will default

on the loan. Thus the borrower cannot afford the loan without the lenders help in fudging

the numbers. The lender has disclosed the fact that he is fudging the number to enable

the borrowers to get into the home they want, however what he does not disclose is the

fact that there is an extreme likelihood that the borrower will default on the loan. Thus

the lender has breached their fiduciary duty to disclose those facts that would presumably

influence the borrower.

When there is a duty to disclose, failure to do so should give rise to a tort cause of action for

nondisclosure, or the silence may be deemed a misrepresentation. Such claims can be used to

invalidate the underlying mortgage transaction or to recover money damages to offset any

delinquency.

Unconscionability

The common law contract defense of unconscionability may be applicable, when either

the mortgage terms are unreasonable favorable to the lender or certain aspects of the

transaction render it unconscionable. In re Maxwell, 281 B.R. 101 (Bankr. D. Mass.

2002); Hager v. American Gen. Fin. Inc., 37 F.Supp. 2d 778 (1999). For example, a

Connecticut court found a second mortgage contract to be unconscionable based on the facts

that: The defendants financial situation made it apparent she could not reasonably

expect to repay the mortgage At the closing, the defendant was not represented by an attorney and was rushed

by plaintiffs attorney to sign the loan document And there was an absence of meaningful choice on the part of the defendant.



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records and to discharge and fulfill the other incidents attendant to the maintenance,

accounting and servicing of loan records. Islam v. Option One Mortgage Corp., 432 F.

Supp. 2d 181 (D. Mass. 2006).

More recently courts have begun to allow borrowers to bring claims of negligent lending,

when the lender engages in a pattern of willful and negligent failure to perform even a

rudimentary verification of the information submitted by borrowers. However these

cases are still being resolved. Boykin v. CFS Enterprise, Inc., 2008 WL 4534400

(D.Kan.2008)

A second significant challenge for homeowners is demonstrating that the servicers

conduct was the proximate cause of their injuries. See Hutchinson. Proximate cause is

the act that sets off a natural chain of events that produces the injury. However, an

unforeseeable intervening cause may break the causal relationship. For example, at

least one court has stated that numerous other negative credit items on the homeowners credit

report, precluded a finding that the servicers incorrect reporting of her account status caused her

to be denied later refinancing.

The borrower will have to prove that they would not have been injured but for the lenders

negligent lending practices, and that the harm the borrower incurred was foreseeable by the

lender at the time the loan was made. The borrower has the difficult task of proving that had the

lender put them into a loan they could have afforded then they would still have made all the

payments and successfully paid off the loan.

Negligent lending is a difficult claim to make by the borrower. Historically the courts

have not been willing to allow claims of negligence against lenders. However in the

wake of the recent lending industry collapse courts are beginning to allow these claims on a more

frequent basis. A number of cases have been brought in the last 6 months that have yet to be

resolved. The mere fact that borrowers are being allowed to bring these negligence cases to court

shows that there is a willingness by judges to dig deeper into the lending practices of the banks to

find violations.

Enforcement of Lost or Destroyed Instruments

The lending and real estate industry relies heavily upon paperwork and documentation. It is the

nature of the industry to have stacks of paperwork and disclosures related to every loan and

every piece of property. This is beneficial for everyone because in theory there is a record of

every transaction that occurs and the specifics related to that transaction. However, the flip side

to that is that when a document does go missing it creates quite a legal headache. One such pieceof paperwork is the Deed of Trust or Mortgage.

A Deed of Trust is the actual legal document that creates a financial interest in the title to real

property, held by a trustee, who holds it as security for a loan. Without the Deed of Trust there is

no record that the borrower or lender has any financial interest in the real property, or that there



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was any security for the loan. Attorneys have begun to request that lender produce the Deed of

Trust in conjunction with litigation. The thinking is that if the lender cannot produce the note

then the agreement between lender and borrower is invalid and cannot be enforced. This is only

partially true.

General law in the area of lost instruments is well settled for the most part. States vary in their

exact wording and standard of proof, but overall the area of law is fairly static.

The party seeking to recover upon a lost instrument, in most cases, is the lender since

they are seeking to enforce the loan and exercise their right to foreclose. The lender then has the

burden of proving the former existence, delivery, execution, theft or loss, and

contents of the instrument. Thus, in proving up a lost or destroyed deed, the party

seeking to do so carries a very high burden in setting forth the description of the property, the

nature and extent of his or her interest therein, a description of his or her evidence of title, the

date and contents of that evidence of title, and the name of person who executed the same. While

some courts state that one seeking enforcement of a lost promissory note must by clear and

convincing evidence establish ownership of the instrument, an explanation for absence or loss of

the instrument, and the terms of the instrument, others require entitlement to payment under a

lost promissory note be proved by only a preponderance of the evidence.

It has also been said that the proof must be such as to leave no doubt, or no reasonable

doubt. Further, it has been held that parole evidence should show by a preponderance of the

evidence that a lost deed was properly executed with the formalities required by law; that proof

must be more than a mere preponderance of the evidence; and, on the contrary, that proof that

defendant executed a lost note need not be by a preponderance of the evidence.

The lender who wishes to enforce the missing instrument must prove that it once existed in order

to enforce it. If the lender cannot sufficiently prove the existence and terms of the missing

instrument, then it is like the instrument did not exist. However, this is highly unlikely. In most

cases the lender will be able to prove to the court through

circumstantial evidence the terms, execution, delivery, and consideration after showing

that proper but futile search has been made for deed where it would most likely be found.

When a borrower or borrowers attorney is met with such a position, several defenses

should be considered. These affirmative defenses may take the form of or be asserted

along the following lines, provided they are asserted in good faith:

1. Upon information and belief, the mortgage note has been paid in whole or in part by

one or more undisclosed third party(ies) who, prior to or contemporaneously with theclosing on the loan, paid the originating lender in exchange for certain unrecorded

rights to the revenues arising out of the loan documents.



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2. Upon information and belief and in connection with the matters the subject of

paragraph 1 above, Plaintiff (foreclosing party) has no financial interest in the note or

mortgage.

3. Upon information and belief, the original note was destroyed or was transferred to a

structured investment vehicle which may be located offshore, which also has no interest

in the note or mortgage or revenue thereunder.

4. Upon information and belief, the revenue stream deriving from the note and mortgage

was eviscerated upon one or more assignments of the note and mortgage to third parties and

parsing of obligations as part of the securitization process, some of whom were joined as co-

obligors and co-obligees in connection with the closing.

5. To the extent that Plaintiff has been paid on the underlying obligation or has no legal

interest therein or in the note or mortgage, or does not have lawful possession of the note or

mortgage, Plaintiffs allegations of possession and capacity to institute foreclosure constitute a

fraud upon the court.

6. Based upon one or more of the affirmative defenses set forth above, Defendant

(borrowers name) is entitled to a release and satisfaction of the note and mortgage and

dismissal of the foreclosure claim with prejudice.

These argument may still be somewhat beneficial to the borrowers because if the deed of trust is

not produced and circumstantial evidence is then used by the lender to prove the existence and

terms of the Deed of Trust, then the borrower can also introduce their own circumstantial

evidence as to terms. This could allow the borrower to focus on the terms that are most beneficial

to them.



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CURRENT STRATEGIES

1. Verify the Violation

It is important to make sure that the attorney has an accurate file from the borrower and

nothing is lost or being intentionally held back. A forensic loan audit from us will

highlight any violations made in the origination of the loan. The first thing that should be

done is that the violations should be verified. The forensic loan audit relies on the

documents given to the auditors. This means that the auditors only have the

documentation that has been given to them by the client when performing their audit.

While we do our best to make sure all documents have been received from the clients,

sometimes clients have lost documents. If a page was not provided, then it will not be

consider as part of the audit. This could cause our auditors to find a violation when in

reality the page is just missing.

The attorney for the borrower should see what the lender has in their files to see if the

lenders files and the borrowers file match. To do this the attorney should send a qualified written

request to the lender upon signing a new client, notifying them of the violation and request any

documentation they have relating to the loan to be sent back to the attorney. This will allow the

attorney to verify that there was a violation. For example, if the audit finds a HOEPA violation

because the loan was a high cost loan and no HOEPA disclosures were made, then the attorney

should send the qualified written request to the lender to determine if the lender has any

documentation that the HOEPA disclosures were in fact made.

2. Making it Cost Effective for the Lender to Give the Borrower a Loan

Modification

During the negotiations for the workout agreement, the attorney needs to seriously

evaluate the strength of the case. Some violations are more severe than others. For

example, a TILA violation will allow the borrower to rescind the loan, however, a minor

RESPA violation may only grant the borrower $2,000 to $3,000 in statutory damages.

This is important because it will determine what type of modifications the attorney and

the borrower (client) are willing to accept. The forensic loan audit will greatly assist you

in this evaluation by alerting attorney and their borrower(s) (client) to the frequency and

severity violations.

Bottom line the attorney needs to show the lender that it will be more cost effective to

give the borrower(s) a loan modification than to foreclose on the property or to fight it incourt and risk the loan ultimately being rescinded. This should be approached by

showing the lender all the costs that it will incur by holding onto the loan.



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Some of these considerations are;

the cost of foreclosure on the home when the borrower(s) ultimately defaults on the

loan, carrying cost to maintain the home while the bank holds it awaiting auction

(marketing, taxes, insurance, repairs, security),

attorney fees to defend the cause of action should the case go to court,

true overhead cost of the man hours the lender will dedicate to this case,

lender or Bank required reserves that may have to be met,

cost of defending against possible attack on foreclosure claim,

cost of negative impact on other holdings in the surrounding area (if bank has loaned in a

concentrated area). Each foreclosure could result in an additional 4% drop in value on

surrounding homes.

If the borrower raises all the different costs associated with the lender holding onto the

house and the lender is still unwilling to give the borrower a modification, then the

attorney and the borrower(s) (client) can then bring a lawsuit, enforcing their rights. The

most significant right that the borrower has is the right to rescind the transaction.

3. Bringing a Cause of Action to the Courts

The right to rescission is powerful because it means that the borrower can tender the

amount borrowed to the lender less any closing costs, fees, interest, payments made, or

any other costs associated with the loan. This usually results in an amount much less

than what was initially borrowed, and the borrower essentially got the loan for free.

The attorney has the option of enforcing Truth in Lending Act and other rescission rights

in federal district, state, or bankruptcy court. Of course, the relative advantages and

disadvantages of federal court, state court, and bankruptcy court vary from jurisdiction to

jurisdiction. The attorney will want to choose the court that fits his/her specific situation best.

For example, an attorney will not want to file in bankruptcy court unless he/she is planning on

including a bankruptcy factor into the workout agreement in same way.

Regardless of which court the attorney may choose to file in, the general approach will be the

same. The attorney needs to present their case showing that the lender violated

applicable lending regulations allowing the borrower to rescind the loan. The forensic

loan audit can be used throughout the trial process to highlight and emphasize violations made in

the originating loan documents. Also we provide access to expert witnesses who are able to

interpret the audit and testify in court as to the validity and accuracy of the audit.



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If the attorney successfully brings a cause of action to the court, the attorney will be able

to recover significant damages depending on the actual violation made in the loan. The

ultimate remedy is rescission, for reasons stated above. Other damages can include

actual damages, statutory damages, attorney fees, and in some cases punitive damages. Recentlysome courts have also begun to award loan modifications in cases that equity is required for the

loan to be enforceable, such as HELOCs, and fixed rate Seconds.

Audit Detail

The following portion of the audit file checks the detail of the

borrowers file against Federal, State & Local laws.



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MORTGAGE COMPLIANCE ANALYSIS REPORT

CE ID: 57203CZVMB

User Name: John Northrup Lender Loan Number: 0896438959

Product Name: ComplianceAnalyzer

Report Type: Post-Close Mortgage Loan Borrower Name: Rachel L Hemric

Report Date/Time: 01/31/2011 08:56 AM (PST) Property Address: 4836 Collins Rd

Report Version: 1 Hamptonville, NC 27020

RiskIndicator HOEPA TILA RESPAState & Local

Predatory

State

RegsExceptions

Policies /

Custom

FINDINGS SUMMARY

Federal HOEPA (Sections 32, 35)

Result Loan Data Comparison Data Variance

This loan is not covered by Federal HOEPA (Sections 32,35).

NOT COVERED

Federal TILA


TILA Finance Charge Test: NOT TESTED

TILA Rescission Finance Charge Test: N/A

TILA Foreclosure Rescission Finance Charge Test: NOT TESTED

TILA APR Test: PASS 7.125% 7.125% 0.000%

TILA Right of Rescission Test: N/A

Initial TIL Disclosure Date Test: N/A

Federal RESPA


This loan is not covered by Federal RESPA. NOT COVERED

GSE (Based on Fannie Mae Lender Announcements and Lender Letters)


GSE (Fannie Mae public guidelines) Predatory LendingGuidance:

PASS

GSE (Fannie Mae public guidelines) Allowable Points andFees Test:

PASS $0.00 $9,724.00 -$9,724.00

GSE (Fannie Mae public guidelines) HOEPA APR Test: N/A

GSE (Fannie Mae public guidelines) HOEPA Points and

Fees Test:

N/A

GSE (Fannie Mae public guidelines) Seller Paid Pointsand Fees Exception Test:

PASS

GSE (Fannie Mae public guidelines) Prepayment PenaltyTerm Test:

PASS

GSE (Fannie Mae public guidelines) Interest OnlyMortgage Test:

NOT TESTED

GSE (Fannie Mae public guidelines) Points and FeesAlert:

ALERT

GSE (Fannie Mae public guidelines) Alert: ALERT

NC Restrictions and Limitations on High-Cost Home Loans (NC SB 1149)



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In connection with credit secured by a consumer's principal dwelling that does not meet the definition of open-end credit in 226.2(a)(20), a creditor shall not structure a home-secured loan as an open-end plan to evade therequirements of 226.32 or 226.35.

Federal TILA

This loan was not tested against the TILA finance charge test. (12 CFR 226.18(d)(1))The disclosed finance charge was not provided.

NOT TESTED

The TILA rescission finance charge test does not apply to this loan due to one or more of the followingfindings: (12 CFR 226.23(a)(1),(f)(1))

The loan is a "residential mortgage transaction," meaning a transaction in which a mortgage, deed of trust,

purchase money security interest arising under an installment sales contract, or equivalent consensualsecurity interest is created or retained in the consumer's principal dwelling to finance the acquisition or initialconstruction of that dwelling; orThe loan is not a credit transaction in which a security interest is or will be retained or acquired in aconsumer's principal dwelling; orThe loan is a refinancing or consolidation by the same creditor of an extension of credit already secured bythe consumer's principal dwelling where the right of rescission shall apply only to the extent the new amountfinanced exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, andamounts attributed solely to the costs of the refinancing or consolidation; orThe loan is not a closed-end credit transaction.

N/A

This loan was not tested against the TILA foreclosure rescission finance charge test due to one or more ofthe following findings: (12 CFR 226.23(h))

A disclosed finance charge was not provided; or

Your company settings are not configured to run the TILA foreclosure rescission finance charge test as partof an audit report.

NOT TESTED

This loan passed the TILA APR test due to one or more of the following findings: (12 CFR 226.22(a)(2),(4))The disclosed annual percentage rate (APR) of 7.125% is considered accurate because it is not more than1/8 of 1 percentage point above or below the APR of 7.125% as determined in accordance with the actuarialmethod; orThe disclosed APR results from the disclosed finance charge, and the disclosed finance charge isconsidered accurate under 226.18(d)(1) (the finance charge test), or for purposes of rescission thedisclosed finance charge is considered accurate under 226.23(g) or (h) (the rescission finance charge testor the foreclosure rescission finance charge test), whichever applies.

PASS

The TILA right of rescission test is not applicable to this loan due to one or more of the following findings:Closed-end (12 CFR 226.23(a), (f)) , Open-end (12 CFR 226.15(a), (f))

The loan is a "residential mortgage transaction," meaning a transaction in which a mortgage, deed of trust,purchase money security interest arising under an installment sales contract, or equivalent consensualsecurity interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial

construction of that dwelling; orThe loan is not a credit transaction in which a security interest is or will be retained or acquired in aconsumer's principal dwelling; orThe loan is a refinancing or consolidation by the same creditor of an extension of credit already secured bythe consumer's principal dwelling where the right of rescission shall apply only to the extent the new amountfinanced exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, andamounts attributed solely to the costs of the refinancing or consolidation.

N/A

The initial TIL disclosure date test does not apply to this loan due to one of the following:Closed-end (12 CFR 226.17(b) , as amended in 2009) ,Open-end (12 CFR 226.5b(1))

The date creditor received the application (formerly application date) is on or after July 30, 2009, and theloan is not a mortgage transaction subject to the Real Estate Settlement Procedures Act (12 U.S.C. 2601 etseq.) that is secured by the consumer's dwelling; orThe application date of the loan is before July 30, 2009, and the loan is not a "residential mortgagetransaction" subject to the Real Estate Settlement Procedures Act (RESPA).

N/A

Federal RESPA

This loan is not covered by the Real Estate Settlement Procedures Act (RESPA) due to one or more of thefollowing findings: ( 24 CFR 3500.2(b) , 3500.5 )

The loan is not considered a federally related mortgage loan, which the system interprets as any loan(other than temporary financing, such as a construction or bridge loan) secured by a structure or structuresdesigned principally for occupancy of from one to four families;The loan is an open-end credit plan; or

The loan has a business purpose.

NOT COVERED

GSE (Based on Fannie Mae Lender Announcements and Lender Letters)

This loan passed the predatory lending guidance test due to the following findings:The loan passed the allowable points and fees test.

PASS



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The loan does not exceed the HOEPA APR threshold for primary residences.

The loan does not exceed the HOEPA points and fees threshold for primary residences.

This loan passed the total points and fees test. (Fannie Mae Lender Letter Ann. 06-04)The total points and fees charged to the borrower do not exceed the greater of 5% of the mortgage amount or$1,000.

PASS

The GSE HOEPA APR test is not applicable to this loan.

The GSE HOEPA APR test does not apply to investment properties or secondary residences.N/A

The GSE HOEPA points and fees test is not applicable to this loan.The GSE HOEPA points and fees test does not apply to investment properties or secondary residences.

N/A

This loan passed the seller-paid points and fees exception test due to one or more of the followingfindings:The loan is not covered by GSE guidance.

The loan is not a purchase loan.

The loan is a purchase loan covered by GSE guidance and a value was provided for "Seller-Paid Points andFees."

PASS

This loan passed the prepayment penalty term test. (Fannie Mae 2006 Selling Guide, Part IV, 201.02)The loan does not have a prepayment penalty with a term exceeding 3 years.

PASS

This loan is not tested against the interest only mortgage test. (Fannie Mae Announcement SEL-2010-06)The loan was not tested against the interest only mortgage test for one or more of the following findings:

The latest available closing date is before the effective date of June 19, 2010.

The loan provides an interest-only feature and may not be eligible for purchase by Fannie Mae.

NOT TESTED

GSE (Fannie Mae Public Guidelines) Points and Fees AlertExcludable Bona Fide Discount Points (Fannie Mae Lender Letter 04/11/2000)

Points and fees do not include "bona fide discount points," a term that is undefined by the GSE.Checking the "Bona Fide - GSE" box next to the Loan Discount Fee on the loan data entry form will indicate thatthe discount points are bond fide. Check the box only if you know that your institution's policies for discount pointsmeet the GSE's criteria and if they can be verified for the loan in question.

ALERT

DisclaimerThis set of lending policies tests have been prepared in accordance with information and guidance made publiclyavailable by the Government Sponsored Enterprises (GSEs). The results rendered do not constitute an actualapproval or decision of any type on the part of any GSE with regard to the subject loan. The results are merely anopinion from our decision engine, representing one interpretation of the criteria provided by the GSEs. In the eventthat an approval or decision is sought from any GSE, the GSE will engage in its own separate decision-makingprocess, and such process may produce a result that varies from the results set forth in these tests.

ALERT

NC Restrictions and Limitations on High-Cost Home Loans (NC SB 1149)

This loan is not covered by NC SB 1149 due to one or more of the following findings: (NC SB 1149 [G.S.

24-10.2(a), 24-1.1E(a)(4)]) (NC HB 1182 amendments to NC SB 1149 [G.S. 24-10.2(a), 24-1.1E(a)(4)]) (NCHB 1817 [G.S. 24-1.1E(a)(5), as amended Jan. 2008])

The loan is not a "consumer home loan". This means the loan is not one in which the borrower is a naturalperson, the debt is incurred by the borrower primarily for personal, family, or household purposes, and theloan is secured by a mortgage or deed of trust upon real estate upon which there is located a structure orstructures designed principally for occupancy of from one to four families occupied by the borrower as theborrower's principal dwelling.The loan was made or entered into before 10/1/1999.

NOT COVERED

NC Rate Spread Home Loan Article (Before October 1, 2009)

This loan is not covered by the rate spread home loan provisions of NC HB 1817. (NC HB 1817 Section 4(SL2007-0352))The closing date of the loan (or date creditor received application (formerly application date), if the closing date isunknown) occurs either:

Before the effective date of January 1, 2008; orAfter October 1, 2009.

NOT COVERED

NC Rate Spread Home Loan Article (October 1, 2009 and after)

This loan is not covered by the rate spread home loan provisions of NC HB 1222. ( NC GS 24-1.1F(a)(7) )The closing date of the loan (or the date creditor received application (formerly application date) , if the closing dateis unknown) occurs before the effective date of October 1, 2009.

NOT COVERED

State Regulations

This loan is not applicable to the interest rate test.The terms of the loan and/or the lender's license type in the state where the property is located do not imply anyinterest rate restrictions.

N/A

This loan is not applicable to the grace period test. N/A



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The terms of the loan and/or the lender's license type in the state where the property is located do not imply anygrace period restrictions.

This loan is not applicable to the late fees test.

The terms of the loan and/or the lender's license type in the state where the property is located do not imply anyrestrictions on late fees.

N/A

This loan is not applicable to the prepayment term test.

The terms of the loan and/or the lender's license type in the state where the property is located do not imply anyrestrictions on prepayment term.

N/A

State Regulations Restricted Fees

The first lien lender fees test is not applicable to this loan due to one or more of the following findings: (NC24-1.1A(e))

The loan is for at least $300,000; or

The loan is for investment purposes.

N/A

The first lien broker fees test is not applicable to this loan due to one or more of the following findings:(NC 24-1.1A(e))

The loan is for at least $300,000; or

The loan is for investment purposes.

N/A

This loan is not tested against the second lien lender fees test.

The loan is not a second lien loan.NOT TESTED

This loan is not applicable to the bona fide discount points test due to one of the following findings:The loan is for investment purposes (NC 24-9(a)(3)(c), 24-9(b)); or

The loan is a first lien mortgage and has a principal amount that is less than $10,000 (NC 24-1.1A(c), (c1));orThe loan is a first lien mortgage and has a principal amount that is greater than or equal to $300,000 (NCGS 24-9(b)); orThe loan is a second lien mortgage. (NC 24-1.1A(e))

N/A

This loan is not applicable to the assumption fee test. (NC 24-9(a)(3)(c), 24-9(b))

The loan either is for investment purposes or has a principal amount that is greater than or equal to $300,000.N/A

LOAN DETAIL

Client

CE ID: 57203CZVMB User Name: John Northrup

Report Type: Post-Close Mortgage Loan

Lender

Lender Name: Regions Bank dba Regions Mortgage :

Lender Loan Number: 0896438959 :

Originator: First Carolina Mortgage Inc. :

MIN: :

License Type: North Carolina Mortgage Lender License

DIDMCA Exempt: No

HUD Approved Lender: Yes

Policies

Default:

Lending Policy: GSE (Fannie Mae public guidelines)

Borrower

First Name: Rachel L Last Name: Hemric

Total Income: $12,173.00 / month DTI Ratio: 26.530%

Property

Address:Number Street Name Type (St, Ave, etc.) Direction Unit #

4836 Collins RdCity County State Zip

Hamptonville NC 27020

Type: Detached SFD Number of Units: 1

Occupancy: Investment Property



24/47


25/47

800: Items Payable in Connection with Loan

PrepaidFinanceCharges

FinancedBy Lender

CompensationTo

801 Loan Origination Fee $ Lender

802 Loan Discount Fee $ Bona Fide - GSEBona Fide - State

Lender

803 Appraisal Fee $ Other

804 Credit Report Fee $ Other

805 Lender Inspection Fee (performed prior toclosing)

$ Other

Lender Inspection Fee (performed postclosing)

$ Other

806 Mortgage Insurance Application Fee $ Other

807 Assumption Fee $ Other

Modification Fee $ Lender

Tie-in Fee $ Other

Mortgage Broker Fee (Direct) $

Mortgage Broker Fee (Indirect / POC) $

Yield Spread Premium (Indirect / POC) $

CLO Access Fee $ Other

Application Fee $ Lender

Rate Lock Fee $ OtherCommitment Fee $ Lender

Processing Fee $ Lender

Underwriting Fee $ Lender

Administration Fee $ Lender

Appraisal Review Fee $ Lender

Appraisal Re-Inspection Fee $ Lender

Flood Determination - Initial Fee $ Other

Flood Determination - Life of Loan Fee $ Other

Document Preparation Fee $ Lender

Document Signing Fee $ Lender

Courier / Messenger Fee $ Other

Tax Related Service Fee $ Other

Wire Transfer Fee $ Other

Warehousing Fee $ Other

Advance Mortgage Payments $ Other

Credit Life Insurance Premium $ Other

Accident Insurance Premium $ Other

Health Insurance Premium $ Other

Loss of Income Insurance Premium $ Other

Debt Cancellation Fee $ Other

Prepayment Penalty $ Other

Compliance Audit / Quality Control Fee $ Other

Seller-Paid Points and Fees $

$

$$

$

$

$

$

$

900: Items Required by Lender to be Paid in Advance


FinancedBy Lender

CompensationTo

901 Interest $ for day(s) Lender



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902 Mortgage Insurance Premium $ Other

903 Hazard Insurance Premium $ Other

County Property Taxes $ Other

Flood Insurance Premium $ Other

$

$$

$

1000: Reserves Deposited with Lender


FinancedBy Lender

CompensationTo

1001 Hazard Insurance Reserve $ Other

1002 Mortgage Insurance Reserve $ Other

1003 City Property Taxes Reserve $ Other

1004 County Property Taxes Reserve $ Other

1005 Annual Assessments $ Other

$$

$

$

$

1100: Title Charges


FinancedBy Lender

CompensationTo

1101 Settlement / Closing / Escrow Fee $ Other

1102 Abstract / Title Search Fee $ Other

1103 Title Examination Fee $ Other

1104 Title Insurance Binder Fee $ Other1105 Title Document Preparation Fee $ Other

1106 Notary Fee $ Other

1107 Attorney's Fee $ Excludable due to borrowerchoice

Other

Attorney's Fee (Other) $ Excludable due to borrowerchoice

Other

1108 Title Insurance $ Other

1109 Lender's Coverage $ Other

1110 Owner's Coverage $ Other

Assignment Endorsement Fee $ Other

Sub-Escrow Fee $ Other

Reconveyance Fee $ Other

Title Courier Fee $ OtherFunding, Wire, or Disbursement Fee $ Other

$

$

$

$

$

1200: Government Recording and Transfer Charges



27/47


FinancedBy Lender

CompensationTo

1201 Recording Fee $ Other

1202 City / County / Tax / Stamps $ Other

1203 State Tax / Stamps $ Other

Subordination Recording Fee $ Other

Assignment Recording Fee $ Other

Recording Service Fee $ Other

Intangible Tax $ Other

$

$

$$

1300: Additional Settlement Charges


FinancedBy Lender

CompensationTo

1301 Survey Fee $ Other

1302 Pest Inspection Fee $ Other

Architectural / Engineering Fee $ Other

Building Permit $ Other

$

$

$$

$



28/47

SummaryofApplicable

Laws

andOtherInformation



29/47

Lendertoprovidespecialinformationbooklet.Subjecttotheexceptionssetforthinthisparagraph,thelendershallprovideacopyofthespecialinformationbooklettoapersonfromwhomthelenderreceives,orforwhomthelenderpreparesawrittenapplicationforafederallyrelatedmortgageloan.Whentwoormorepersonsapplytogetherforaloan,thelenderisincomplianceifthelenderprovidesacopyofthebooklettooneofthepersonsapplying.

RESPALawSec.3500.6Specialinformationbookletattimeofloanapplication

(a)

Thelendershallprovidethespecialinformationbookletbydeliveringitorplacingitinthemailtotheapplicantnotlaterthanthreebusinessdays(asthattermisdefinedin3500.2)aftertheapplicationisreceivedorprepared.However,ifthelenderdeniestheborrower'sapplicationorcreditbeforetheendofthethreebusinessdayperiod,thenthelenderneednotprovidethebooklettotheborrower.Ifaborrowerusesamortgagebroker,themortgagebrokershalldistributethespecialinformationbookletandthelenderneednotdoso.

(1)

Inthecaseofafederallyrelatedmortgageloaninvolvinganopenendedcreditplan(asdefinedin226.2(a)(20)

of

Regulation

Z

(12

CFR))

a

lender

or

mortgage

broker

that

provides

the

borrower

with

a

copy

of

the

brochureentitled"WhenYourHomeisontheLine:WhatyoushouldknowaboutHomeEquitylinesofcredit",oranysuccessorbrochureissuedbytheBoardofGovernorsoftheFederalReserveSystem,isdeemedtobeincompliancewiththissection.

(2)

Inthecatagoriesoftransactionssetforthattheendofthisparagraph,thelenderormortgagebrokerdoesnothavetoprovidethebooklettotheborrower.Undertheauthorityofsection19(a)ofRESPA(12U.S.C.2617(a)),thesecretarymaychoosetoendorsetheformsorbookletsofotherFederalagencies.Insuchanevent,therequirementsfordeliverybylendersandtheavailabilityofthebookletoralternativematerialsforthesetransactionswillbesetforthinaNoticeintheFederalRegister.Thisparagraphshallapplytothefollowingtransactions:

(3)

Refinancingtransactions;(i)Closedendloansasdefinedin12CFR226.2(a)(10)ofRegulationZ,whenthelendertakesasubordinatelien;(ii)Reversemortgages;and(iii)Anyotherfederallyrelatedmortgageloanwhosepurposeisnotthepurchaseofa1to4familyresidence

(iv)

Revision.Thesecretarymay,fromtimetotime,revisethespecialinformationbookletbypublishinganoticeintheFederalRegister.(b)

Reproduction.Thespecialinformationbookletmaybereproduced,inanyform,providedthatnochangeismadeotherthanasprovidedunderparagraph(d)ofthissection.ThespecialinformationbookletmaynotbemadeapartofalargerdocumentforpurposesofdistributionunderRESPAandthissection.Anycolor,size,andqualityofpaper,typeofprint,andmethodofreproductionmaybeusedsolongasthebookletisclearlylegible.

(c)



30/47

Permissiblechanges.(1)Nochangesto,deletionsfrom,oradditionstothespecialinformationbookletcurrentlyprescribedbhytheSecretaryshallbemadeotherthanthosespecifiedinthisparagraph(d)oranyothersapprovedinwritingbytheSecretary.ArequestoftheSecretaryforapprovalofanychangesshallbesubmittedinwritingtotheaddressindicatedin3500.3,statingthereasonswhytheapplicantbelievessuchchanges,deletions,oradditionsarenecessary.

(d)

Thecoverofthebookletmaybeinanyformandmaycontainanydrawings,pictures,orartwork,providedthewords"settlementcosts"areusedinthetitle.Names,addresses,andtelephonenumbersofthelender,orothersimilarinformation,mayappearonthecover,butnotdiscussionofthematterscoveredinthebookletshallappearonthecover.

(2)

ThespecialinformationbookletmaybetranslatedintolanguagesotherthanEnglish.(3)



31/47

RegulationZ(12CFR226)implementstheTruthinLendingAct(TILA)(15USC1601etseq),whichwasenactedin

1968asTitleIoftheConsumerCreditProtectionAct.Sinceitsimplementation,theregulationhasbeenamended

manytimestoincorporatechangestotheTILAortoaddresschangesintheconsumercreditmarketplace.

TILALawRegulationZ

Inthe1990's,RegulationZwasamendedtoimplementtheHomeOwnershipandEquityProtectionActof1994,

whichimposednewdisclosurerequirementsandsubstantivelimitationsoncertainhighercostclosedendmortgage

loansandincludednewdisclosurerequirementsforreversemortgagetransactions.

TheTruthinLendingActisintendedtoensurethatcredittermsaredisclosedinameaningfulwaysothatconsumers

cancomparecredittermsmorereadilyandmoreknowledgeably.

Thefinancecharge(226.4)isameasureofthecostofconsumercreditrepresentedindollarsandcents.

AlongwiththeAPRdisclosures,thedisclosureofthefinancechargeiscentraltotheuniformcreditcost

disclosureenvisionedbytheTILA.OneofthemorecomplextasksunderRegulationZisdetermining

whetherachargeassociatedwithanextensionofcreditmustbeincludedinorexcludedfromthedisclosed

financecharge.Thefinancechargeinitiallyincludesanychargethatis,orwillbe,connectedwithaspecific

loan.Chargesimposedbythirdpartiesarefinancechargesiftheinstitutionrequiresuseofthethirdparty.

Chargesimposedbysettlementorclosingagentsarefinancechargesiftheinstitutionrequiresthespecific

servicethatgaverisetothechargeandthechargeisnototherwiseexcluded.

(A)

Creditsecuredbyrealpropertyoradwelling,thedisclosedfinancechargeisconsidered

accurateifitdoesnotvaryfromtheactualfinancechargebymorethan$100.00.Also,

overstatmentsarenotviolations.

(1)

DeterminationoftheFinanceChargeandtheAPR

Aprepaidfinancecharge(226.18(b))isanyfinancechargethat(1)ispaidseparatelytothefinancial

institutionortoathirdparty,incashorbycheck,beforeoratclosing,settlement,orconsummationofa

transactionor(2)iswithheldfromtheproceedsofthecreditatanytime.Prepaidfinancecharges

effectivelyreducetheamountoffundsavailablefortheconsumer'suse,usuallybeforeoratthetimethe

transactionisconsummated.

(B)

ForcertaintransactionsconsummatedonorafterSeptember30,1995,thefinancechargetolerancesare

asnotedbelow:

(C)

Rescissionrightsafterthethreebusinessdayrescissionperiod,thedisclosedfinancechargeis

consideredaccurateifitdoesnotvaryfromtheactualfinancechargebymorethanonehalfof

1percentofthecreditextended.

(2)

Rescissionrightsinforeclosure,thedisclosedfinancechargeisconsideredaccurateifitdoes

notvaryfromtheactualfinancechargebymorethan$35.00.Also,overstatementsarenot

consideredviolationsandtheconsumerisentitledtorescindifamortgagebrokerfeeisnot

includedasafinancecharge.

(3)

Creditcostsmayvarydependingontheinterestrate,theamountoftheloanandothercharges,thetiming

andamountsofadvances,andtherepaymentschedule(226.22).TheAnnualPercentageRate(APR),which

mustbedisclosedinnearlyallconsumercredittransactions,isdesignedtotakeintoaccountallrelevant

factorsandtoprovideauniformmeasureforcomparingthecostsofvariouscredittransactions.

(D)



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TheAPRisameasureofthetotalcostofcredit,expressedasanominalyearlyrate.Itrelatestheamountand

timingofvaluereceivedbytheconsumertotheamountandtimingofpaymentsmadebytheconsumer.The

disclosureoftheAPRiscentraltotheuniformcreditcostdisclosureenvisionedbytheTILA.

(E)

Thedisclosedannualpercentagerate(APR)onaclosedendtransactionisconsideredaccurateifforregular

transactions(includinganysingleadvancetransactionwithequalpaymentsandequalpaymentperiodsor

transactionwithanirregularfirstorlastpaymentand/oranirregularfirstpaymentperiod),theAPRiswithin

oneeighthof1percentagepointoftheAPRcalculatedunderRegulationZ(section226.23(a)(2)).

(F)

Ifforirregulartransactions(includingmultipleadvancetransactionsandothertransactionsnotconsidered

regular),theAPRiswithinonequarterof1percentagepointoftheAPRcalculatedunderRegulationZ

(section226.22(a)(3)).

(G)

Ifformortgagetransactions,theAPRiswithinoneeighthof1percentagepointforregulartransactionsor

onequarterof1percentagepointforirregulartransactionsandtherateresultsfromthedisclosedfinance

chargewouldbeconsideredaccurateundersection226.18(d)(1)orsection226.23(g)or(h)ofRegulationZ

(section226.22(a)(4)).

(H)

VariableRateLoans(226.18(f))

Ifthetermsofthelegalobligationallowthefinancialinstitution,afterconsummationofthetransaction,toincrease

theAPR,thefinancialinstitutionmustfurnishtheconsumerwithcertaininformationonvariablerates.Someofthe

moretransactionspecificvariableratedisclosurerequirementsundersection226.18:

Disclosuresforthevariablerateloansmustcoverthefulltermofthetransactionandmustbebasedonthe

termsineffecatthetimeofconsummation.

(A)

IFthevariableratetransactionincludeseitherasellerbuydownthatisreflectedinacontractoraconsumer

buydown,thedisclosedAPRshouldbeacompositeratebasedonthelowerrateforthebuydownperiodand

theratethatisthebasisforthevariableratefeaturefortheremainderoftheterm.

(B)

Iftheinitialrateisnotdeterminedbytheindexorformulausedtomakelaterinterestrateadjustments,asin

adiscountedAPRmustreflectacompositeratebasedontheinitialrateforaslongasitisappliedand,for

theremainderoftheterm,theindexorformulaatthetimeofconsummation(thatis,thefullyindexedrate).

(C)

Ifaloancontainsarateorpaymentcapthatwouldpreventtheinitialrate,orpaymentatthetimeofthe

adjustment,fromchangingtothefullyindexedrate,theeffectofthatrateorpaymentcapneedstobe

reflectedinthedisclosure.

(D)

Theindexatconsummationneednotbeusedifthecontractprovidesforadelayinimplementationof

changesinanindexvalue.Forexample,thecontractindicatesthatfutureratechangesarebasedonthe

indexvalueineffectforsomespecifiedperiod,suchasfortyfivedaysbeforethechangedate.Instead,the

financialinstitutionmayuseanyratefromthedateofconsummationbacktothebeginningofthespecified

period(forexample,duringthepreviousfortyfivedayperiod).

(E)



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SpecialRulesforCertainHomeMortgageTransactions

Therequirementsofsection226.32applytoaconsumercredittransactionsecuredbytheconsumer'sprincipal

dwellinginwhicheither:

TheAPRatconsummationwillexceedbymorethan8percentagepointsforfirstlienmortgageloans,orby

morethan10percentagepointsforsubordinatelienmortgageloans,theyieldonTreasurysecuritieshaving

periodsofmaturitycomparabletotheloan'smaturity(asofthe15thdayofthemonthimmediately

preceedingthemonthinwhichtheapplicationoftheextensionofcreditisreceivedbythecreditor).

(A)

Thetotalpointsandfeespayablebytheconsumeratorbeforetheloanclosingwillexceedthegreaterof8

percentofthetotalloanamountoradollaramountthatisadjustedannuallyonthebasisofchangesinthe

consumerpriceindex.

(B)

Thefollowingareexemptfromsection226.32:

Residentialmortgagetransactions(generallypurchasemoneymortgages).(A)

Reversemortgagetransactionssubjecttosection226.33ofRegulationZ.(B)

OpenendcreditplanssubjecttosubpartBoftheregulation.(C)



34/47

RegulationBTILALaw

Sec.202.9Notifications(g)DisclosureofCreditScoresbyCertainMortgageLenders(1)Ingeneral,anypersonwhomakesorarrangesloansandwhousesconsumercreditscore,asdefinedinsubsection(f),inconnectionwithanapplicationinitiatedorsoughtbyaconsumerforaclosedendloanortheestablishmentofanopenendloanforaconsumerpurposethatissecuredb1to4unitsofresidentialrealproperty(hearafterinthissubsectionreferredtoasthe"lender")shallprovidethefollowingtotheconsumerassoonasreasonablypracticable:(A)InformationRequiredunderSubsection(f)

Ingeneral,acopyoftheinformationindentifiedinsubsection(f)thatwasobtainedfromaconsumerreportingagencyorwasdevelopedandusedbytheuseroftheinformation.(i)

Noticeundersubparagraph(D).Inadditiontotheinformationprovidedtoitbyathirdpartythatprovidedthecreditscoreorscores,alenderisonlyrequiredtoprovidethenoticecontainedinsubparagraph(D).(ii)

(B)DisclosuresinCaseofAutomatedUnderwritingSystemIngeneral,ifapersonthatissubjecttothissubsectionusesanautomatedunderwritingsystemtounderwritealoan,thatpersonmaysatisfytheobligationtoprovideacreditscorebydisclosingacreditscoreandassociatedkeyfactorssuppliedbyaconsumerreportingagency.

(i)

Numericalcreditscore.However,ifanumericalcreditscoreisgeneratedbyanautomatedunderwritingsystemusedbyanenterprise,andthatscoreisdisclosedtotheperson,thescoreshallbedisclosedtotheconsumerconsistentwithsubparagraph(C).

(ii)

Enterprisedefined.Forpurposesofthissubparagraph,theterm"enterprise"hasthesamemeaningasinparagraph(6)ofsection1303iftheFederalHousingEnterprisesFinancialSafetyandSoundnessActof1992.

(iii)

(C)Disclosuresofcreditscoresnotobtainedfromaconsumerreportingagency.Apersonthatissubjecttotheprovisionsofthissubsectionandthatusesacreditscoreotherthanacreditscoreprovidedbyaconsumerreportingagency,maysatisfytheobligationtoprovideacreditscorebydisclosingacreditscoreandassociatedkeyfactorssuppliedbyaconsumerreportingagency.(D)Noticetohomeloanapplicants.Acopyofthefollowingnotice,whichshallincludethename,address,andtelephonenumberofeachconsumerreportingagencyprovidingacreditscorethatwasused:"NoticeToTheHomeLoanApplicant""Inconnectionwithyourapplicationforahomeloan,thelendermustdisclosedtoyouthescorethataconsumerreportingagencydistributedtousersandthelenderusedinconnectionwithyourhomeloan,andthekeyfactorsaffectingyourcreditscores."



35/47

"Thecreditscoreisacomputergeneratedsummarycalculatedatthetimeoftherequestandbasedoninformation

thataconsumerreportingagencyorlenderhasonfile.Thescoresarebasedondataaboutyourcredithistoryand

paymentpatterns.Creditscoresareimportantbecausetheyareusedtoassistthelenderindeterminingwhether

youwillobtainaloan.Theymayalsobeusedtodeterminewhatinterestrateyoumaybeofferedonthemortgage.

Creditscorescanchangeovertime,dependingonyourconduct,howyourcredithistoryandpaymentpatterns

change,andhowcreditscoringtechnologieschange.Becausethescoreisbasedoninformationinyourcredit

history,itisveryimportantthatyoureviewthecreditrelatedinformationthatisbeingfurnishedtomakesureitis

accurate.Creditrecordsmayvaryfromonecompanytoanother."

"Ifyouhavequesitonsaboutyourcreditscoreorthecreditinformationthatisfurnishedtoyou,contactthe

consumerreportingagencyattheaddressandtelephonenumberprovidedwiththisnotice,orcontactthelender,if

thelenderdevelopedorgeneratedthecreditscore."

Theconsumerreportingagencyplaysnopartinthedecisiontotakeanyactionontheloanapplicationandisunable

toprovideyouwithspecificreasonsforthedecisiononaloanapplication.

"Ifyouhavequesitonsconcerningthetermsoftheloan,contactthelender."

(E)Actionsnotrequiredunderthissubsection.Thissubsectionshallnotrequireanypersonto:

explaintheinformationprovidedpursuanttosubsection(f);(i)

discloseanyinformationotherthanacreditscoreorkeyfactors,asdefinedinsubsection(f);(ii)

discloseanycreditscoreorrelatedinformationobtainedbytheuserafteraloanhasclosed;(iii)

providemorethanonedisclosureperloantransaction;(iv)

orprovidethedisclosurerequiredbythissubsectionwhenanotherpersonhasmadethedisclosuretothe

consumerforthatloantransaction.

(v)

(F)NoObligationforContent

Ingeneral,theobligationofanypersonpursuanttothissubsectionshallbelimitedsoleytoprovidinga

copyoftheinformationthatwasreceivedfromtheconsumerreportingagency.(i)

Limitonliability.Nopersonhasliabilityunderthissubsectionforthecontentofthatinformationorforthe

omissionoranyinformationwithinthereportprovidedbytheconsumerreportingagency.

(ii)

(G)Persondefinedasexcludingenterprise.Asusedinthissubsection,theterm"person"doesnotincludean

enterprise(asdefinedinparagraph(6)ofsection1303oftheFederalHousingEnterprisesFinancialSafetyand

SoundnessActof1992).

(2)ProhibitiononDisclosureClausesNullandVoid

Ingeneral,anyprovisioninacontractthatprohibitsthedisclosureofacreditscorebyapersonwhomakes

orarrangesloansoraconsumerreportingagencyisvoid.

(A)

Noliabilityfordisclosureunderthissubsection,alendershallnothaveliabilityunderanycontractual

provisionfordisclosureofacreditscorepursuanttothissubsection.

(B)



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Definition:A"consumer"isanindividualwhoobtainsorhasobtainedafinancialproductorservicefromafinancial

institutionthatistobeusedprimarilyforpersonal,family,orhouseholdpurposes,orthatindividual'slegal

representative.

GLBLaw(Gramm,Leach,BlileyAct)FederalTradeCommission

Provideaninitial(or"shortform")noticeabouttheavailabilityoftheprivacypolicyifthefinancialinstitutionshares

informationoutsidethepermittedexceptions.

BureauofConsumerProtection

DivisionofFinancialPractices

TheGrammLeachBlileyAct

PrivacyofConsumerFinancialInformation

IV.ConsumersandCustomers

A.Consumers

ExamplesofConsumerRelationships:

*Applyingforaloan

*ObtainingacashfromaforeignATM,evenifitocurrsonaregularbasis

*Cashingacheckwithacheckcashingcompany

*Arrangingforawiretransfer

GeneralObligationstoConsumers

Provideanoptoutnoticewitha"reasonableopportunity"tooptoutbeforedisclosingnonpublicpersonal

informationaboutthemotnonaffiliatedthirdparties,suchas30daysfromthedatethenoticeismailed.

Provideanoptoutnoticewiththeinitialnoticeorseparatelypriortothefinancialinstitutionsharingnonpublic

personalinformationaboutthemotnonaffiliatedthirdparties.

Ifaconsumerelectstooptoutofallorcertaindisclosures,afinancialinstitutionmusthonortheoptoutdirectionas

soonasisreasonablypracticableaftertheoptoutisreceived.

Ifyouchangeyourprivacypracticessuchthatthemostrecentprivacynoticeyouprovidedtoaconsumerisno

longeraccurate(e.g.youdiscloseanewcategoryofNPItoanewnonaffliatedthirdpartyoutsideofspecific

exceptionsandthosechangesarenotadequatelydescribedinyourpriornotice),youmustprovidenewrevisedand

optoutnotices.



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ALTERNATIVE CAUSES OF ACTION

Even if there may have not been any technical violations found in your loan through theaudit process, there may still be a cause of action against the lender. There are a numberof areas of law that address the predatory lending and unfair trade practices. Theavailability of these subsequent causes of action will depend greatly on the specific factsof your case.

Contractual Causes of Action

Breach of ContractBorrower may claim that the Lender breached its contractual obligations to Plaintiff,including, without limitation, those obligations created by the Note and SecurityAgreement and its oral agreement to make a residential mortgage loan as described on theLoan Application.

Breach of Oral Agreement - Campbell v. Machias, 865 F. Supp. 26 (D. Me. 1994).

Borrower may allege that when they applied for a loan, the lender's loan officer madecertain statements and representations about the nature and character of the loan. Forexample she would be required to make a five-percent downpayment and security on thehome but no security on her land. Borrowers can claim that, by accepting their loanapplication, the Lender offered her a loan in compliance with those representations.Borrower further contends that, when they accepted this offer, the parties entered into anoral agreement. Borrower argues that the Lender breached this oral agreement by failingto comply with the representations made but the loan officer.

It should be noted that an oral promise to enter into a home loan agreement, whichusually extends over a number of years, would very likely present problems under moststates Statute of Frauds.

Translation of Contracts negotiated in language other than English - CA Civil Code

1632(b)

CA Civil Code 1632(b) states that any person engaged in trade or business whonegotiates primarily in Spanish, Chinese, Tagalong, Vietnamese, or Korean, orally or inwriting, in the course of entering into any of the following, shall deliver to the other partyto the contract or agreement and prior to the execution thereof, a translation of thecontract or agreement in the language in which the contract or agreement was negotiated,

which includes a translation of every term and condition in that contract or agreement

A borrower, who negotiated the loan in a language other than English, must be providedwith a copy of the agreement in the language in which you negotiated. This applies to



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disclosures required by Regulation M, Regulation Z, Truth in Lending Act, or any otherdisclosures promulgated by the Board of Governors of the Federal Reserve System

If the borrower is not provided a copy of the agreement in the language in which it wasnegotiated in then Cal. Civ. Code 1632(k) states upon a failure to comply with theprovision of this section, the person aggrieved may rescind the contract or agreement.

Tort Claims

Intentional Infliction of Emotional Distress - FDIC v. S. Prawer & Co., 829 F.Supp.

439, 449 (D.Me.1993)

Borrower may possibly make a claim of negligent and intentional infliction of emotionaldistress. This is only applicable in instances where the Lender has done something aboveand beyond the traditional notions of reasonableness. For example, a bank officerrefusing to provide information, berating the borrower and calling them names in a loudvoice in the middle of the bank office when a large number of people were present andcould hear him. Another example of this would be the bank attempting to disrupt theborrowers relationship with their attorney and to intimidate them into halting theirinvestigation by taking extreme actions, including filing false criminal charges against

her for stealing the bank's file on the burrowers loan.

To succeed on a claim for intentional infliction of emotional distress a plaintiff mustshow that:

The defendant acted intentionally, recklessly or was substantially certain thatsevere emotional distress would result from its conduct;

The defendant's conduct was so extreme and outrageous as to exceed all possiblebounds of decency and must be regarded as atrocious and utterly intolerable in acivilized community;

The defendant's conduct caused the plaintiff emotional distress; and Plaintiff's emotional distress was so severe that no person reasonably could be

expected to endure it.

Negligent Infliction of Emotional Distress - Prawer, 829 F.Supp. 451.

The borrower may bring a claim of negligent infliction of emotional. A claim ofnegligent infliction of emotional distress requires a plaintiff to prove:

The defendant acted negligently, That psychic injury was foreseeable given the nature of the defendant's conduct,

and

The plaintiff suffered severe emotional distress as a result of the defendant'snegligence.

Fraud/Misrepresentation

The traditional elements of fraud are frequently more difficult to establish than adeception claim under an Unfair Deceptive Acts and Practices (UDAP) statute.However, in some instances fraud causes of action can be used quite effectively.



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People Trust & Saving Bank v. Humphrey, 451 N.E. 2d 1104 (Ind. Ct. App. 1983).

In this case, the consumers went to their own bank for a home construction loan. Thebank promised them a good loan at a 9.5% rate. That was merely the initial rate. Thepermanent financing was actually a variable rate loan and included a clause that allowedthe bank to demand full payment at their discretion. The court held that when parties toa contract have prior understanding about the contract terms, and the party responsible fordrafting the contract includes contrary terms and then allows the other party to sign it

without informing him of the changes, the drafters conduct is fraudulent. The court inHumphrey dismissed the lenders foreclosure, reformed the contract by deleting thedemand and variable rate clauses, and awarded $1000 actual and $40,000 punitivedamages.

Greene v. Gibraltar Mortgage Investment Corp, 488 F. Supp. 177 (D.D.C. 1980), 839F.2d 680 (D.C. Cir. 1980).

This was another misrepresentation case. The court found the failure to disclose anunconscionably high broker fee and the lenders charging of interest on that fee to be amisrepresentation. The lender also falsely represented the loan amount and claimed to

offer a market interest rate. Accordingly, the court voided the promissory note and deedof trust and permanently enjoined foreclosure proceedings.

Mahaffe v. Investors National Security, 747 P.2d 890 (Nev. 1987).

This case involved a common home improvement fraud. The borrowers were promisedhome insulation which would cut fuel consumption in half, the borrowers home wouldbe used for promotional purposes, and the total cost would be $5300. work was begunbefore the 3 day cooling off period, but never completed; what was done was doneimproperly. The contractors induced the borrowers to sign a completion certificatedespite the incomplete work by threatening them with skyrocketing interest rates and

troubles. The assignee tried to foreclose but the Nevada Supreme Court found thecontract to be null and void because of the fraudulent inducement and failure ofconsideration on the contractors part.

First Charter National Bank v. Ross, 29 Conn. App. 667, 617 A.2d 909 (1992).

Fraud may also be available as a defense when a borrower is tricked by a family memberinto signing mortgage documents. In this case a wife was allowed to assert fraud as aspecial defense to foreclosure action when her husband had given her loan documents tosign with the signature page on top, had discouraged her from looking at the documents,and had told her that the documents had nothing to do with their home. The court ruled

that the defense of fraud was not barred by the general rule that a person has a duty toread what they sign and that notice of the content of signed documents is imputed. Thecourt said the official rule does not apply when there is fraud and only applies if nothingis said to mislead the person signing. It should be noted, however, that some courts haverefused to invalidate a mortgage when the fraud was committed by a party other than the



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lender and the lender was not involved in or aware of the fraud. Family First Fed. Sav.Bank v. De Vincentis, 284 N.J. Super. 503, 665 A.2d 1119 (1995).

Estoppel

When various and conflicting promises in the loan origination process were made by alender, a court may find that the effect of some of the promises is to estop the lender fromenforcing others. In First State Bank v. Phillips, 13 Ark. App. 157, 681 S.W.2d 408(1984), the court held that a bank was estopped from enforcing a balloon payment clause

in a note and dismissed the foreclosure.

The consumer in Phillips had assumed a mortgage extended by the bank to the personfrom whom the consumer bought the house. The mortgage indicated it would be fullypaid with monthly payments. A separate promissory note provided that after a period ofregular monthly payments, the balance of the note would be due in a single lump-sumballoon payment. The mortgage which the consumer saw did not contain the balloonpayment. When the consumer talked to bank employees about assuming the mortgage,the balloon payment was not disclosed. In dismissing the foreclosure, the court foundthat the nondisclosure of the balloon payment forfeited the banks right to enforce it.

IncompetenceContracts entered into by persons who are deemed incompetent are generally voidable.Krasner v. Berk, 366 Mass. 464, 319 N.E.2d 897 (1974). This basic principle of contractlaw may be used to invalidate mortgage contracts made by persons who are too young toform a valid contract, or who suffer from temporary or permanent mental incapacity atthe time the mortgage was made. A bankruptcy court in Massachusetts, for example, hasallowed a debtor to put on evidence as to whether she was entitled to rescind a note andmortgage based on incompetence. In re Hall, 188 B.R. 476 (Bankr. D. Mass. 1995).

Unconscionability

The common law contract defense of unconscionability may be applied to stop a

foreclosure, when either the mortgage terms are unreasonable favorable to the lender orcertain aspects of the transaction render it unconscionable. In re Maxwell, 281 B.R. 101(Bankr. D. Mass. 2002); Hager v. American Gen. Fin. Inc., 37 F.Supp. 2d 778 (1999).For example, a Connecticut court found a second mortgage contract to be unconscionablebased on the facts that:

The defendant had limited knowledge of English, was uneducated and did notread very well

The defendants financial situation made it apparent she could not reasonablyexpect to repay the mortgage

At the closing, the defendant was not represented by an attorney and was rushedby plaintiffs attorney to sign the loan document

The defendant was not informed until the last minute that, as a condition of credit,she was required to pay one years interest in advance

And there was an absence of meaningful choice on the part of the defendant.In addition, the court found that the contract was substantively unconscionable, because itcontained a large balloon payment that the borrower had no means of paying, and that the



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borrower had no reasonable opportunity to understand the terms of the contract. FamilyFin. Servc. V. Pencer, 677 A.2d 479, (Conn. Ct. App. 1996); Emigrant Mortg., Co., Inc.,v. DAngostino, 896 A.2d 814 (Conn. App. Ct. 2006).

Invalid Security Instruments

If the mortgage (or the deed of trust) is not a legally enforceable instrument then therecan be no valid foreclosure. In re Hudson, 642 S.E. 2d 485 (N.C. Ct. App. 2007). Adeed or mortgage that is forged is presumptively invalid. Ex Parte Floyd, 796 So. 2d 303

(Ala. 2001). As a result, forgery of a mortgage is generally an absolute defense toforeclosure. Similarly, where a deed has been forged and the new title holder thenencumbers the property, courts have held both the deed and the mortgages are null.Flagstar v. Gibbons, 367 Ark. 225 (2006).

The validity of security instruments in some community property states may require bothspouses to execute instruments encumbering a homestead. For example, underWisconsin law, a court found that a mortgage on a married couples homestead that wasnot signed by both spouses was void as to both spouses, regardless of their respectiveownership interests. In re Larson, 346 B.R. 486 (Bankr. E.D. Wis. 2006).

The failure to follow the formal requisites in acknowledging deeds and mortgages mayalso result in a void instrument. Many deed and mortgage fraud cases involve situationsin which the person whom the notary certified as having appeared did not, in fact, appear.In re Fisher, 320 B.R. 52 (E.D. Pa. 2005). In fraudulent mortgage cases, borrowers areoften instructed to sign a stack of documents that are then taken elsewhere fornotarization. Goldone Credit Corp. v. Hardy, 503 So. 2d 1227 (Ala. Civ. App. 1987).Alternatively, improper notarization may result from the taking of an actualacknowledgment from an imposter, incompetent person, or over the telephone.Regardless, of the reason for the defective acknowledgment, practitioners shouldinvestigate whether such defects may render the instrument invalid.

Breach of Fiduciary Duty - Reid v. Key Bank, 821 F.2d 9, 18 (1st Cir. 1987).Traditionally, a credit transaction has been considered an arms length transaction inwhich there has been no special duty read into the creditor-debtor relationship. Mostcourts, however, have held that the presence of certain factors in the creditor-debtorrelationship may give rise to a fiduciary duty.

Borrower can allege a cause of action for breach of fiduciary duty, if they can prove thatthey relied upon the lender's superior position and skills and placed their trust andconfidence in the lender to act in a fair and reasonable manner for their best interests. Forthis to be a valid cause of action borrower must also show that they had a confidentialrelationship with the lender.

The essential element of a confidential relationship is there be actual placing of trust orconfidence in fact, by one party in another and a great disparity of position and influencebetween the parties to the relation. Such a duty of confidence arguably can arise if alender acts in the role of advisor and knows or should have known the borrower tested



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occurs. A number of states have also enacted laws designed to protect against abuse inreverse mortgages. These protections include:

Limits on Liability limitation of the burrowers or the estates liability to thelesser of the proceeds of the sale of the home or the amount of the debt, aswell as prohibition of prepayment penalties. Mont. Code Ann. 90-6-506(5);N.C. Gen. Stat. 53-257(6).

Disclosure Requirements Full disclosure of costs, fees, and terms of reversemortgages is required. Colo. Rev. Stat. 11-38-109; 205 Ill. Comp. Stat. 5.

Protection from Default Homeowners are protected from being consideredin default for temporary absences from the home, such as a temporary stay ina nursing home. 205 Ill. Comp. Stat. 5; Mont. Code Ann. 11-38-107(2).

Minimum Time Requirements Between Loan Maturity and Default After theloan matures, as a result of either the death of the borrower or the borrowersdefault of an obligation under the contract, a reasonable time must be allowedfor the borrower or the estate to arrange for repayment. N.C. Gen. Stat. 53-268.

Required Counseling Counseling by a third party is a precondition to receiptof a reverse mortgage under many reverse mortgage programs and some statelaws. Minn. Stat. 47.58(8); Mont. Code Ann. 90-5-503; N.C. Gen. Stat. 53-270(6).

Exploitation by Family Members

Exploitation by family members can take many forms. For example, an elder parenttrying to help younger son make a down payment on a new home, mortgages her home tolend the money to the son, which the son never repays and the mother is not able to pay,forcing a foreclosure. A child convinces elder parent to give the child ownership of thehome, the child then mortgages the property to pay their own debts and defaults on themortgage on the parents property. An elder parent cosigns a loan for a child with badcred