In times of economic downturns, recessions cast a long shadow on borrowers and their ability to manage their loans. As job losses, reduced incomes, and financial uncertainty become prevalent, borrowers often face mounting challenges in meeting their financial obligations. This blog post explores the impact of recessions on borrowers, delving into past-due loans, loan modifications, foreclosures, and proactive steps borrowers can take to navigate these tumultuous times, preserve their homes, and regain financial stability.

During a recession, many borrowers may face financial difficulties, such as job loss, pay cuts, or reduced work hours. As a result, they may struggle to make their loan payments, leading to past-due loans. A past-due loan is a loan that is overdue by at least one payment. When a borrower misses a payment, the lender will typically send them a late payment notice, reminding them to make the payment as soon as possible. If the borrower continues to miss payments, the lender may report the past-due loan to credit bureaus, which can negatively affect the borrower's credit score.

How Loan Modifications Can Help Mortgage Loan Borrowers
There are many ways that borrowers can work with their lenders to help them keep their financial stability. One of the most common tools used by lenders and borrowers is loan modifications. Recognizing the hardships faced by borrowers, lenders often offer loan modifications to alleviate some of the financial strain. These modifications can take various forms, including interest rate reductions, extended loan terms to reduce the payment, or temporary payment suspensions. By working closely with their lenders, borrowers can explore options to renegotiate loan terms and arrive at a more manageable repayment plan.
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Another common problem that borrowers face during recessions is the risk of foreclosures. Recessions can trigger an increase in foreclosures as borrowers struggle to keep up with mortgage payments. Foreclosure is the legal process through which lenders seize and sell a property to recover their investment. It is essential for borrowers to be aware of the foreclosure timeline and regulations governing the process in their state. Timely action and communication with lenders can provide opportunities to explore alternatives to foreclosure and potentially save their homes.
 
Seek Help from Professionals
There are also many tools available to borrowers that do not require the help of lenders. One tool available to help struggling borrowers is a personal financial assessment. Assessing personal finances comprehensively can help borrowers identify areas where they can cut expenses, increase income, or seek financial assistance. Developing a realistic budget and prioritizing essential expenses can provide a clear overview of available resources. 

Another tool available to borrowers is contacting a consumer credit counseling service. Engaging with counselors or financial advisors experienced in foreclosure prevention can be immensely beneficial. These professionals can provide guidance, negotiate with creditors on the borrower's behalf, and ensure borrowers are aware of their rights and options.
 
Refinancing Your Residential Mortgage Loan
Although it may be difficult if you are experiencing difficulties, refinancing is also another tool that borrowers can use to keep control of their financial life. For borrowers, who may have just hit a bump in the road, with a steady income and sufficient equity in their homes, refinancing their mortgage at a lower interest rate may be a viable option. Refinancing can reduce monthly payments, making them more manageable during recessionary periods.

The most important thing for borrowers who are struggling in a recession is to be open with their lenders about any struggles and to keep in contact with them. Maintaining open lines of communication with lenders is crucial. Proactively informing them about financial difficulties allows for potential solutions to be explored, such as loan modifications or forbearance agreements. Often, as is common with life, people don’t like dealing with the hard stuff and put off calling their lender or servicer. Many lenders and servicers are willing to work toward solutions with struggling borrowers as long as borrowers are willing to explore options. 

Recessions can place immense pressure on borrowers, making it challenging to meet loan obligations and preserve their homes. By understanding the impact of recessions, exploring loan modifications, being proactive, and seeking professional assistance, borrowers can navigate these difficult times, protect their homes, and pave the way toward financial stability.

If you feel that you are a victim of a creditor who is treating you in a way that is not consistent with the terms of your loan or violating regulation put in place to protect you, you may seek redress through the courts. These cases often utilize an expert witness in abusive, unfair, and deceptive loan practices. A banking expert witness can be retained to investigate and offer opinions as to whether the alleged conduct was improper.

Matthew Mrozek, Research Analyst with JD Koontz, LLC provided significant assistance in writing this blog post.

Fannie Mae and Freddie Mac, the two largest government-sponsored mortgage companies, have made significant changes to their underwriting standards that allow more Americans to qualify for home loans. These changes were implemented in response to the new credit score models adopted by the major credit reporting agencies, FICO, and VantageScore, in 2020.

The adoption of trended data is the most significant change made by Fannie Mae and Freddie Mac. Trended data is a comprehensive view of a borrower's credit history, which analyzes their credit behavior over time. It includes information such as the amount of debt carried month-to-month, the amount of available credit used, and the consistency of payments. By including trended data, Fannie Mae and Freddie Mac can more accurately assess a borrower's creditworthiness and ability to repay a loan. This change opens opportunities for millions of Americans who may have previously been denied a mortgage due to their credit scores or other factors.

In addition to the changes made by FICO and VantageScore, Fannie Mae and Freddie Mac have also implemented their own guidelines to further expand access to mortgage loans. For example, they are now accepting borrowers with higher debt-to-income ratios and offering more flexible income documentation requirements.

Another significant change made by Fannie Mae and Freddie Mac is the reduction of penalties for medical debt. Medical debt will no longer have as much of a negative impact on a borrower's credit score as it did previously. This is significant because medical debt is often incurred unexpectedly and is not always within the control of the borrower. The reduction in penalties for medical debt opens up more opportunities for low and moderate-income borrowers, first-time homebuyers, and borrowers with limited credit histories or past credit issues.

In addition to the above changes, Fannie Mae and Freddie Mac have also implemented a new credit report system called the "bi-merge" credit report. This system combines a traditional credit report with a second credit report that includes non-traditional credit information, such as rental payments, utility bills, and cell phone payments. This allows borrowers who may not have a traditional credit history to still demonstrate their creditworthiness.

The bi-merge credit report system is designed to provide a more accurate reflection of a borrower's creditworthiness, particularly for those who have limited credit histories or who have traditionally been underserved by the mortgage industry. It is an innovative approach that reflects the changing nature of credit and the increasing importance of non-traditional credit information in assessing a borrower's ability to repay a loan.
These changes made by Fannie Mae and Freddie Mac are significant because they open up homeownership opportunities for millions of Americans who may have previously been denied a mortgage due to their credit scores or other factors. They also demonstrate the mortgage industry's commitment to addressing issues of credit access and equity in lending.

However, it is important to note that while these changes are designed to expand access to mortgage loans, they do not eliminate all risks associated with lending. Fannie Mae and Freddie Mac still have guidelines that borrowers must meet, and lenders still have the ability to set their own credit standards and criteria.

In conclusion, Fannie Mae and Freddie Mac have made significant changes to their underwriting standards in response to the new credit score models implemented by FICO and VantageScore. The adoption of trended data, the reduction of penalties for medical debt, and the implementation of the bi-merge credit report system provide more opportunities for Americans to achieve homeownership. These changes are significant because they open up opportunities for low and moderate-income borrowers, first-time homebuyers, and borrowers with limited credit histories or past credit issues. However, lenders still have the final say in lending decisions, and borrowers must meet certain guidelines to qualify for a mortgage loan. 
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Matthew Mrozek, Research Analyst with JD Koontz, LLC provided significant assistance in writing this blog post.

Residential mortgage lending in California is an important aspect of the real estate market in the state. The process of obtaining a mortgage loan involves a number of steps, including pre-approval, property appraisal, and underwriting. In this article, we will provide a high-level overview of the residential mortgage lending process in California, as well as some key regulations and laws that apply to this process.

• Pre-approval: The first step in obtaining a residential mortgage loan in California is to get pre-approved for the loan. This involves submitting an application to a lender, which includes information about your income, assets, and credit history. The lender will use this information to determine your ability to repay the loan and to provide you with a preliminary estimate of the loan amount that you may be eligible for.

• Property Appraisal: An appraisal is an estimate of the value of the property and is used by the lender to determine the loan-to-value (LTV) ratio. The LTV ratio is a key factor in determining the amount of the loan that the lender is willing to provide. In California, appraisers must be licensed by the state and must follow the standards set forth by the Uniform Standards of Professional Appraisal Practice (USPAP).

• Underwriting: Underwriting is the process by which the lender reviews the loan application and determines whether to approve the loan. During this process, the lender will consider a variety of factors, including the borrower's credit history, income, and employment history, as well as the appraised value of the property. Lenders in California follow national lending standards for underwriting residential mortgage loans, and these standards are set by entities such as Fannie Mae and Freddie Mac. These standards are designed to ensure that borrowers are able to repay their loans, and they help to ensure the stability and safety of the overall mortgage market. The underwriting process can be complex, and it is important that borrowers work closely with their lender to ensure that all required documentation is provided and that the underwriting process goes smoothly.

• Loan Closing: The loan closing is the final step in the residential mortgage lending process in California. During the closing, the borrower will sign all of the necessary loan documents, including the promissory note, the mortgage or deed of trust, and the closing disclosure. The closing disclosure will provide the borrower with a detailed breakdown of all of the closing costs associated with the loan, including any origination fees, points, and title insurance. It is important for the borrower to thoroughly review the closing disclosure and to ask questions about any charges or fees that they do not understand. The loan closing is typically conducted in person or through a remote closing process, depending on the lender and the borrower's preferences. After the closing, the loan funds are disbursed and the property title is transferred to the borrower. The loan closing marks the completion of the residential mortgage lending process in California and the start of the borrower's obligation to repay the loan.

Laws and Regulations: There are several key regulations and laws that apply to residential mortgage lending in California. These include:

• The Truth in Lending Act (TILA): TILA is a federal law that requires lenders to disclose important information about the terms and conditions of a mortgage loan to the borrower. This information includes the annual percentage rate (APR), the finance charge, and the total amount of the loan.

• The Homeowners Bill of Rights (HBOR): HBOR is a set of state laws that were enacted in California in 2012. These laws provide important protections for homeowners, including restrictions on dual tracking (the practice of proceeding with a foreclosure while a loan modification is being considered), and the requirement that lenders provide a single point of contact for borrowers who are facing foreclosure.
• The Real Estate Settlement Procedures Act (RESPA): RESPA is a federal law that requires lenders to provide borrowers with certain disclosures about the closing costs associated with a mortgage loan. This includes a Good Faith Estimate (GFE), which is a detailed estimate of the closing costs that the borrower can expect to pay.

• The Fair Housing Act (FHA) is a federal law that was enacted in 1968 as Title VIII of the Civil Rights Act. It is a landmark piece of legislation that prohibits discrimination in the sale, rental, and financing of housing based on certain protected classes, including race, color, national origin, religion, sex, familial status (including children under the age of 18 and pregnant women), and disability.

The FHA applies to all types of housing, including single-family homes, townhouses, apartments, and condominiums. It applies to all aspects of the housing process, including advertising, financing, sales, and rentals. Under the FHA, it is illegal to discriminate against any person in these processes based on their membership in a protected class. This includes denying a loan or rental application, providing different terms or conditions to different people, or making housing unavailable based on membership in a protected class.
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In conclusion, residential mortgage lending in California is a complex process that involves a number of steps, including pre-approval, property appraisal, and underwriting. In addition to these steps, there are several key regulations and laws that apply to residential mortgage lending in California, including TILA, HBOR, RESPA, and the FHA. Understanding these regulations and laws is important for anyone who is looking to obtain a residential mortgage loan in California.

Lenders in Florida, like most states, typically follow national lending standards when underwriting residential mortgage loans. These standards are set by entities such as Fannie Mae and Freddie Mac, which are government-sponsored enterprises (GSEs) that purchase mortgages from lenders and package them into securities that are sold to investors. The GSEs have specific guidelines that lenders must follow when underwriting mortgages, including guidelines related to income, credit history, and debt-to-income ratios. These guidelines are designed to ensure that borrowers are able to repay their loans and that the mortgages purchased by the GSEs are of high quality. Lenders that plan to keep loans in their portfolio often develop their underwriting and loan policies using the national standards as a guide map. 

However, there are also state-specific regulations that lenders must follow when underwriting mortgages in Florida. For example, the Florida Office of Financial Regulation (OFR) has specific licensing requirements for mortgage lenders and servicers operating in the state. In addition, the OFR has the authority to enforce state and federal laws related to mortgage lending, including laws related to predatory lending practices.

In addition to state-specific regulations, lenders operating in Florida must also comply with federal laws and regulations related to mortgage lending. These include laws and regulations related to the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and the Fair Housing Act (FHA). These laws and regulations are designed to protect borrowers from deceptive or discriminatory lending practices and to ensure that they are provided with accurate and complete information about the terms and costs of their loans.

There are also additional guidelines to follow, such as the Basel III agreement which is an international regulatory standard on bank capital adequacy, stress testing and market liquidity risk. Basel III agreement is the most recent set of guidelines, and it was developed to strengthen the regulation, supervision and risk management of the banking sector.

Despite the fact that lenders in Florida follow national lending standards, there may be some differences in the way loans are underwritten in the state due to the unique characteristics of the Florida housing market. For example, Florida has a large number of properties that are used as second homes or vacation homes. As a result, lenders may place greater emphasis on the rental income potential of these properties when underwriting loans.

Another unique aspect of the Florida housing market is the large number of properties that are located in flood-prone areas. Lenders are required to obtain flood insurance for properties located in these areas, and they may also take into account the potential for flood damage when underwriting loans.

In addition, Florida has a large number of condos and HOA's. Lenders should review the condos/HOA's financial condition, budget, reserves and insurance coverage before approving a loan.
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In conclusion, lenders in Florida underwrite residential mortgage loans to both Florida standards and national lending standards. The national standards are set by entities such as Fannie Mae and Freddie Mac, while the state-specific regulations are set by the Florida Office of Financial Regulation. Lenders must also comply with federal laws and regulations related to mortgage lending, including the Truth in Lending Act, the Real Estate Settlement Procedures Act and the Fair Housing Act. Despite these requirements, there may be some differences in the way loans are underwritten in Florida because of the unique characteristics of the Florida housing market.
 

Introduction
The California Homeowner Bill of Rights (HBOR) is a set of protections originated by the former California Attorney General Kamala Harris. These rules and procedural requirements regulate the foreclosure process for lending institutions as they seek to manage mortgages near or in default. The intention of the legislation is to ensure standardized processes are followed before foreclosure so that borrowers in default are aware of the options available. The legislation is applied to cases where the homeowner is a tenant, and the property has fewer than four living units. Protections are instated if the mortgage loan servicer has foreclosed on more than 175 homes in the previous year. The legislation is broadly intended to ensure that unnecessary or premature foreclosures do not destabilize the housing market or unfairly impact the situation of borrowers capable of maintaining a mortgage. This article will serve as a refresher covering some of the more prominent and notable provisions of the legislation as well as recommend action for attorneys seeking expert opinions and testimony on matters relevant to this legal doctrine.

Dual Track Foreclosure Ban
HBOR requires a lender/mortgage servicer to decide on a loan modification application before advancing the foreclosure process. During the time a lender/mortgage loan servicer is considering a loan modification request, the foreclosure process is paused. No longer can a servicer work on a loan modification and a foreclosure, simultaneously.
 
Notification of Alternatives
This aspect of the legislation stipulates that servicers must contact the homeowner in default to review their financial situation thirty days prior to initiating the foreclosure process. They must also notify homeowners of available foreclosure alternatives within five days of recording a notice of default.

Guaranteed Contact
If a homeowner applies for a loan modification, the servicer must assign them a representative who is knowledgeable about their financial condition and can answer questions about the status of a modification application or other alternatives to foreclosure. In the industry, this is known as a single point of contact (SPOC). After receiving an application, the servicer must notify the homeowner of any mistakes in the information within five days.

Denial Rights
If a servicer denies an application for a foreclosure prevention alternative, it must state its reasons for doing so. If a borrower experiences a material change to their financial condition after a denial, they can reapply for a modification.

Restriction of Fees
This provision essentially means that the lender cannot charge the homeowner a fee during the application process for a loan modification or foreclosure prevention alternative. The servicer is also prohibited from assessing a late fee when the homeowner is making regular payments under a modification or undergoing the appeal process for a denial of a modification request.

Transfer and Tenant Rights
If a modification or forbearance is approved by a servicer and subsequently transferred to a new servicer, the new servicer must honor the foreclosure prevention measures established by the former holder. Additionally, if a third party purchases a home in foreclosure, they must wait 90 days before starting the eviction process. If the resident of the property has a valid lease in place, the new property owner must honor the lease until expiration in the absence of certain exempting conditions.

Conclusion
It is important to note that while the overview above can be a helpful resource to individuals, there is no substitute for expert-level knowledge of the mortgage lending industry. This overview is just that: an overview. When making decisions about individual situations regarding a residential mortgage loan, it can be crucial to contact an attorney who may rely upon an expert witness. Jason Koontz can provide expert opinions and testimony for attorneys seeking to determine if a residential mortgage loan was managed in a way that conforms to the industry standards.
 
Will Skidmore, Research Analyst with JD Koontz, LLC, provided significant assistance in writing this blog post.
 

Works Cited
 
            California homeowner Bill of Rights. State of California - Department of Justice - Office of the Attorney General. (2020, August 4). Retrieved June 7, 2022, from https://oag.ca.gov/hbor 

A mortgage loan servicer manages mortgage loans on behalf of the owner (investor) of the loan. The loan servicer’s primary responsibility is to collect payments on the mortgage. Still, these institutions can be involved in other matters such as managing an escrow account (insurance and real estate taxes), handling payoff requests, loan modifications, and debt collection. A mortgage loan servicer can be a bank, a credit union, or a company specializing in loan servicing. The most common functions of a mortgage loan servicer include:
 
●       Collecting monthly payments on a mortgage
●       Ensuring compliance with federal and local mortgage regulation
●       Generating and distributing loan statements
●       Managing escrow accounts (homeowners’ insurance and real estate taxes)
●       Offering general customer service to borrowers
●       Working with borrowers to minimize past dues and loan losses.
 
It is important to distinguish between a mortgage loan servicer and a mortgage lender. A mortgage servicer manages loans after they have been originated, while a mortgage lender is a financial institution that originates the loans. The servicer is effectively an intermediary that operates in the space between the debtor and creditor to manage the loan relationship.

Management of Mortgage Loans 
I often see borrower confusion in two areas: force-placed insurance and transfer of servicing. 

Forced Placed Insurance
Although mortgage loan servicers are heavily involved in managing a mortgage, the property owner still has many responsibilities. One of these obligations is to carry good homeowner’s insurance coverage. If a servicer learns that a homeowner is not carrying insurance in an amount satisfactory to the loan requirements, they will promptly notify the homeowner. If a homeowner does not take action in a timely manner to comply with the insurance requirement, a loan servicer has the authority to impose forced place insurance on a property and pass the premium on to the borrower. This typically will happen after they've provided notification and at least forty-five days have passed. These policies are generally much more expensive than those typically offered by insurance companies directly to homeowners. If forced-placed insurance is instated, it is generally in the property owner’s interest to seek alternative coverage as soon as possible and communicate the change with the loan servicer.
 
Servicers also play a role in different types of mortgage loans. For example, in an adjustable-rate mortgage, the loan servicer will provide notification of any changes to the interest rate.

Transferring Servicers
There are several regulatory requirements for investors when transferring servicing privileges. In many cases, the rights to the mortgage services are transferred after a loan is funded, which can confuse borrowers. When a mortgage is moved from a lender to a servicer (or another servicer), they must notify the borrower. This notice must be given within 15 days of the loan being transferred and must indicate when the new service will begin accepting monthly payments. The previous servicer must also tell the day that they will no longer receive payments. This requirement protects the borrower by providing the transfer documentation and indicating where to submit payments.
 
A loan’s terms and conditions will not change when it is transferred. Nonetheless, it's important for borrowers to thoroughly examine statements following a transfer to ensure that there are no errors. Despite receiving these required documents, many individuals miss crucial details regarding their loan transfers. In addition to reviewing these documents, mortgage borrowers should check the following:
 
●       Any escrow account payments that were due have been made, and the remaining           balance is accurate
●       The balance of your principal is accurate and correct
●       The most recent payments were accurately applied

To Conclude
Regardless of one’s experience, the mortgage loan industry regulations can be challenging to understand at times. Mortgage loan servicers are vital intermediaries between a property owner and the investor who owns the mortgage. In addition to managing the standard day-to-day calls for payment information and loan payoffs, they have many other essential duties. This includes managing escrow accounts, implementing forced-placed insurance, notifying property owners of changes in an adjustable interest rate, and debt collection.
 
Victims of mortgage loan servicing abuses may seek redress through the courts. These cases often utilize an expert witness with knowledge of mortgage loan servicing standards. A mortgage loan servicing expert witness can be retained to conduct an investigation and offer opinions on whether the alleged conduct was consistent with industry guidelines.
 
Will Skidmore, Research Analyst with JD Koontz, LLC, provided significant assistance in writing this blog post.

Although the seeming speed with which new developments spring up around the country makes construction look straightforward, it is not if done correctly. The average construction project usually involves many risks, both to the lender and borrower, and having a successful project often depends on how well the risks are managed.
 
It is no surprise that lending on construction projects carries substantial risks. Many things can go wrong, and any one of them can cause a significant loss to either the lender or borrower, leading to disputes between parties. Other parties not related to the transaction can also be negatively affected. This could include condominium owners in an unfinished project. Contributors to loan failure may consist of:

• Project delays
• Project going over budget
• The collapse of product demand before the end of construction
• Fundamental design, compliance, or oversight errors
• Character, expertise, and financial standing of all related parties
• Misdirection of funds and resources
• Borrower’s discretionary changes that alter the project scope without the lender's knowledge
• Environmental or site conditions

 
When these problems occur, disputes between parties are not usually far behind. In most cases, these disputes require a construction lending expert witness in the arbitration, mediation, or litigation proceedings that would usually follow. The expert helps clarify the issues, including the burdens on either party or how well these were discharged.
 
However, a more critical consideration for parties is limiting their exposure to construction risks in the first place, usually with the help of a construction risk management expert. With lower exposure, parties can more easily manage risks and attend to issues as they arise.
Drivers of Construction Risk Management
The market experienced a downturn after the Great Recession of 2008 but picked up the pace until the Covid-19 virus impacted the economy and the lending environment. Due to the experiences of the recession, more lenders are actively implementing lending risk management strategies. Other drivers for lenders’ construction risk management include:

• Greater regulatory scrutiny: Bank lenders are required to impose stricter controls on their construction lending process. For instance, regulators now require banks to maintain capital for a new designation of commercial real estate loans referred to as High Volatility Commercial Real Estate (HVCRE) at 150%.
• Need to avoid loss: This is a primary motive for all lenders. There is an understanding that leaving holes in their risk management process will eventually result in a significant loss. As a result, lenders must be diligent in their risk management.
• Changes in policy: Policy changes result from several driving factors, including “proactive policy management” and the need for better internal controls after an expansion.

Regardless of the motivation, the endgame is the same for all lenders: to limit risk exposure and have proper controls in place to limit exposure should problems arise.
 
Managing Construction Lending Risk
 
One of the common means through which lenders manage risk is by establishing and maintaining a Real Estate Construction Administration (RECAD). Whether the lender's appetite covers just owner-occupied real estate, real estate developer-investor opportunities, or commercial real estate as well, having a RECAD function is a prudent risk management practice.
A RECAD unit conducts oversight and monitoring of construction projects financed by the lender. A million and one things can go wrong with a construction project. A RECAD unit’s task will be to keep an eye on every risk factor relevant to the project to ensure the project stays on track. The unit’s responsibilities will include:

• Pre-closing activities could include:
  • Verifying leasing and pre-sale information
  • Obtaining and vetting copies of crucial documents related to the project such as permits, plans, specifications, and written building contract
  • Investigating the character, expertise, and financial standing of all related parties
  • Obtaining an appraisal or valuation depending on the project size
• Post-closing activities, including:
  • Reviewing funding draw requirements under the construction loan agreement (Standard Payment Plan: pre-established schedule for fixed payments or Progress Payment Plan: monthly disbursements with a portion held back until the end of the project)
  • Arranging progress monitoring through a qualified professional
  • Reviewing the construction risk assessment report
• Construction administration and monitoring activities, including:
  • Reviewing change orders and ensuring appropriate use of funds
  • Coordinating periodic progress monitoring, obtaining picture documentation, and escalating any issues as appropriate
  • Receiving waivers of lien as payments are made on the project
• Post-construction tasks, including:
  • Coordinating conversion of insurance from builder’s risk to hazard insurance
  • Coordinating loan status change from a construction loan to a permanent loan on the lender’s balance sheet
  • Managing final waivers of lien
  • Obtaining a Certificate of Occupancy

 
Conclusion
 
Lenders commonly utilize the services of a construction risk management expert to consult on and, in some cases, oversee the setup of a RECAD department. Regardless, a fundamental recommendation is that the department is given as much independence from the real estate lending function as possible. This separation allows clarity of purpose and a coherent function on the part of the unit.
 
Construction loan risk programs are critical for profitable lending.  Properly structured Real Estate Construction Administration Departments reduce risks for lenders. Should disputes occur, much would depend on how fault can be apportioned between parties or whether both parties sufficiently fulfilled their obligations; a construction loan expert witness can help educate the parties involved, and if necessary, the court to clarify these issues. 

​Mortgage fraud covers a wide variety of fraudulent, deceptive, and illegal practices through which individuals obtain housing or make money off the mortgage loan process. Although the concept is more often associated with borrowers or consumers who attempt to obtain mortgage loans fraudulently, lenders and other professionals in the mortgage process also often play significant roles in perpetrating this fraud. The Federal Bureau of Investigations (hereinafter referred to as the FBI) defines mortgage fraud as "a sub-category of Financial Institution Fraud. It is a crime characterized by some type of material misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender. A lie that influences a bank's decision—about whether, for example, to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms—is mortgage fraud."[1] 

Mortgage fraud is considered a serious problem in the US, partly due to the devastating effects it can have on not just the innocent homeowners and lenders involved but also on the economy. For instance, the global financial crisis of 2008 was fueled in part by the unscrupulous activities of borrowers who obtained loans on massively inflated real estate and lenders who intentionally or recklessly gave loans to people who were unable to repay.

As a result, government agencies at both the federal and state level take a serious stance towards mortgage fraud. Individuals who are apprehended may be subject to misdemeanor or felony prosecution. Also, mortgage fraud can result in civil and criminal action against professionals and lending entities who initiate or help perpetuate this fraud. In all cases, the services of a mortgage banking expert are often required to help clarify the obligations of lenders and borrowers in specific cases and determine if misconduct has occurred.

Understanding mortgage fraud and how it occurs
The FBI has identified two distinct areas of mortgage fraud. It may either occur in relation to fraud for housing or fraud for profit.

While fraud for housing is more often associated with homeowners, it may be committed by either borrowers, lenders, or other professionals in the mortgage industry. With fraud for housing, the goal is to provide false or inaccurate information or omit relevant details to obtain or maintain real estate ownership. For instance, a borrower may omit important details relating to their income level, on their own or with the assistance of a loan originator, to qualify for a housing loan.

Fraud for profit is more targeted towards illegally "gaming" the mortgage process in order to make illicit and fraudulent financial gains. It is often committed by professionals in the mortgage industry who employ fraud and deception to enjoy illegal profits on a loan transaction. However, just like a fraud for housing, the fraud here can also be committed by borrowers and, sometimes, in conjunction with industry professionals.

Mortgage fraud by borrowers
Fraud by homeowners can be committed in various ways, both aimed at obtaining housing or profit in fraudulent ways. These include the following:

• Income/asset falsification: This often involves the false or inaccurate declaration of income or assets by a borrower. They may falsely claim they own the property they don't or claim income from sources that do not exist.
• Fraudulent loan qualification: Here, the borrower procures fraudulent assistance in order to qualify for a mortgage loan. A common example of this scam is when a property seller provides the borrower with a down payment for the loan in exchange for the borrower obtaining a loan that is higher than the actual value of the property. The excess loan amount is then shared between seller and borrower.
• Fraudulent property flipping: Property flipping is generally legal. However, when a seller buys a property and then colludes with a property appraiser to fraudulently overvalue the property for later sale, it may amount to fraud.
• Straw buyer: This is also referred to as a "silent second" scam where an individual poses as the borrower to qualify for the loan when in actual fact, the loan is going to a third party.
• Occupancy fraud: This type of mortgage fraud is targeted towards obtaining more favorable interest rates over the mortgage. Generally, an owner-occupied property will receive lower rates than one that is not occupied by the owner. As a result, homeowners may falsely claim that they are occupying the property when in fact, they are not.
• Equity skimming: There are many ways that this scam occurs. A popular instance is when a borrower obtains a mortgage, then rents the property to an unsuspecting person. They collect rents without paying anything on the mortgage, and once foreclosure arises, the fraudulent borrower absconds.

Mortgage fraud by lenders
Fraud by lenders is often considered even more serious than fraud by borrowers. As a result, the FBI pays special attention to scams of this nature. Some of the common types of fraud by lenders include:

• Air loan fraud: As the name suggests, this scam involves processing and approving a loan that has no actual borrower. Instead, the mortgage professionals involved collect the loan and split the illicit gains.
• Appraisal fraud: This fraud is often tied up with other types of mortgage fraud. It is especially perpetrated by dishonest property appraisers who either overvalue or undervalue real estate for fraudulent purposes.
• Mortgage rescue scam: Here, homeowners with troubled properties may be targeted with scams disguised as a "mortgage rescue" effort. Shady entities or individuals may promise homeowners that they will help them pay down or eliminate their mortgage. Instead, they charge high upfront fees without actually affecting the mortgage obligation or execute fraudulent transfers of the property without the knowledge of the homeowner.
• Refinance fraud: Similar to mortgage rescue scams, these scams promise troubled homeowners that they can help refinance their mortgages. However, the homeowner often finds that nothing changes, even after paying exorbitant upfront fees.
• Fake government programs: Some scammers pose as representatives from government-backed homeowner programs. They may promise mortgage relief in exchange for high upfront fees and then abscond without providing relief.

Conclusion
The dangers of mortgage fraud and how it occurs signifies the ongoing threat that scams of this nature pose to innocent homeowners and lenders, as well as the economy at large. Combating this fraud will require even closer scrutiny from regulatory and law enforcement agencies and the input of professionals such as mortgage banking experts.
Victims of mortgage fraud may seek redress through the courts.  Mortgage fraud cases often utilize an expert witness.  A mortgage lending expert witness can be retained to conduct an investigation and offer opinions as to whether or not the alleged conduct was improper.


[1] https://www.fbi.gov

The role of mortgage loan servicers
Mortgage loan servicers play a key role in the mortgage loan industry. Securitization of mortgage loans has changed the sector; sourcing, origination, closing, ownership, servicing, and collection of these loans typically are handled by different market participants.

Mortgage loan servicers are responsible for managing mortgage loans, and most servicers provide this service efficiently. They collect and process payments from borrowers, handle loss mitigation, and are generally responsible for the day-to-day mortgage loan administration. A mortgage loan may be transferred to different servicers multiple times over the life of the loan. The consumer who pays the mortgage may or may not be aware of which company owns the mortgage itself and in fact, may not need to know its name.  

After the loan has closed, mortgage loan servicers have the most direct contact with borrowers. They are often third parties, remote from the loan owner. As a result, borrowers commonly find it difficult to understand the role such a company plays in their loans. This lack of transparency can become a basis for certain predatory practices, such as refusing to acknowledge agreements with a previous loan servicer.
Mortgage servicers must maintain transparency concerning their services as much as possible. They owe several obligations to borrowers, including:
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• Transfer of loan servicing: Every time a new servicer takes over the management of a mortgage loan, they must notify borrowers. The notice must be sent at least 15 days before the loans' servicing rights are transferred to the new servicer.
• Payoff statement: Upon request by the borrower, mortgage servicers are required to provide an accurate payoff statement that details the amount left to pay a loan in full. The statement must be provided within five business days.
• Fair debt collection: Should a mortgage loan enter into default, a servicer may be considered a debt collector under the Fair Debt Collection Act. They must comply with all fair debt collection laws, including not engaging in harassing or intimidating practices.

Despite these clear obligations, which are almost universally observed, mortgage loan servicer abuse can still occur, putting borrowers at risk of losing their homes.

Common abuses of mortgage loan servicers
Alleged mortgage loan servicer abuse refers to a wide range of unfair or abusive practices through which mortgage servicers compromise borrowers' rights. The allegations may include charging unreasonable fees, improper payment application, unfair collection practices, or any other acts that make default or foreclosure more likely.

Predatory mortgage loan servicing has long been regarded as a problem in the US financial services system. Laws such as the Real Estate Procedures Act (RESPA) were designed to combat these practices. The Consumer Financial Protection Bureau was created to protect consumers.

Mortgage loan abuses can occur in a wide range of circumstances. These include the following:
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• Improper application of payment: This can involve the misapplication of payments in a manner that is not consistent with the loan documents. For instance, a servicer improperly holds amounts sufficient to make a full payment in a suspense  account instead of applying it as a loan payment. A suspense account is an account set up by the servicer to hold a borrower’s funds until it decides how the funds should be allocated. Suspense accounts are primarily used when a partial payment is made to the loan). This can cause the loan to be improperly reported to the credit bureaus, which harms the credit rating of the borrower.
• Failure to promptly credit an account: Under federal mortgage rules, the prompt crediting rule requires mortgage servicers to credit payment on the day it is received. Any delay in crediting payments can result in unnecessary late fees and possible claims of default.
• Charging unreasonable or improper fees: Some servicers charge fees that are not stated within the mortgage agreement. This can be a problem for borrowers who cannot easily read and understand the agreement. Other servicers may erroneously charge late fees for payments that were made on time or within the loan's grace period.  This practice is known as the pyramiding of late fees.
• Improper force-placed insurance: Servicers have the right to buy insurance if a homeowner fails to insure the property; however, they must be fair in doing this.  
• Failure to make escrow payments: Mortgage loan servicers typically make tax and insurance payments on behalf of the borrower.  In some cases, servicers may not make these payments on time; the borrower may be charged a late fee by the taxing authority or a reinstatement fee by the insurance company instead of charging the mortgage servicer who missed the payment date.
• Charging for improper default-related services: Default-related services are usually carried out when a loan is delinquent or in default. They are part of the loss mitigation strategies servicers rightfully employ to ensure the property is well-maintained and does not rapidly depreciate. Servicers could abuse this right by charging for default-related services that are not allowed under the terms of the loan documents.
• Failure to honor the agreement with past servicers: Servicers could refuse to honor agreements, such as forbearance or repayment arrangements, entered into with past servicers. This can put borrowers in a difficult position by requiring them to make larger payments than were agreed to with a previous servicer.
• Committing foreclosure abuses: Servicers are expected to provide sufficient assistance to help borrowers honor their loan obligations. Most servicers are ready and willing to assist a borrower in retaining their home. However, a servicer can commit foreclosure abuses, including attempting improper foreclosure.

While a borrower may feel that they are being mistreated with servicing practices that they deem too harsh, the servicer may, in fact, be following the terms under the originating loan documents or the servicing agreement. In litigation or other dispute resolution procedures between the parties, a mortgage loan servicing expert can be retained to conduct an investigation and provide an opinion regarding the mortgage loan servicer's practices and whether their methods would be consistent with industry standards.
 
However, the occurrence of any of these actions may not be conclusive evidence of improper mortgage loan services abuses. Determining if a breach has occurred may require the involvement of a mortgage loan servicing expert witness.
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Conclusion
Unfair mortgage servicer practices can quickly cross the line into abusive or exploitative practices that are improper and not in compliance with regulatory rules. Borrowers who discover that they have been exposed to these practices may want to pursue redress through the courts.
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A mortgage loan expert can assist in evaluating the mortgage servicer's actions regarding regulatory guidelines and industry standards.
 

An expert witness is an individual who possesses the specialized skills & knowledge about a topic or has sufficient experience to testify in court about what they believe has occurred.
Expert witnesses can be instrumental in legal matters and hearings. Plaintiffs and defendants are often encouraged to hire expert witnesses for their cases for a more thorough and comprehensive examination of available data.

Their specialized skills are what set them apart from regular witnesses. Unlike the latter, expert witnesses do not rely on what they have personally seen, heard, or felt when presenting their testimony. They are usually completely removed from the case and have no personal connection to it. Their testimony is solely based on their training, knowledge, and experience in their field of expertise, which allows them to draw conclusions and give professional opinions about the case.

An expert witness studies the case and takes in all of the available information. They analyze it and using their training, experience, and knowledge, provide their opinions, which could take place in a deposition or court.

 As mentioned above, expert witnesses are not usually emotionally involved in the case and are independent forces.They are unbiased witnesses who do not let their emotions or personal bias get in the way of their opinions and conclusions. Their testimonies are free of prejudices and based solely on concrete facts and critical evaluation. As a result, expert witnesses are viewed as reliable and objective during a case.
It is important to note that expert witnesses are not advocates for their clients.  Their opinions are their own, unaffected by any external forces or influences. Their conclusions are supported by their training, education, experience, and industry standards.

If you are dealing with a real estate case or a banking case, having an expert witness to educate you on the industry standards and practices can help tremendously. Their knowledge and experience can make all of the difference in a case. They can explain practices, relevant theories,and concepts to the judge and the jury in a way to help educate the court.
An expert witness will also be able to pick up on any inconsistent findings, inaccurate details, or improper methodologies in the opposing party’s reports.
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