sample.mortgage analysis the diigence group

8/2/2019 Sample.mortgage Analysis the Diigence Group

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The Diligence Group, LLC196 Orange Drive Boynton Beach, FL 33436 Phone: (305) 814-4831 [email protected]

The Diligence Group, LLC

Mortgage Transaction Analysis

Ronald H. White

Linda J. White

1119 E. Buckeyewood Avenue

Orange, CA 92865

Personal and Confidential

THE INFORMATION CONTAINED HEREIN IS CONSIDERED TO BE OF A PERSONAL AND CONFIDENTIAL

NATURE. THIS INFORMATION IS INTENDED FOR THE EXCLUSIVE USE OF THE BORROWER(S) AND

THEIR LEGAL REPRESENTATIVE


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IMPORTANT DISCLAIMER

This report and its contents or attachments, have been created to provide accurate and

authoritative information relevant to the subject matter presented or discussed; however, this

publications or report contained herein has not been prepared by individuals licensed to

practice law. This information and findings in this report are the opinions of a highly trained

and experienced due diligence/compliance Underwriter. The Underwriter is NOT ENGAGED

in rendering legal or other professional advice and this email or its contents ARE NOT a

substitute for the advice of an attorney. If you require legal, or other expert advice, you should

seek the services of competent attorney or other appropriate professional.

The Underwriter makes no representations and warranties of any kind and assumes no liability

whatsoever for any audit report findings, including incorrect findings arising from incomplete

data, inaccurate data, improper classification of data, or erroneous interpretations of the data

submitted for review. Use of the data contained in this report constitutes further agreement

with these terms.

END IMPORTANT DISCLAIMER


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Description and Logic of a Mortgage Analysis Report

The Mortgage analysis report was developed for use by an Attorney, and determines if

the original lender who granted a borrower a mortgage loan, utilized sound, reasonable

judgment and quantifiable industry standards during the loan approval process, and

further, to determine if the loan complies with Federal and State disclosure

requirements.

The Federal National Mortgage Association, commonly known as Fannie Mae, was

established as a stock-holder owned corporation that was chartered by Congress in 1968

as a government sponsored enterprise. The Federal National Mortgage Association was

established in 1938 by amendments to the National Housing Act which was passed

after the Great Depression. Fannie Maes purpose is to expand the secondary housingmarket by securitizing mortgages in the form of Mortgage Backed Securities, thereby

expanding the availability of mortgage credit and home-ownership in the United States.

Fannie Mae issued its first mortgage pass-through in 1981 and called the financial

instrument it sold a mortgage backed security. To insure that the loans originally

securitized by FNMA were sound, the corporation formulated implemented and

enforced underwriting standards that carefully excluded all elements of excessive risk

and predatory lending practices. FNMA established conservative underwriting

standards for loans they financed to ensure that homebuyers could afford to repay theirmortgages over the long term.

The conventional underwriting standards established by Fannie Mae are considered to

be the most responsible, time honored and tested underwriting standards in the world;

and as they were implemented on a national scale, and were initially used by the

majority of lenders who desired to sell their loans into the secondary market, they are

the most widely respected and recognized underwriting standards in the mortgage

industry. Fannie Maes underwriting standards have provided the mortgage industry

with the underlying structure, documentation requirements, and methodologies that

are employed by underwriters nationwide, and are considered to the primary source of

conventional underwriting guidelines and methodologies currently in use in the United

States. Even lenders whose lending standards are considered to be sub-prime employ

underwriting and documentation guidelines required by Fannie Mae as their base.

The Role of the Underwriter


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All credit (mortgage, consumer, commercial, or other) granted in the United States is

based upon an individual Underwriters opinion. The Underwriters job is to provide a

professional opinion regarding a particular loans level of risk and future performance,

its adherence to the lenders guidelines, and its suitability to be added to a lenders

loan portfolio or sold into the secondary market. Underwriters are providedunderwriting guidelines and are taught underwriting methodologies to assist in the

performance of their duties, but in the final analysis, an underwriting decision

represents one persons professional opinion relative to the merits and defects of a

particular loan request, and that persons interpretation of the lenders underwriting

guidelines. Underwriting is not an exact science. Even those loans whose initial credit

decision are underwritten via a computer program (Desktop Underwriting) require a

human being to review and analyze the documentation supplied by the borrower and

provide an independent professional assessment before the loan is closed.

The Underwriter includes professional opinion in the audits that are performed. Her

professional opinions are based upon her 32 years of experience performing

underwriting, closing, due diligence and other related services for the mortgage

industry. The Underwriter has performed these services upon an estimated 160,000

(one hundred sixty thousand) loans over the course of her 32 year career. When one

analyzes 160,000 loans over time, one observes, and begins to understand basic facts

about how the industry operates in a manner that cannot be gleaned from the study of

mere guidelines. These observations are not without merit, particularly when they offer

relevant insight into the guidelines and methodology the lender employed to grant a

mortgage loan request.

Reading and Understanding the Report

The mortgage analysis report is segmented in the following manner:

Summary Page

The summary page represents a synopsis of all of the pertinent facts regarding the

mortgage transaction, including the identification of the borrower(s) and the subject

property; the terms to which the borrower is obligated to repay the debt, per the termsof the Note, and a synopsis of the lenders underwriting conclusions versus the

underwriting conclusions of the Underwriter.

Documents Submitted


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The Documents submitted page represents an inventory of the mortgage and credit

related documents that were provided for analysis. The date of the documents, the

documents execution status and the documents level of criticality are indicated.

It must be noted that the accuracy of the Exceptions and Findings contained in this

report are wholly dependent upon the quality and quantity of documents that are

submitted for review. Documents presented for audit that are not certified, true

correct copies of the borrowers fully executed, notarized closing package, obtained

directly from the Lender or Servicer of record may not accurately reflect the documents

that are considered to be genuine, signed by the borrower at closing and which

represent his/her contract with the Mortgagee. The Underwriter performed the

following analysis in good faith, utilizing all documents provided by the borrower or

interested third parties who represent the borrowers interests. The Underwriter will

perform all audits based upon the assumption that the documents submitted for

analysis are an accurate representation of the borrowers final, true, correct mortgage

closing package or portion thereof, and that the parties who are presenting the

documents for analysis are accepting responsibility for the documents authenticity.

Exceptions Ratings

A rating code has been assigned for each exception. The codes are defined as follows:

Minor:

These exceptions have a minor impact upon the overall quality of the loan. Exceptionsin this category will not result in legal or monetary penalties.

Major:

These exceptions reflect issues that violate Federal or State regulatory requirements, or

violate Conventional Underwriting standards. These issues may be eliminated upon

the presentation of the required documentation.

Material:

These exceptions represent significant violations of Federal or State regulatoryrequirements, and/or Conventional Underwriting Standards that cannot be cleared via

documentation. These exceptions may expose the lender to legal action or regulatory

and monetary penalties.

These ratings descriptions are consistent with the exception descriptions that are

written in TILA and RESPA law.


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Parties to the Transaction

All of the private individuals and legal entities who rendered mortgage related services

are listed, such as the Broker, Loan Officer, Lender, Title Agent, Title Insurer, Appraiser,

Seller, Realtor, and the Borrower. The address of all individuals is provided when

available. A review is performed to determine if any of the parties are affiliated or

related, and to determine if the transaction was considered to be Arms Length.

Analysis Findings

Federal and State Compliance Findings

An analysis of the loans compliance to Federal and State laws is performed. The loans

adherence to Local laws is also performed when possible. Compliance analysis is

dependent upon the receipt of the required disclosures that were required to be

provided to the borrower by the Broker and/or Lender, Realtor, or any other individual

or entity having an obligation to disclose. The documents are reviewed for compliance

with TILA, RESPA, State, FNMA and OFAC regulations. A copy of the actual test

results is included in the report.

Mortgage Compliance

The loans adherence to Fannie Mae Underwriting guidelines is analyzed to determine

if the lender exercised sound, responsible prudent judgment when granting the subject

borrowers request for mortgage credit, with a specific emphasis placed upon the

borrowers demonstrated capacity to repay the debt in relation to the mortgage terms

that were granted. An additional emphasis is placed upon the level of risk the

transaction represented to the Lender and to the borrowers financial interests, and a

determination is made regarding the Lenders performance of sound, responsible due

diligence relative to the assessment of that risk. Loans that are considered to have

layered risks represent loans that should have been subjected to the highest, moststringent underwriting standards, and in truth should, in all probability, not have been

granted.

Predatory Lending

The loan terms reflected on the Note and Security instrument, the guidelines the lender

used to approve the borrower for financing, and the appropriateness of the product the


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borrower was granted in relation to his or her age, employment and financial situation

is performed. The Underwriter attempts to determined, whenever possible, if the

borrower was treated with bias, was targeted due to their age, race, gender, etc., was

mislead or treated unethically, was granted usurious or unfavorable loan terms when

more optimum terms were available and should have been granted, or if the borrowerwas provided a loan whose terms had the capacity to harm his or her financial interests.

Final Conclusions

The Underwriters final conclusions regarding the following are provided:

The soundness of the lenders underwriting process, guidelines and

methodology are quantified.

The appropriateness of the mortgage product granted the borrower is quantified

relative to the borrowers employment and financial situation. The defects and risks of the mortgage loan are quantified.

The borrowers capacity to repay the debt and the loans default risk is

quantified.

Predatory aspects of the loans terms and mechanics are quantified.

The loans potential to harm the borrowers financial interests is quantified.

The Underwriter determines if the loan made financial sense to have been

granted.

The Underwriter determines if the loan provided a benefit to the borrower.

The Underwriter determines if the loan should have been granted or declined.

Supporting Data

When appropriate and available, the Underwriter will include maps, graphs, charts,

photos, document copies and any other data that is deemed necessary to further

support the findings that are detailed in the Analysis Findings and the Case History /

Optional Narrative.

References

To further aid the Attorney and/or reader of this audit, references have been included.

These references include a Glossary of Terms, General References and when

appropriate, the credentials of the Underwriter. General Legal References may also be

provided to aid the borrowers legal representative to determine what applicable laws


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ServicerAudit Type

Lender Empl / Inc.

Mo. Income /Review

SSN - Co-Borrower

BORROWER: RONALD H. WHITE

Date of PRE ANALYSIS: 01/19/2012

OWNER / HEALTH PRODUCTS / $7500 X 2= 15,000

TRADER / 15,000

584,900.00

80 / 80%

XXX-XX-3029

XXX-XX-1472

MORTGAGE LOAN ANALYSIS

n/aOriginating Lender WACHOVIA MORTGAGE, FSB

Original loan #

SSN - Borrower

NOT STATED

60 TO 90 DAYS PRIOR TO CHANGE

NEG. AM. TO 125% OR 584,900

TERMS NOT DISCLOSED IN NOTE

Rounding Factor

n/a

7.5500%

6/1/2038

PICK A PAY - Fixed

3.2500%

7.5500%

7.5500%

1st

Lien 2ND LIEN

ONE

SINGLE FAMILY

48574529

WELLS FARGO

Assets

1st

Lien

Occupancy

2ND LIEN

NOT STATED

NOT STATED

NOT STATED

Late Charge % / # Days

360

30

Index

Margin

Maximum Payment

Look Back

Neg Amortization

Rate @ 1st Change

Note Rate %

Teaser Rate %

Rate Floor %

Rate Ceiling %

Maturity Date

Loan Product

Pay Option Feature

Interest Only Feature

TBD

5/15/2008

TBD

07/010/2008

N/A

7/1/2009

Funding Date

1st

Pay Date

1st

Rate Change Date

1st Pay Change Date

Application Date

Closing Date

Max. % Per Change

$107,158

PRIMARY RESIDENCE

7.5000%

N/A

Loan Term Months

Loan Term in Years

Amortization Term

Prepayment Penalty

Hard / Soft / Hybrid

n/a

TERMS NOT DISCLOSED IN NOTE

5% / 15 Days

NEG. AM. TO 125% OR 584,900

2% ON AMT PPD IN ANY MO. > $5 000

3 YEAR HARD

Compliant Back Debt Ratio

1119 BUCKEYEWOOD AVENUE

Lender Housing Ratio

1st Lien

Loan Amount $

Estimated Value $ 2782 / 3050 = 91.12%

2,036.42

2,529.84

Loan Purpose

ORANGE, CA 92865

PURCHASE

467,920.00

7514 / 3050 = 246.36%

1st

Lien

The Diligence Group, LLC

196 Orange Drive Boynton Beach, FL 33436 Phone: (305) 814-4831 [email protected]

2ND LIEN

Property Address

City, State, Zip Code

Number of Units

Property Type

n/a

746.00

$4,238.00

2782 / 15000 = 18.54

7020 / 15000 = 46.80

LTV / CLTV

P&I Per Note / Max P&I

Max Est Pmnt Yr 5

Taxes / Insurance / HOA

Consumer Credit Debt

Lender Back Debt Ratio

Actual Housing Ratio

CO-BORROWER: LINDA J. WHITE

MIN NO:

2ND LIENLOAN INFORMATION AT CLOSING


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TERMS REFLECTED ON BORROWERS NOTE / FULLY DISCLOSED

Loan Type: Wachovia Pick-a-Pay 30 year Fixed Rate Mortgage Product

Interest Rate: The borrower is required to pay 7.55% in interest as per the terms of the

Note.

Mo. Payment $2,036.42Reflected onThe Note: The monthly payment amount reflected on the note totaling $2,036.42 is

NOTthe actual 30 year, fully amortizing payment calculated at 7.55% asis usually stated on a borrowers Note, but the below market, minimumpayment calculated at 3.25%.

The subject Note does not alert the borrower that the $2,036.42 paymentwas calculated at a rate of 3.25%, not 7.550% nor does the Note advise the

borrower that if they remit this payment, it will not be sufficient to pay allof the interest that is due, and that the borrowers mortgage balance willbe increased by the amount of the interest payment shortage.

Payment Options: Not Stated on the Note

Max Pay %: Mortgage Payments can increase no more than 7.5% per year above thepayments charged in the 12 months previously.

Loan Term: 30 Years

Amortization: 10 Year Pay Option Feature10 Year I/O Feature20 Year Amortization TermLoan Terms Include Negative Amortization to 125% of originalBalance or from $467,900 to $584,900

Pre-Pay Penalty: The prepayment penalty reflected on the note states: During the first3 years of the loan, if I make one or more Prepayments that, in theaggregate, exceed $5000 in any calendar month, I must pay aprepayment charge equal to 2% of the amount such Prepaymentsexceed $5000 in that calendar month.


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FACTS REGARDING THE MECHANICS OF THE NOTE THAT WERENOT DISCLOSED ON THE DOCUMENT AND HAD TO BE

UNCOVERED VIA ANALYSIS

IN ALL CASES, A NOTE, OR PROMISE TO REPAY REFLECTS THE REPAYMENT CONTRACT

BETWEEN THE BORROWER AND THE FINANCIAL INSTITUTION. THE NOTE IS REQUIREDTO CLEARLY STATE ALL OF THE REPAYMENT TERMS BY WHICH THE BORROWER ISBOUND.

THE SUBJECT NOTE IS CONSIDERED TO BE PURPOSELY DECEPTIVE AS IT DOES NOTDISCLOSE (UPON THE DOCUMENT) THAT THE MONTHLY PAYMENT REFLECTED THEREON,IN SECTION 3-B, PAGE 2, TOTALING $2,036.42, WAS CALCULATED AT A BELOW MARKETINTEREST RATE TOTALING 3.25%.

THE PAYMENT IS NOTCALCULATED AT THE ACTUAL NOTE RATE OF 7.55%, WHICH IS THEINTEREST RATE AT WHICH THE BORROWER IS REQUIRED TO REPAY THE DEBT, ASSPECIFIED IN SECTION 2 OF THE NOTE/REPAYMENT CONTRACT.

FURTHERMORE, THE MANNER IN WHICH THE NOTE RATE AND THE MONTHLY PAYMENTARE PRESENTED ON THE DOCUMENT, MAKES IT APPEAR THAT THE MONTHLY PAYMENTWAS ACTUALLY CALCULATED USING THE 7.55% CONTRACT RATE. ADDITIONALLY THENOTE DOES NOT PROVIDE A BREAKDOWN OF THE THREE PAYMENTS FROM WHICH THEBORROWER COULD SELECT, OR EVEN DESCRIBE WHAT THE PAYMENT OPTIONS WERE(PLEASE SEE PAYMENT OPTIONS DETAILED BELOW):

BELOW MARKET PAYMENT PER THE NOTE CALCULATED USING BASE LOAN AMOUNTOF $467,920 @ 3.25% USING A 30 YEAR TERM: $2,036.42.

INTEREST ONLY PAYMENT CALCULATED AT BASE LOAN AMOUNT OF $467,920, USINGNOTE RATE OF 7.55%: $2,944 (THE MORTGAGE BALANCE AND INTEREST ONLY

PAYMENT WILL CHANGE EACH MONTH, IF THE BORROWER CONSISTENTLY REMITSTHE MINIMUM PAYMENT TOTALING $,2036.42. SEE BELOW FOR EXAMPLE OF NEWMONTHLY BALANCE CALCULATION).

FULLY AMORTIZING PAYMENT CALCULATED AT $467,920 USING NOTE RATE OF 7.55%FOR AT 30 YEAR TERM: $3,287.80

1ST PAYMENT COMMENT: SHOULD THE BORROWER HAVE PAID THE BELOW MARKETMINIMUM PAYMENT STATED TO BE THE MONTHLY PAYMENT ON THE NOTE, ANDNOT EVEN HAVE PAID THE INTEREST ONLY PAYMENT (ALSO NOT STATED ON THENOTE), THE BORROWERS MORTGAGE BALANCE WOULD HAVE BEEN INCREASED BY$907.58 (THE AMOUNT OF THE INTEREST PAYMENT SHORTAGE) TO $468,827.58 -

UNBEKNOWNST TO THE BORROWER, WITH THE VERY FIRST PAYMENT. THEBORROWERS INTEREST ONLY PAYMENT FOR MONTH 2 WOULD BE RE-CALCULATEDON THE REVISED MORTGAGE BALANCE, NOT THE ORIGINAL BALANCE OF $467,920.THE EFFECT IS, ESSENTIALLY, THE SAME AS COMPOUNDING.

ADDITIONALLY, AS THE BORROWERS PAYMENTS IN YEAR 2 WERE LIMITED TO A 7.5%CAP, ALL OF THE DIFFERED INTEREST THAT HAD TO BE PAID, BUT COULD NOT BEINCLUDED IN THE MONTHLY PAYMENT DUE TO THE PAYMENT CAP, WAS ALSOADDED IN THE BORROWERS MORTGAGE AMOUNT, AT THE TIME OF RE-CASTING.


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CALCULATION OF REVISED BALANCE FOR MONTH 1 OF LOAN:

$467,920 X 7.55% = $35,327.96

$35,327.96 / 12 = $2,944.00 (I/O PAYMENT MONTH 1)

$2,944.00 $2,036.42 = $907.58 (INTEREST PAYMENT SHORTAGE MONTH1)

$907.58 + $467,920 = $468,827.58 (NEW LOAN BALANCE MONTH FOR 2)

CALCULATION OF I/O PAYMENT FOR MONTH 2 OF LOAN:

$468,827.58 X 7.55% = $35,396.48

$35,396.48 / 12 = $2,949.71 (I/O PAYMENT MONTH 2)

$2,949.71 - $2,036.42 = $913.29 (INTEREST PAYMENT SHORTAGE MONTH2)

$468,827.58 + 913.29 = $469,740.87 (NEW LOAN BALANCE MONTH FOR 3)

No reasonable person, just by reading the subject Note, could understand that themonthly mortgage payment reflected thereon was actually calculated utilizing abelow market minimum interest rate.

To be able to determine that the monthly payment was anything but the actual

monthly payment required to fully repay the debt at maturity, the borrower wouldhave had to have sat at the closing table, armed with a mortgage calculator, andattempted to reverse engineer the mortgage payment in an effort to determine theactual interest rate that was used to establish the monthly payment.

UNDERWRITER COMMENT: The underwriter reverse engineered theborrowers mortgage payment by, trial and error, testing various mortgage rates,balances and terms (due to the numerous variables that exist when one is dealingwith a Pick-a-Pay loan) and after approximately an hour, the exact payment wascalculated using the original loan balance and an interest rate of 3.25%.

No reasonable person could deduce, just by reading the Note, that if the monthlypayment reflected on the Note were remitted on a consistent basis, it would not besufficient to repay the interest that was due, and that any interest shortage would beapplied to the mortgage balance, and that all subsequent payments would becalculated on a exponentially increasing mortgage balance. The note is NOT astandard , Fannie Mae Note.


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THE GOOD FAITH ESTIMATE / PRE-DISCLOSURE TO THE BORROWERS

The borrowers provided a copy of the Good Faith Estimate of Closing Costs providedby the Lender. The document does not disclose the following information:

1. Loan Type the loan product is not described on the document as a Pick-a-Payment mortgage loan.

2. Teaser Rate the 3.25% teaser rate (the rate the lender used to calculate themonthly mortgage payment reflected on the Note) is not reflected on thedocument. The interest rate disclosed on the document is 7.55%.

3. Payment Options the Good Faith Estimate does not disclose the borrowerspayment options.

4. Monthly Payment the monthly payment is not disclosed on the document.

Traditionally, a Good Faith Estimate discloses the Mortgage Product, the interest rate,the monthly payment and provides all information the borrower would need tounderstand about the mortgage product they were about to accept.

THE PURPOSE AND DESIGN OF THE PICK-A-PAY MORTGAGE LOAN PROGRAM

The Pick-a-Pay mortgage loan product was designed to enable financially undeservingborrowers to have access to credit and properties that they could not possibly attain if theirloan were qualified according to traditional underwriting standards.

Originally, the program was designed to appeal to young professionals, such as recent

medical school graduates, and professional athletes, as it enabled them to purchase a moreexpensive property when their earnings were temporarily low. The exploding incomecapacity of these select borrowers, due to the nature of their professions, enabled them keeppace with the aggressive mortgage payment increases, and as a result this small, select segmentof the population fared well with the Pick-a-Pay mortgage program.

Problems began when the Pick-A-Pay mortgage program was marketed to the mainstreampopulation, to individuals whose incomes would not enjoy exponential, rapid increases.

Due to the lax qualification standards and the temporary, below market payments that wereoffered, traditional borrowers were frequently encouraged to purchase homes that weresignificantly out of their price range. Borrowers ownership of these properties wasfrequently short lived, however, as the initial payments were low for only very short periodof time, and were required to increase significantly in the loans second year if the mortgageswere to be fully amortized at maturity.

The income of traditional borrowers who have standard, nine-to-five jobs tends not toexplode and increase rapidly in a short period of time, but tends to climb slowly and steadilyover a course of years. Due to the slow and steady income appreciation traditionalborrowers enjoy, the Pick-a-Pay mortgage loan program is wholly unsuitable to borrowers of


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this type. The loan type is equally unsuitable to borrowers whose income is unstable ornon-traditional. The only borrower for whom this product is appropriate is an individual whoseincome is guaranteed to increase dramatically in a very short period of time.

Default on Pick-A-Pay loans granted to most borrowers tends to occur rather swiftly, due to the

aggressive manner in which the borrowers mortgage balance is increased, in addition to themonthly re-casting of the borrowers interest-only payment. At the end of a 12 month period oftime, a borrowers mortgage balance could have increased by tens of thousands of dollars, andtheir minimum monthly mortgage payment increased by a thousand dollars or more, to accountfor the interest that was not paid during the loans first year.

END UNDERWRITER ANALYSIS OF THE NOTE


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COMPREHENSIVE TILA TEST RESULTS


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Findings are based upon the following parameters:

Base Loan Amount: $467,920Loan Purpose: PurchaseOccupancy Type Primary ResidenceClosing Date 05/15/2008Funding Date 05/15/2008Lien Position First LienLoan Type Conventional

Note Rate 7.5010%Lenders Prepaid Finance Charges (TIL) $ 12,756.23Lenders Prepaid Finance Charges (Final HUD) $ 12,433.01Total Finance Charges (Lender Disclosed) $864,116.61Actual Finance Charges (TILA Test) $864,116.61APR per Lenders TIL 7.7630APR per TILA Test 7.7960%

APR over disclosed by 0.0033% - No Issue.

Finance Charges Finance Charges Understated by $323.22. No Issue. Fannie Mae 5% Points & Fees Test. Fees total 2.72615%. No Issue. Fannie Mae HOEPA APR. APR does not exceed > T-Bill + 8%. No Issue.

HOEPA (Section 32) Analysis: Points & fees do not exceed 8%. No Issue. Law Points & Fees; Fees do not exceed 8% of the total loan amount. No Issue.

END COMPREHENSIVE TILA TEST


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PARTIES TO THIS TRANSACTION

Lender/Originator:Wachovia Mortgage, FSB

4101 Wiseman BoulevardBuilding #108San Antonio, TX 78251

Mortgage Broker:Signature Capital MortgageKhash Behnam, Owner

Settlement Agent:Yorba Linda Escrow18210 Yorba Linda Blvd., Ste 403

Yorba Linda, CA 92886

Title Insurer:Chicago Title

Real Estate Agent:Steven Gables Real Estate

Current Mortgage Servicer:Estimated to be Wells Fargo who purchase Wachovia Mortgage in December of 2008

Seller:Robert E. Madore1442 E. Lincoln Avenue, #288Orange, CA 92805

Borrower:Ronald H. WhiteLinda J. White1119 E. Buckeyewood AvenueOrange, CA 92885

END OF PARTIES TO THE TRANSACTION


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UNDERWRITER COMMENTARY REGARDING THE ORIGINATION OF THE SUBJECTMORTGAGE LOAN

The transaction presented for analysis represents the purchase of a primary residence by thesubject borrowers Ronald H. White and Linda J. White.

According to the primary borrower, he and his wife consider themselves to be entrepreneurswho over the course of their 43 years of life together as a married couple, have been engaged inmultiple business ventures, sometimes many at the same time . According to the borrowersthere have been times when they enjoyed earnings that were in the multiple six-figures, andtimes when they suffered multiple six figure losses, sometimes for several years at a stretch.According to the primary borrower, his Title could change from year to year, dependingupon which business venture he was engaged in at the time. The borrowers have owned andsold multiple restaurants, mom-and-pop stores, sold health products, engaged in over thecounter mass marketing, engaged in options market trading, and have taken advantage ofmany other business opportunities.

Due to the borrowersrather unconventional means of earning a living, they have always hadto seek out financial funding from persons who were not traditional bankers, but businessentrepreneurs such as themselves. Their financial picture has always been considered to besomewhat of a roller-coaster and they have never really settled on any one business enterpriseupon which to concentrate, and frequently changed businesses as opportunities presentedthemselves.

According to the borrowers they were introduced initially, to a mortgage broker who was afriend of their son. For some reason, without explanation, the borrowers mortgage case wasreferred to another mortgage broker, Khash Behnam, the owner of Signature Capital

Mortgage.

According to the borrowers, they provided their income documents and a full explanation oftheir multiple business ventures and current financial circumstances to Khash. Theyexplained that they were currently experiencing an income dry spell, but had weatheredsuch hardships before and were confident that they would emerge from this currentpeccadillo without a problem.

Khash reviewed the borrowers tax returns and immediately advised the borrowers that hewould need to seek financing from a lender who offered programs that did not investigate aborrowers income.

According to the primary borrower, he and his wife were seeking a fixed rate loan. The loanofficer presented an alternate loan type, a Pick-A-Pay product to them because, according tohim, based upon their tax returns, the borrowers could not be qualified to receive atraditional fixed rate mortgage product. Also, the loan officer told them that he could notoffer their tax returns to a mortgage underwriter as the loan would most assuredly bedeclined for insufficient, unstable income. It must be noted that the Mortgage Broker seemedonly to be concerned with getting the borrowers approved, and not with their ability to


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actually repay the debt or retain the home they were about to purchase, once the loan wasgranted.

The loan officers explanation of the Pick-a-Payment mortgage program was wholly inadequateas were the disclosures they were provided. The borrowers were under the impression thattheir proposed mortgage loans terms were benign, and that any differed interest, or interestshortage that accrued was being added up simply, not actually increasing their mortgagebalance on a monthly basis. They mistakenly understood that they might be required to paya balloon payment, at the loans maturity, but never expected t he mortgage balance andpayments would increase as per Compounding. The borrowers were unprepared for the$1000 per month mortgage payment increase they experienced in the loans 2nd year, and soondiscovered that the mortgage payments were completely unsupportable.

The borrowers contacted the mortgage lender & servicer and attempted to modify theirmortgage once the loan lapsed into default. To date, their attempts have not been successful.

The borrowers invested 20% of their lifes savings, as a down payment, into the subject property

when it closed in 2008, and paid over $16,000 in closing costs ( a total investment of $130,837paid at closing). They paid approximately $24,504 in the year 2008, in mortgage payments, andmore in subsequent years.

The borrowers state that their mortgage broker did not accurately represent the mortgageprogram to them, and that had they understood that the payments and mortgage balancecould increase they would never have consummated the purchase transaction. They had nounderstanding that the mortgage payment reflected on the Note was not the actual, fullyamortizing payment, but a below market payment that appeared to have been represented ina very specific manner on the Note, that would tend to encourage them to erroneously remitthe below-market payment that would increase the mortgage balance, and ultimately the

lenders profits overall.

The borrowers state that had they not taken out the subject mortgage, the approximate $155,341they invested in the subject property could have been invested in their business or in severalproperties they owned that were in need of repair.

The subject mortgage loan is currently in foreclosure and has been at the brink of being soldmultiple times. The borrowers not only stand to lose all of the money they invested in thesubject property via down-payment, closing costs and payments remitted, but have had toretain counsel to defend themselves against the foreclosure action. In addition to the financialloss, and the damage done to their credit, the trauma of attempting to save their home from

foreclosure for such an extended period of time, has caused both the borrower and co-borrowerto suffer stress related illness as now the borrowers, who prior to this experience werereasonably healthy, are both being treated for hypertension, heart disease and depression.

END UNDERWRITERS COMMENTARY


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ISSUES AND EXCEPTIONS NOTED 1ST LIENALL LOANS UNDERWRITTEN TO FANNIE MAE UNDERWRITING STANDARDS

NO. EXCEPTION COMMENTS REGARDING POSSIBLE VIOLATION EXCEPTION

RATING

1 B3-1-01Assessment ofRisk

The lender does not appear to have adequately performed the minimumduties to assess the subject loans risk. Per Fannie Mae Underwritingguidelines, lenders are fully responsible for:

Evaluating the default risk of the subject loan.

Proper and thorough review of the credit report todetermine if the data contained therein is complete,accurate, and that the borrower had the ability to repaythe debts listed.

Assessing the adequacy of the property used to act ascollateral for the mortgage loan requested.

The lender does not appear to have properly considered

the following risk factors:Equity and LTVLoan Type / Amortization TypeTotal Expense RatioSufficiency and Continuance of Income

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2 B3-3.1 GeneralIncomeAssessment

The borrowers income as reflected on their final 1003, loan appli cation,is not consistent with the income reflected on their 1040 income taxreturns and appears to have been over-stated to ensure loan approval:

Lenders income per loan application: $15,000 per month

Actual Income calculated per P&Ls: $3050 per month

The borrowers P&Ls were used to calculate their actual monthly incomefor review purposes. The Underwriter is of the opinion that the P&Lsrepresent a more truthful picture of their actual repayment capacity whenthe loan was originated, than their tax returns. The tax returns reflectincome earned in the past; the income reflected on the P&Ls wasimmediate and more exactly disclosed their actual cash-flow andexpenses at origination. It must also be understood that the economywas undergoing a significant amount of flux, in 2008, that was causingWall Street and the economy as a whole, to suffer sharp declines as theFinancial Markets began their implosion. Prior years income for selfemployed borrowers, could not be relied upon, as the conditions under

which those earnings were generated no longer existed, or was in theprocess of being annihilated. During that particular time of instability,Underwriters relied heavily on P&Ls for self employed borrowers, ratherthan tax returns, to establish a borrowers actual repayment capacity.

Additionally, The borrowers tax returns reflected significant carryoverlosses for which no documentation was provided. As the borrowersearned income from multiple sources and income streams, and no K-1swere provided, the Underwriter could not ascertain the source or reason

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for the losses, if the losses were paper losses or actual losses, and ifthe reason the losses were sustained had passed when the loan wasoriginated.

According to the borrower, he and his wifes income sustained asignificant downturn in late 2007/2008 due to the conditions that

prevailed in the markets and economy. The borrower stated that hisactual average earnings for 2008, totaled approximately $3000 per month,which is consistent with the data stated on his P&L statement.

The borrower advised that he fully expected his income to improve, in2008, due to several business ventures upon which he was working. As aresult, the $15,000 reflected on his loan application was what heconservatively anticipated he and his wife would gross if these businessventures panned out. Unfortunately for the borrowers, the businessventures did not pan out, but collapsed entirely just after the loan closed,and they were left to pay the mortgage and all other debts from their ownresources.

It must be noted that lenders must fully quantify a borrowers repaymentcapacity and must rely upon documentation to evidence a borrowersactual capacity to repay a debt. Lenders do not have the luxury ofhoping a borrower will eventually have the ability to repay a debt atsome future date; the lender must determine the borrowers actualcapacity to repay the debt, at origination. Borrowers whose financialdata reflects insufficient income or a downturn trend in earnings areconsidered to be poor candidates for mortgage financing, whose loanrequests should be declined.

3 B3-3.1-02Verification of

Employment

The lender does not appear to have verified the borrowers length ofemployment or:

The lender does not appear to have verified two full years of selfemployment for the subject borrowers. The borrowers earned incomefrom multiple income streams and a variety of business enterprises. Theloan application does not accurately reflect the extent of the borrowersbusiness operations and enterprises, and is considered to provide awholly inaccurate and incomplete picture of their financial situation atorigination.

The lender does not appear to have fully reviewed the borrower s creditreport or performed any sort of independent on-line inquiry that wasreadily available at the time, to fully research the borrowers business orbusiness reputation. The lender, instead, appears to have relied, solely on

the data provided by the Mortgage Broker, Mr. Khash Behnam, withoutperforming any independent investigation on their own. According to theborrowers statement, the mortgage broker submitted their loan toWachovia, because, Wachovia doesnt care. Their lack of due diligencetends to give credence to this statement.

The lender does not appear to have verified the borrowers term of selfemployment or the length of time they had owned or operated theirmultiple businesses, or the strength of these business and their capacity

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to support the repayment of the mortgage debt. The lender was requiredto obtain:

1. Verification of the existence of the borrowers business within 30calendar days of the Note, from a CPA, Regulatory Agency orLicensing Bureau.

2. By verifying the phone listing and address of the borrowersbusiness from the telephone book, internet or directoryassistance.

3. The lender does not appear to have verified the borrowerscurrent employment status, for wage earning borrowers, within10 business days of the date of the Note.

4 B3-3.2-01Salary,Commissionand OtherSources ofIncome

The lender does not appear to have verified that the borrowers incomeconforms to Fannie Mae Underwriting Requirements:

- Length of Employment- Stability and Predictability of Income- Adequacy of Income

-Continuity of Income

The income documentation level of the subject loan appears to be:Stated

The lender does not appear to have obtained the borrowers incomedocumentation or verified his actual capacity to repay the debt. Thelender appears to have granted the subject mortgage loan based uponfactors that did not include repayment capacity, and upon the statedmonthly earnings provided on the loan application by the MortgageBroker. Granting a loan without considering and verifying repaymentcapacity violates Fannie Mae Underwriting Guidelines, HR 4173-761, Fair

Housing, HOEPA and current RESPA guidelines.

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5 B3.3UnderwritingFactors andDocumentation for SelfEmployedBorrowers

The borrower is self employed. The lender does not appear to havecorrectly underwritten or documented the borrowers self employmentand self employment income:

- Length of Self Employment- Verification of Income- Analysis of the borrowers Personal income- Analysis of the Borrowers Business income.

The following factors do not appear to have been properlyConsidered:

Stability of the borrowers self employment income.

Location and nature of the borrowers business.

Demand for the product or service offered by the borrowersbusiness.

Financial Strength of the business.

Per the borrowers statements and income documentation, the coupleearned income from a variety of sources that changed frequently from

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year to year. Their income was frequently unstable and subject to severeupward and downward swings. The unsteady and insecure nature of theborrowers earnings capacity made it critical for the lender to fullyunderwrite their personal and business financial health and determinethe loans level of risk, and to establish if they were eligible forfinancing of any type, much less a Pick-a-Pay product.

It would appear that the lender performed no independent duediligence, and apparently did not perform any thorough investigationinto the borrowers multiple business ventures, but granted nearly a halfa million dollars in mortgage credit based upon stated earnings andassets supplied by the Mortgage Broker, a person who stood to gain bythe closure of the subject mortgage transaction.

6 B3-6-02Income to DebtRatios

Maximum

benchmarktotal debt toincome ratio is36%.Benchmark canbe exceeded upto a maximumof 45% withstrongcompensatingfactors.

The Borrowers Income to debt ratios exceed the maximum tolerance of28 / 36 % permitted per Fannie Mae Underwriting Guidelines. No strongcompensating factors were noted:

Lenders Housing Ratio:

2782 / 15000 = 18.54

Lenders Back Debt Ratio:7020 / 15000 = 46.80

Actual Housing Ratio:2782 / 3050 = 91.12%

Actual Back Debt Ratio:7514 / 3050 = 246.36%

Need loan application or credit report to calculate back debt ratio. Despite

lack of data, the borrowers housing ratio reflects the borrowers monthlyincome was less than the monthly mortgage payment. The borrower hadno capacity to repay the debt when the loan was originated.

The income-to-debt ratios were calculated utilizing the income and debtfigures reflected on the Lenders final 1003, and are the same figures thelender appears to have used to approve the borrower for financing.

Loans whose ratios exceed the maximum 28 / 36% maximum tolerancepresent a higher than average risk of entering into default. The lenderappears to have disregarded this borrowers demonstrated inability torepay the subject mortgage debt.

Front Debt Ratio: Also known as the total monthly housing ratio. Theborrowers housing ratio is calculated by adding the monthly mortgagepayment reflected on the Note, in addition to the monthly tax, insurance,PMI, HOA dues and any other financing that must be paid on theborrowers primary residence. The sum of these figures is divided by theborrowers gross monthly income figure. The ratio represents thepercentage of the borrowers gross monthly income that must be devotedto the repayment of the housing debt exclusively.

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Back Debt Ratio: Also known as the Total Monthly Back Debt Ratio. Theborrowers total back debt ratio is calculated by adding the borrowers totalmonthly housing payment to all other monthly consumer debts theborrower is obligated to pay, including auto loans, credit card payments,and mortgage loans taken out on other properties owned. This figure isdivided by the borrowers gross monthly income. The Back Debt Ratio

represents the percentage of the borrowers total monthly gross incomethat must be devoted to repayment of to the housing debt, in addition to allother monthly consumer related and mortgage debts the borrower isobligated to pay.

Note: Federal Income Taxes, Social Security and Medicare payments arecalculated and deducted from an individuals gross wage. Employersmay also deduct health insurance premiums and other benefit relatedexpenses from the borrowers wage. The borrowers final Net takehome pay (the remainder of their pay the borrower actually receives anduses to pay living expenses) is usually 30% - 50% less than their Grossincome.

7 B3-4.1-01MinimumReserveRequirements

General AssetAssessment

The qualification of the borrowers assets does not appear to meet thefollowing criteria (1-4 Unit Residence):

Source of Earnest Money Deposit.

Sufficiency of Liquid Financial Reserves.

Acceptable Sources of Reserves (or sources are considered tobe unacceptable).

Gift funds or Seller Concessions Exceed Maximumtolerances80% or less; 100% must come from borrowers own funds.

80% LTV - 100% gift permitted.1. 30% equity or more 2 months PITI reserves are required.2. Less than 30% equity 6 months PITI is required.

The documentation level of the subject loan was stated. The lenderdoes not appear to have verified the borrowers sufficiency of cash toclose or its source. The lender also does not appear to have verified if theborrowers had adequate reserves post close, to act as a cushion in theevent of a financial emergency.

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8 B3-6-01LiabilityAssessment

The lender does not appear to have properly included all of theborrowers liabilities and financial obligations during the qualificationprocess.

The borrowers mortgage for the prior residence they owned was not

fully included in the income-to-debt calculations. The loan applicationstates that the property was rented, and the lender used the rule of 75to determine the borrowers net income loss. Only a portion of themortgage payment was included in the DTI calculations, not the fullamount of the debt.

Per the borrower, the property was not rented out when the subjectmortgage was originated, but was vacant and he and the co-borrowerwere earning no income from the property.

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9 PredatoryLending

Violation ofCivil Rights

The borrower may have been singled out for predatory financing.

Singled out for predatory financing by the Broker, Lender, LoanOfficer.

The borrower appears to have been denied adequate access tobasic loan information that was required for the borrower to

make an intelligent, well informed decision with regard to thetype of mortgage financing that was offered or available.

Was denied the ability to apply for a loan whose terms weresuperior or more advantageous than the subject loan granted tothe borrower.

Was granted a loan whose terms and mechanics were activelymisrepresented, or not adequately explained by the Broker, LoanOfficer, Lender or other interested party.

Was subjected to bait and switch tactics and provided aninferior loan type or terms, when the borrower had applied for,and was expecting to receive a superior mortgage product. Theamendment to the borrowers loan type appears to have beenarbitrarily performed, and the borrower does not appear to havebeen given notice, in advance of the closing, of the loan productchange.

Was knowingly granted a loan that the borrower could not repaydue to insufficient income.

Appear to have been subjected to steering tactics and wereplaced in a harmful, predatory mortgage loan the loan officerknew they could not afford to repay.

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10 PredatoryLending

The loan product granted the borrower does not appear to be appropriatefor his/her AGE, EMPLOYMENT OR INCOME SITUATION. The loaninterest rate and payments have the capacity to increase beyond theborrowers ability to repay.

The borrowers were granted a Pay Option, Fixed Rate loan. The loanterms provided multiple payment options. These payment options werenot disclosed or detailed on the Note. The payment options rangedbetween a minimum, below market payment that was calculated at aninterest rate that was 4.3% below the contract/note rate they were actuallyrequired to repay, an interest only payment, and a fully amortizingpayment.

The borrowers were not qualified using the fully amortizing payment, orthe interest-only payment, but the initial, below market payment thatwould be in effect for only one year, and be required to increase in yeartwo, when the mortgage payments were re-cast.

The borrowers income was unstable and was actually in decline whenthe mortgage loan was originated. Offering such a mortgage product toborrowers who were financially stressed, is tantamount to granting aloan that is a foreclosure waiting to happen.

As the mortgage product the borrowers were granted was whollyinappropriate to their employment and income situation, the borrowerscurrently ARE in foreclosure and stand to be evicted from the subject

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property and lose 100% of their financial investment, in addition to thelegal fees they have incurred attempting to fight the foreclosure action.

The payment options that the borrowers were granted are as follows:

BELOW MARKET PAYMENT PER THE NOTE CALCULATED USING

BASE LOAN AMOUNT OF $467,920 @ 3.25% USING A 30 YEAR TERM:$2,036.42.

INTEREST ONLY PAYMENT CALCULATED AT BASE LOAN AMOUNTOF $467,920, USING NOTE RATE OF 7.55%: $2,944 (THE MORTGAGEBALANCE AND INTEREST ONLY PAYMENT WILL CHANGE EACHMONTH, IF THE BORROWER CONSISTENTLY REMITS THEMINIMUM PAYMENT TOTALING $,2036.42. SEE BELOW FOREXAMPLE OF NEW MONTHLY BALANCE CALCULATION).

FULLY AMORTIZING PAYMENT CALCULATED AT $467,920 USINGNOTE RATE OF 7.55% FOR AT 30 YEAR TERM: $3,287.80

The nature of the loan productWHICH WAS DESIGNED TO MEET THENEEDS OF A VERY SMALL PERCENTAGE OF HIGHLY SELECT,PREMIUM BORROWERS, places the subject borrower at increased andunnecessary risk of entering into default, and losing any investment madein this major financial asset. The terms of the subject mortgage loan wasintended to service the needs of individuals whose industry virtuallyguarantees them substantial earnings increases from year, to year, such asrecent medical school graduates or professional athletes. The product wasnever intended to be made available to all borrowers universally. Theinappropriate sale of this loan product to this borrower is considered to beharmful to the borrowers financial interests, and should never have beengranted by the lender under any circumstance.

11 PredatoryLending

The subject transaction does not appear to benefit the borrower.

Despite the closure of the subject transaction, the borrowers capacity toactually retain the subject property was never a realistic possibility, dueto insufficient income. As a result any investment the borrower made,via the mortgage payments that were paid on a monthly basis, or anydown payment that was made, was sure to be lost.

A loan that is granted by a lender without regard to the benefit the loanrepresents to the borrower meets the current definition of a predatoryloan that should not have been originated by the lender.

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12 MortgageCompliance

The loan application appears to be incomplete and is considered to benon-compliant. One cannot accurately determine the loans level of riskbased upon an examination of the loan application solely.

The loan application is required to be the most accurate document locatedin a borrowers credit file. The loan terms, property information,employment data, income data, assets, and liabilities should have beencorrected as the loan was processed and underwritten, so that any person,who desired to determine the loans level of viability and risk, would be

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required to do nothing more than perform an examination of thatdocument, exclusively, and no other data in the loan file.

In this instance, the following sections of the loan application areincomplete, contain errors or are blank:

Employment Income

Assets

Liabilities

No reasonable person, just by performing a review of the borrowers loanapplication, can determine the loans actual level of risk.

13 PredatoryLending

The Lender appears to have qualified the borrower utilizing the lowestpotential mortgage payment, not the fully indexed, fully amortizingpayment as required per Fannie Mae Guidelines.

The borrowers monthly payment has the ability to increase to: $4729.81should the loan balance increase by 125%.

The borrowers capacity to repay the mortgage debt will be severelycompromised once the loan becomes fully amortizing and/or indexedand represents a high default risk.

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14 Mort-gageCompliance

Fannie MaeB3-1-01ComprehensiveRisk Assessment

PrimaryContributoryRisk AssessmentHighComprehensiveRisk.

The subject loan appears to have significant, multiple risk factors, i.e.,Layered Risk.

1. The subject income documentation level of the loan appears to beStated. The lender does not appear to have investigated theborrowers multiple business ventures or income, or their capacity

to repay the debt.2. The Borrowers are not only self employed but are engaged in

multiple business ventures that can change from year to year.3. The borrowers annual earnings are considered to be unstable and

were actually in decline when the loan was originated.4. The borrowers monthly income appears to have been over-stated

on the loan application in an effort to guarantee loan approval. Themonthly income reflected on the loan application totals $15,000 permonth. The borrowers actual monthly income totaled $3050 whenthe loan was originated.

5. The borrowers income does not appear to be sufficient to repaythe subject mortgage debt.

6.

The loan application does not accurately reflect all of the liabilitiesthat the borrowers were required to repay. The lender did notinclude the mortgage payment for the borrowers prior residence.The lender gave the borrowers credit for receipt of rental incomeon the home. According to the borrowers the home was vacantand they received no monthly income what would permit thepayments to be offset.

7. The borrowers back debt ratio, calculated to be approximately246.36%, exceeds the maximum 36% by 210.36%.

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8. The loan does not appear to benefit the borrowers interests.

Borrowers who have multiple risk factors, also known as Layered Risk, have ahigh probability of entering into default.

The multiple risk factors inherent in this borrowers loan profile reflect that this

borrower was not a candidate for mortgage financing, whose request should havebeen declined.

15 PredatoryLending

The loan appears to meet the current definition of a predatory loan asdefined in 12 C.F.R. Part 226, Regulation Z; Docket No. R-1366.

1. The subject income documentation level of the loan appears to beStated. The lender does not appear to have investigated theborrowers multiple business ventures or income, or their capacityto repay the debt.

2. The Borrowers are not only self employed but are engaged inmultiple business ventures that can change from year to year.

3. The borrowers annual earnings are considered to be unstable andwere actually in decline when the loan was originated.

4. The borrowers monthly income appears to have been over-statedon the loan application in an effort to guarantee loan approval. Themonthly income reflected on the loan application totals $15,000 permonth. The borrowers actual monthly income totaled $3050 whenthe loan was originated.

5. The borrowers income does not appear to be sufficient to repaythe subject mortgage debt.

6. The loan application does not accurately reflect all of the liabilitiesthat the borrowers were required to repay. The lender did notinclude the mortgage payment for the borrowers prior residence.The lender gave the borrowers credit for receipt of rental income

on the home. According to the borrowers the home was vacantand they received no monthly income what would permit thepayments to be offset.

7. The borrowers back debt ratio, calculated to be approximately246.36%, exceeds the maximum 36% by 210.36%.

8. The loan does not appear to benefit the borrowers interests.9. The Good Faith Estimate did not accurately disclose the product

type, or indicate the amount of the teaser rate, which was 3.25%.10. The Contract/Note did not disclose that the monthly payment

reflected thereon was calculated at a teaser rate totaling 3.25%,not at 7.55% which is the actual rate at which repayment of themortgage loan must be calculated.

11.

The Note does not disclose that if the payment reflected on theNote were remitted, the borrower would not have paid all of theinterest that was due, and the interest payment shortage wouldhave been immediately added to the borrowers mortgagebalance. The balance increase would have occurred with the veryfirst payment remitted, if the borrower paid the below marketpayment reflected on the Note.

12. The terms of the payment options were not disclosed on theNote, in any respect. The borrower had the ability to select a

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different payment option each month, however the repaymentoptions were not described, nor were their potentialconsequences detailed on the Note.

The loan granted to this borrower maximizes the potential profits thelender/investor can garner, while actively harming the borrowers

financial interests.

16 Unfair andDeceptiveTrade Practices

The Loan Officer, Mortgage Broker, Realtor or Lender appears to haveengaged in business practices which appear to have been designed todeceive and/or defraud.

Per the borrowers statements, they fully discussed the nature of theirbusiness and their income with the Mortgage Broker when the loan wasoriginated. They actually provided the Mortgage Broker with copies oftheir tax returns and asset documents. The loan officer stated that theincome losses reflected on their tax returns would prove extremelyproblematic and, he felt, that in all probability, any loan request that wasmade where income had to be evidenced would be declined. The

mortgage broker opted to place the borrowers in a stated income loanand purposely placed their loan request with a lender, who in his wordsdidnt care.

The borrowers income was actually in decline when the loan wasgranted and their actually monthly earnings averaged about $3050 permonth, not $15,000 as was stated by the Mortgage Broker. The borrowerswho were used to their roller coaster income streams were notpersonally concerned about their ability to repay the debt, but really hadno way to guarantee that their financial fortunes would improve theysimply had faith that improvement would occur.

The mortgage broker overstated the borrowers income on the loanapplication, to ensure that the loan would be granted, knowing that theLender would not perform any due diligence to verify if the data hesupplied was accurate.

Additionally, the mortgage broker does not appear to have accuratelyrepresented the mortgage loan he was proposing they accept. Theborrowers were lead to believe that the mortgage they were about tocommit themselves to repay, was wholly benign and that any unpaidinterest payments would be tallied up at the loans maturity and theywould be required to pay a balloon payment. The borrowers were notinformed that the payment reflected on the Note was calculated using abelow market interest rate, and that if that payment were remitted, the

loan balance would increase with the very first payment.

The borrowers appear to have been subjected to potential steering tacticsas they were knowingly steered to a mortgage loan that the loan officerknew they could not afford. The loan officer well knew and understoodthe mechanics of the mortgage product he was selling and understoodthat the mortgage payment he was suggesting they pay, was notsufficient to repay even the interest that was due on the loan. The loanofficer understood that the loan was a potential ticking time-bomb

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whose fuse was short. The loan officer, by his comments to theborrowers, seems to have understood that they were being granted a loanthat they could not afford to repay, and simply enabled the borrowers topurchase a home that he knew they would eventually lose. The loanofficer received $4,679 in Yield Spread compensation from the lender, forselling the subject mortgage loan to the borrowers. Due to the loans

capacity for negative amortization, the lender stood to gain rathersignificantly.

The loan officer, throughout the mortgage origination process, appears tohave been engaged in sales and origination tactics that were designed toconceal.

The lender also appears to have been engaged in concealment tactics asthe Note does not accurately describe the mortgages actual terms to theborrower. The borrowers could not read the Note, and understand theactual mechanics of the mortgage loan, or make an intelligent decisionregarding the financial instrument whose repayment they were about tocommit themselves.

As a result of these practices, the borrowers financial interests have beensignificantly harmed.

17 H.R. 4173-761Dodd/FrankFinancialReform BillTitle XIV MortgageReform andAnti-Predatory

Lending ActSec. 1402 &1403Subtitle A.ResidentialMortgage LoanOriginationStandards

129B.Residential Mortgage Loan Origination(b) Duty of Care(A) Be qualified and, when required, registered and licensed as amortgage originator in accordance with the applicable state or FederalLaw including the Secure and Fair Enforcement for Mortgage LicensingAct of 2008; and (B) include on all loan documents any unique identifierof the mortgage originator provided by the Nationwide MortgageLicensing System and Registry.

SEC. 1403.PROHEBITIOIN ON STEERING INCENTIVESSection 129B of the Truth in lending act (as added by section 1402(a) isamended by inserting after subsection (b) the following new subsection:(C) PROHIBITION ON STEERING INCENTIVES.-(1) IN GENERAL. For any residential mortgage loan, no mortgageoriginator shall receive from any person, and no person shall pay to amortgage originator, directly or indirectly, compensation that variesbased on the terms of the loan (other than the amount of the principal).(3) REGULATIONS. The Board shall prescribe regulations to prohibit(A) mortgage originators from steering any consumer to a residentialmortgage loan that-(i) the consumer lacks a reasonable ability to repay (in accordance with

regulations prescribed under section 129C(a)): or(ii) has predatory characteristics or effects (such as equity stripping,excessive fees or abusive terms);(B) mortgage originators from steering any consumer from a residentialmortgage loan for which the consumer is qualified (as defined in section129C(b) (2)) to a residential mortgage loan that is not a qualifiedmortgage;( C ) abusive or unfair lending practices that promote dispar ities amongconsumers of equal creditworthiness but of different race, ethnicity,

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gender or age; and(D) mortgage originators from-(i) mischaracterizing the credit history of a consumer or the residentialmortgage loans available to a consumer;(ii) mischaracterizing or suborning the mischaracterization of theappraised value of the property securing the extension of credit; or

(iii) if unable to suggest, offer, or recommend to a consumer a loan thatis not more (less) expensive, a loan for which the consumer qualified,discouraging a consumer from seeking a residential mortgage loansecured by a consumers principal dwelling from another mortgage loanoriginator.(4) RULES OF CONSTRUCTION. No provision of this subsectionshall be construed as (A) Permitting any yield spread premium or any other similarcompensation that would, for any residential mortgage loan, permit thetotal amount of direct and indirect compensation from all sourcespermitted to a mortgage originator to vary based upon the terms of theloan (other than the amount of the principal);(B) limiting or affecting the amount of compensation received by a

creditor upon the sale of a consummated loan to a subsequent purchaser;( C ) restricting a consumers ability to finance, at the option of theconsumer, including through principal or rate, any origination fees, orcosts permitted under this subjection, or the mortgage originators rightto receive such fees or costs (including compensation) from an y person,subject to paragraph (2) (B), so long as such fees or costs do not varybased on the terms of the loan (other than the amount of the principal) orthe consumers decision about whether to finance such fees or costs; or(D) prohibiting incentive payments to a mortgage originator based onthe number of residential mortgage loans originated within a specifiedperiod of time..

18 H.R. 4173-761Dodd/FrankFinancialReform BillTitle XIV MortgageReform andAnti-PredatoryLending ActSec. 1411MinimumStandards ForMortgages

SEC. 1411. ABILITY TO REPAY.129.C Minimum standards for residential mortgage loans(a) Ability to Repay.

(1) IN GENERAL. In accordance with regulations prescribed by theBoard, no creditor may make a residential mortgage loan unless thecreditor makes a reasonable and good faith determination based onverified and documented information that, at the time the loan isconsummated, the consumer has a reasonable ability to repay the loan,according to its terms, and all applicable taxes, insurance (includingmortgage guarantee insurance), and assessments.

(2) MULTIPLE LOANS. If the creditor knows, or has reason to knowthat 1 or more residential mortgage loans secured by the same dwellingwill be made to the same consumer, the creditor shall make a reasonable

and good faith determination, based upon verified and documentedinformation, that the consumer has a reasonable ability to repay thecombined payments of all loans on the same dwelling according to theterms of those loans and all applicable taxes, insurance (Includingmortgage guarantee insurance), and assessments.(3) BASIS FOR DETERMINATION. A determination under thissubsection of a consumers ability to repay a residential mortgage loanshall include consideration of the consumers credit history, currentincome, expected income the consumer is reasonably assured of

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receiving, current obligations, debt-to-income ratio or the residualincome the consumer will have after paying all non-mortgage debt andmortgage related obligations, employment status and other financialresources other than the consumers equity in the dwelling or realproperty that secures repayment of the loan. A creditor shall determinethe ability of the consumer to repay using a payment schedule that fully

amortizes t he loan of the the term of the loan.(4) INCOME VERIFICATION. A creditor making a residentialmortgage loan shall verify amounts of income or assets that such creditorrelies on to determine repayment ability, including expected income orassets, by reviewing the consumers Internal Revenue Service Form W-2,tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of theconsumers income or assets. In order to safeguard against fraudulentreporting, any consideration of a consumers income history in making adetermination under this subsection shall include the verification ofsuch income but the use of -(A) Internal Revenue Service transcripts of tax returns; or(B) a method that quickly and effectively verifies income

documentation by a third party subject to rules prescribed by the Board.

(6) NONSTANDARD LOANS. (A) VARIABLE RATE LOANS THAT DEFER REPAYMENT OF ANYPRINCIPAL OR INTEREST. For purposes of determining, under thissubsection, a consumers ability to repay a variable rate residentialmortgage loan that allows or requires the consumer to defer therepayment of any principal or interest, the creditor shall use a fullyamortizing repayment schedule.(B) INTEREST-ONLY LOANS. For purposes of determining, underthis subsection, a consumers ability to repay a residential mortgage loanthat permits or requires the payment of interest only the creditor shalluse the payment amount required to amortize the loan by its finalmaturity.( C ) CALCULATION FOR NEGATIVE AMORTIZATION. In makingany determination under this subsection, a creditor shall also take intoconsideration any balance increase that may accrue from any negativeamortization provision.(D) CALCULATION PROCESS. For the purposes of making anydetermination under this subjection, a creditor shall calculate themonthly payment amount for principal and interest on any residentialmortgage loan by assuming(i) the loan proceeds are fully disbursed on the date of theconsummation of the loan;(ii) the loan is to be repaid in substantially equal monthly amortizing

payments for principal and interest over the entire term of the loan withno balloon payment, unless the loan contract requires more rapidrepayment (including balloon payment), in which case the calculationshall be made (I) in accordance with regulations prescribed by the Board,with respect to any loan which has an annual percentage rate that doesnot exceed the average prime offer rate for a comparable transaction, asthe date the interest rate is set, by 1.5 or more percentage points for a firstlien residential mortgage loan; and by 3.5 or more percentage points fora subordinate lien residential mortgage loan; or (II). Using the contracts


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repayment schedule, with respect to a loan which has an annualpercentage rate, as of the date the interest rate is set, that is at least 1.5percentage points above the average prime offer rate for a first lienresidential mortgage loan; and 3.5 percentage points above the averageprime offer rate for a subordinate lien residential mortgage loan; and(iii) the interest rate over the entire term of the loan is a fixed rate equal

to the fully indexed rate at the time of the loan closing, withoutconsidering the introductory rate.

19 HOEPA TITLE 15 > CHAPTER 41 > SUBCHAPTER I > Part B > 1639.

Requirements for certain mortgages.

Per the loan approval located in the credit file, the borrower was not

required to evidence his capacity to repay the subject mortgage debt. An

analysis of the borrowers tax or income documents indicate that his

income was not sufficient to repay the debt when the loan closed. The

credit approval appears to have been granted based upon the strength of

the borrowers FICO scores and the appraisal, not based upon his

demonstrated capacity to repay the debt.

(h) Prohibition on extending credit without regard to payment ability ofconsumer.

A creditor shall not engage in a pattern or practice of extending credit toconsumers under mortgages referred to in section 1602 (aa) of this titlebased on the consumers collateral without regard to the consumersrepayment ability, including the consumers current and expected income,current obligations, and employment.

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20 FDIC Law,

Regulations,Related Acts

6500 ConsumerProtectionPart 3500 RealEstateSettlementProcedures Act

3500.7 Good faith estimate or GFE.

The good faith estimate does not accurately disclose the terms of thesubject mortgage loan, does not accurately describe the mortgage amountthat was granted, or discloses that the mortgage payments reflected onthe Note were calculated using a temporary, below market interest rate.

(a) Lender to provide. (1) Except as otherwise provided in paragraphs (a), (b),or (h) of this section, not later than 3 business days after a lender receivesan application, or information sufficient to complete an application, thelender must provide the applicant with a GFE. In the case of dealer loans,the lender must either provide the GFE or ensure that the dealer providesthe GFE.

(2) The lender must provide the GFE to the loan applicant by handdelivery, by placing it in the mail, or, if the applicant agrees, by fax, e-mail,or other electronic means.

(e) Tolerances for amounts included on GFE. (1) Except as provided inparagraph (f) of this section, the actual charges at settlement may notexceed the amounts included on the GFE for:

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http://www.law.cornell.edu/uscode/15/usc_sup_01_15.htmlhttp://www.law.cornell.edu/uscode/15/usc_sup_01_15_10_41.htmlhttp://www.law.cornell.edu/uscode/15/usc_sup_01_15_10_41_20_I.htmlhttp://www.law.cornell.edu/uscode/15/usc_sup_01_15_10_41_20_I_30_B.htmlhttp://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00001602----000-.htmlhttp://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00001602----000-.html#aahttp://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00001602----000-.html#aahttp://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00001602----000-.htmlhttp://www.law.cornell.edu/uscode/15/usc_sup_01_15_10_41_20_I_30_B.htmlhttp://www.law.cornell.edu/uscode/15/usc_sup_01_15_10_41_20_I.htmlhttp://www.law.cornell.edu/uscode/15/usc_sup_01_15_10_41.htmlhttp://www.law.cornell.edu/uscode/15/usc_sup_01_15.html


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(i) The origination charge;

(ii) While the borrower's interest rate is locked, the credit or charge for theinterest rate chosen;

(iii) While the borrower's interest rate is locked, the adjusted origination

charge; and

(iv) Transfer taxes.

(f) Binding GFE. The loan originator is bound, within the tolerancesprovided in paragraph (e) of this section, to the settlement charges andterms listed on the GFE provided to the borrower, unless a revised GFE isprovided prior to settlement consistent with this paragraph (f) or the GFEexpires in accordance with paragraph (f)(4) of this section. If a loanoriginator provides a revised GFE consistent with this paragraph, the loanoriginator must document the reason that a revised GFE was provided.Loan originators must retain documentation of any reason for providing a

revised GFE for no less than 3 years after settlement.

(1) Changed circumstances affecting settlement costs. If changed circumstancesresult in increased costs for any settlement services such that the changes atsettlement would exceed the tolerances for those charges, the loanoriginator may provide a revised GFE to the borrower. If a revised GFE isto be provided, the loan originator must do so within 3 business days ofreceiving information sufficient to establish changed circumstances. Therevised GFE may increase charges for services listed on the GFE only to theextent that the changed circumstances actually resulted in higher charges.

(2) Changed circumstances affecting loan. If changed circumstances result in a

change in the borrower's eligibility for the specific loan terms identified inthe GFE, the loan originator may provide a revised GFE to the borrower. Ifa revised GFE is to be provided, the loan originator must do so within 3business days of receiving information sufficient to establish changedcircumstances. The revised GFE may increase charges for services listed onthe GFE only to the extent that the changed circumstances affecting theloan actually resulted in higher charges. May be cleared with evidence ofdocumentation.

21 RESPA The Mortgage Servicing Transfer disclosure is not in the file.

RESPA 12 USC 2601 24 CFR 3500.7 Good Faith Estimate: Except as provided inthis paragraph (a) or paragraph (f) of this section, the lender shall provide allapplicants for a federally related mortgage loan with a good faith estimate of theamount of or range of charges for the specific settlement services the borrower islikely to incur in connection with the settlement. The lender shall provide the goodfaith estimate required under this section (a suggested format is set forth inAppendix C of this part) either by delivering the good faith estimate or by placingit in the mail to the loan applicant, not later than three business days after theapplication is received or prepared. If a mortgage broker is the exclusive agent of

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the lender, either the lender or the mortgage broker shall provide the good faithestimate within three business days after the mortgage broker receives or preparesthe application. Mortgage broker to provide. May be Cleared if Documentationis Located.

22 ECOA ECOA It appears that the borrower was not provided the Notice of Right

to Receive a Copy of an Appraisal.

This disclosure is provided to you pursuant to Regulation B, the implementingregulation for the Equal Credit Opportunity Act (12 C.F.R. 202.14(a) (2) (i).You have the right to a copy of the appraisal report used in connection with yourapplication for credit. If you wish a copy, please write to us at the mailing addressbelow. We must hear from you no later than 90 days after we notify you about theaction taken on your credit application or you withdraw your application. May beCleared if Documentation is Located.

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END ISSUES & EXCEPTIONS


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UNDERWRITERS FINAL CONCLUSIONS

SOUNDNESS OF LENDERS UNDERWRITING PROCESS, GUIDELINESAND METHODOLOGY.Notes: The processes and methodology the lender employed to approve the subject mortgage

loan are considered to be unsound and in violation of Fannie Mae Underwriting Guidelines.

As the entity responsible for granting credit and lending money belonging to its shareholders, theultimate responsibility for verifying and underwriting all aspects of a borrowers loan requestreside with the lender. While the borrower may have worked with a mortgage broker whosolicited the borrowers business, took the borrowers application, and who collected andforwarded documents to the lender, the mortgage broker, who has no money to lend personally,has no capacity to underwrite, approve or fund a mortgage loan.

In all circumstances, a broker must submit a borrowers documentation and credit file to alenders underwriting department for review and approval. Lenders who are not satisfied withthe documentation provided by the Mortgage Broker or Loan Officer, may request that thebroker provide new or better documentation if the loan is to be approved. The lender, as theentity who is assuming 100% of the financial risk associated with granting credit, has the abilityand right to amend the borrowers mortgage program, submit a loan counter-offer changing theterms that were originally requested, reduce the loan amount or decline the mortgage requestentirely.

Underwriters are required, industry wide, to perform extensive checks for fraud, and arerequired to decline any loan request where they suspect fraudulent activity may have takenplace.

While the appraiser may perform the valuation of the subject property, the Lenders loanUnderwriter is responsible for underwriting and reviewing the appraisal document, and eitheraccepts or declines the Appraisers value judgment based upon his or her professional

assessment of the data contained therein. Underwriters are required to perform independentinvestigations of a propertys market to determine if the data conta ined in an appraisal hasaccurately represented the property, the comparables and the subjects market area accurately.Underwriters may request that the appraiser provide additional comparable properties, provideadditional reasoning to support a value conclusion or reject the appraisal outright and requirethat another appraisal be p