Ready to Host Audit Teams?
The focus is now on the tax-filing deadline, but another more fluid "deadline" is near. Audits, too, are around the corner and lenders and servicers need to get ready.
Mark Compton, servicing and default manager, strategic consulting services, Lender Processing Services, says lenders need to get ready for the upcoming Freddie Mac audits. Access to well-organized files is an easy way to facilitate the process, but according to Compton it also is a good idea to assign-if necessary-an executive as the audit team's direct contact person, as a way to help minimize additional data traffic discrepancies.
Some financial service providers are getting ready. The Consumer Mortgage Audit Center, Fort Lauderdale, Fla., has opened a fulfillment division that can process thousands of loan modification and refinancing files. In a company release CMAC VP of operations, Sylvia Alayon, stated, "Creating a standalone division...just made sense."
CMAC responded to higher market demand for very specialized assistance such as forensic mortgage analysis, due diligence support on bulk buys, and before-and-after funding quality control loan reviews.
Lenders and servicers nationwide can use a pay-as-you-go pricing option. The goal is to give them additional backend support as they try to assist high volumes of distressed loans and prevent the need to write off bad debt, and help in complying with changing FHA guidelines.
But audits may take a different meaning for some homeowners. Miami-based real estate attorney of Airan2, Airan-Pace & Crosa PA, Rashmi Airan-Pace, is cautioning homeowners to be wary of using a mortgage audit as a foreclosure avoidance tool.
"The bottom line for homeowners facing foreclosure is to educate themselves on the many different options they have. Even though a foreclosure is an emotional time, people shouldn't make an emotional decision that leaves them prey to one of the many scams that are running rampant in the current environment."
A mortgage or loan audit is a legal defense that includes examining a homeowner's appraisal, mortgage and supporting documents to determine if there was fraud or excessive fees charged by the lender in the mortgage contract, he explains. Audits are typically used once homeowners have fallen behind in their mortgage payments and are facing foreclosure.
Possible favorable outcomes for audits are refinancing on the borrowers' terms-or the mortgage gets rescinded and the lender gets its money back, Airan-Pace says, and another scenario is the borrowers get to keep their home free and clear.
However, there are two major concerns with mortgage audits: unqualified auditors and being blackballed by lenders.
According to Airan-Pace, during the current mortgage crisis instead of licensed attorneys with experience in conducting audits, unqualified companies are using loan audits as a "foreclosure avoidance scam" targeting desperate homeowners and making unrealistic promises they cannot keep.
Homeowners who request an audit against their lender and at the same time hope to secure a mortgage modification "can often lead to being blackballed," Airan-Pace says, because such audits, when filing a lawsuit against the lender, may result in client's modification paperwork getting misplaced or the modification slowing down. Borrowers facing foreclosure need to be educated on the many different options they have, she says, so while emotional, foreclosure is a legal problem and should be handled as such.
Homeowners who are not facing foreclosure also need guidance.
Dave Shaw, president of the California Society of Enrolled Agents-licensed by the Department of the Treasury to advise and represent clients specifically in matters of taxation-says that in many cases it is not possible to prepare a completely and unambiguously "correct" tax return.
"There is often ambiguity in both the tax law and clients' real-life situations," Shaw says. "That's why good tax pros and their clients work together to choose the best and most accurate tax return for that particular client, something tax software can't do."
One of the decisions faced by taxpayers is whether to itemize deductions, which depend on how much is spent on qualifying deductions such as mortgage interest or medical care. "Even so-called minor imperfections in a tax return could cost you money in missed deductions or unused credits, or could even trigger an audit," Shaw warns.