nj forensic analysis sample

Forensic Analysis

Prepared For

Egg Harbor Town Ship, NJ 08234

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The loan transaction for the above-referenced borrower/property has been audited for violations of Truth in Lending Act [16 U.S.C. § 1601] (“TILA”), Home Ownership Equity Protection Act [12 C.F.R. 226.32 et seq.] (“HOEPA”),the Real Estate Settlement Procedures Act [12 U.S.C. § 2601], and to theextent applicable, violations of other state and federal laws discussed below.

This report was based exclusively on the documentation provided. It also required that we make reasonable assumptions respecting disclosures and certain loan terms that, if erroneous, may result in material differences between our findings and the loan's actual compliance with applicable regulatory requirements. While we believe that our assumptions provide a reasonable basis for the review results, we make no representations or warranties respecting the appropriateness of our assumptions, the completeness of the information considered, or the accuracy of the findings.

The contents of this report are being provided with the understanding that we are not providing legal advice, nor do we have any relationship, contractual or otherwise, with anyone other than the recipient. We do not, in providing this report, accept or assume responsibility for any other purpose.

We strongly recommend you retain a licensed attorney, who practicesin the county in which your property is located. The advise of the attorney supersedes any information you receive through this report.

Livinglies/Luminaq


Egg Harbor Town Ship, NJ 08234Origination Lender: Countrywide Bank, FSB

1800 Tapo Canyon RoadSimi Valley, CA 93063

Loan Amount: $288,000.00Application Date: 04/09/2007Closing Date: 05/09/2007Funding Date: 05/14/2007Sales Price: NA = refinanceAppraised Value: Unknown = missing appraisal

Value is $322,000 on Zillow 04/01/07 Seller: N/A = refinanceMortgage Broker: Not Same as lender

Payless Mortgage CropInterviewer: Antonio IzzoAppraiser: Omni AppraisalClosing Agent: Foundation Title LLC – Metuchen

441 Main StreetMetuchen, NJ 08840

Escrow Officer: Unknown

Title Insurance: Foundation Title LLC (per HUD)Cash Out Proceeds: Cash to borrower $11,334.53Loan Summary: 78.95%LTV/CLTV refinance

Primary residence, Single family home


Borrower: Subject Property:

Origination Loan #: MIN #:

Escrow Number:

This analysis is based on the following information, which has been entered by us based upon the information supplied by the homeowner or homeowners council.THIS DOCUMENT MAY FALL UNDER ATTORNEY WORK PRODUCT PRIVILEDGE AND THEREFORE SHOULD NOT BE SHOWN TO ANYONE WITHOUT CONSULTING WITH YOUR ATTORNEY.This loan may have been paid in full by third parties as insurance guarantee, bail out or credit enhancements. In all probability the originator of the loan has been paid in full for their services. Therefore many attorneys are alleging as their primary defense :"Payment in Full".

Summary of Findings:This is not a legal opinion. Below is a summary of our findings. Based upon advise from our council in various States, these findings correspond to a probable finding of violation oflaw which should be confirmed with a licensed attorney.

1. Underwriting Violation: Excessive DTI Ratios. PG 8

2. Underwriting Violation: Unreasonable stated income. PG 9

3. Underwriting Violation: Predatory Lending Practices. PG 9

4. Compliance Violations: Missing Documents. PG 11

5. Compliance Violations: Missing Underwriting Documents. PG 11

6. Federal TILA violation: This loan failed the TILA finance charge test. PG 26 & 62

7. Federal RESPA violation: This loan failed the Good Faith Estimate disclosure date test. PG 27 & 65

8. Dates signed for initial documents do not comply with Federal RESPA CITE :24CRF3500.17

9. NJ Home Ownership Security Act as Amended 2004 (NJ SB 279): The loan is a home loan, as defined in the legislation. PG 28 & 68

10. This loan is serviced through MERS, which is contiguous with PSA (Pooling Service Agreements). This indicates the below mentioned loan as being securitized. Further detail of this would be exposed through an audit of the trustee and servicing pool. There are perhaps hundreds of derivative investor owners of shares underlying the above referenced trusts, which the undersigned is still in the process of discovery. This could take considerably more time to complete however; the above institutions, and each of them separately, are claiming ownership through various interlaced loan servicing, trustee and management agreements which provide them both assets and cash flow underlying the issuance of their respective securities. See Page 37


Based upon advise of council the above apparent violations give rise to numerous causes of action for compensatory damages, punitive damages and equitable relief. The borrower may have a right to rescind.

Examiner Notes for File:

Credit scores:

Primary Residence single family dwellingAppraised value = $380,000; LTV = 78.95%

Ratios Front End = 26.71%Back End = 39.40%

Zillow reports current value is $224,500 with a gain of $2,000 in the past month.Earliest value was $172,000 on 07/01/2001.Highest value was $348,000 on 06/01/2006.Lowest value was $172,000 on 07/01/2001.

Loan Application shows borrowers purchased subject property in 2001 for $250,000.Stated value was $380,000 on loan application.

Questionnaire information from borrower:Attorney: NAAttorney Name : 05-09-2007Purchase or Refinance: PurchaseBroker: yes, don't remember the noneReason For Loan: yes , all of the aboveInitial information about loan: the broker told me about the loanWho filled out application: MeApplication was filled accurately: YesLoan Terms Same as applied for: YesDebt: yesUsed to pay off other debt: YesFixed Income: YesWhere was the closing: at my home


= Not Available

Who attended closing: me ,my wife and the agentLoan Explanation: they gave me a little info but they also said just sign and initial here

Who chose closing agent: i don't knowWhen received closing documents: at closingNot canceling document signed: NotSureIncomplete or blank document signed: NotSureReceived Incomplete Notice to Cancel: YesNotice to Cancel Explained: YesDocuments Notarized: NoTerms of Loan changed: NoAppraisal done: YesHave copy of appraisal: NoLoan for more than property value: Yes

Payouts done properly: YesHigh closing cost: YesTold about closing charges: i don't rememberExplained how broker will be compensated: NoExtra money to broker paid: YesExtra money to broker paid explanation: im not sure if the lender pay more money to the brokerProblem with posting monthly payments: NoPayments applied to suspended account: Do not knowLate charges incorrectly posted: NoExtra Charges posted: YesExtra charges: im not sureInsurance forced: NoHad valid insurance: YesPrincipal going down: YesPayments credited correctly: YesMortgage Company: country wideMortgage Servicer: BACNot properly Serviced: I DO COMPUTER TRANSACTIONSTreated unfairly: YesWhy Treated unfairly: They have with held information on what they did with my note and the securitization of MBSExcessed Rate: NotSurePrepayment Penalty: NotSureRefinanced this loan: 1Refinanced with the same lender: NoPayment increased after refinance: YesRefinanced from fixed rate: Yes


Forensic Examination Assumption: The application has no borrower's signature and no signature date. The application date is one of the Compliance Analyzer system required data fields. Therefore, we have made an assumption that the application date is 04/09/2007 (Assuming 30 days before the date of the Note of 05/09/2007). The closing/settlement date in the Compliance Analyzer (CA) system web form is the loan document signing date; therefore, we have made an assumption that the document signing date is the same as Escrow Officer's signature date on the Final HUD-1 with a settlement date of 05/09/2007 and a disbursement date of 05/14/2007.


APPARENT UNDERWRITING VIOLATION - EXCESSIVE DTI RATIO Subject loan appears to have been underwritten as Stated Income Stated Assets (SISA) by origination lender. The borrower’s primary occupation, as stated on the application, is Teacher for 10 years 01 month earning $6293.48 monthly. He has been a Teacher for 20 years total. The co-borrower’s primary occupation, as stated on the application, is Accountant for 02 months earning $2950,00 monthly. She has been a Accountant for 10 years total. No underwriting Transmittal 1008 in file to determine what ratios were used to qualify.

Income calculation per 2005 & 2006 W2s

Calvin – 2005 & 2006 : ($72,868.93 + $71,991.36)/12 = $6,034.59Jeanette – 2005 & 2006 : ($38,185.55 + $39,994.84)/12 = $3,257.51Total income : $9,292.10

$1,867.90 P+I$77.00 hazard insurance per HUD$437.00 real estate taxes per HUD$100.00 $2,481.90 PITI divided by $9,292.10 useable verified income = 26.71% housing ratio

$2,481.90 PITI + $1179.00 consumer debt on loan application$4810.18 / $9,292.10 = 39.40% total debt burden ratio

This ratio is above the 28/36 ratio guidelines.

In the above scenario, the borrowers’ DTI ratio far exceeds the maximum allowed DTI ratio per all usual and customary underwriting guidelines for ALT-A and/or Subprime lending. The lenders underwriter has a responsibility to not only follow the lenders underwriting guidelines but to insure that a thorough analysis of the borrowers income, liabilities and credit report is performed to determine the borrowers ability to repay the loan.

We can determine that the Debt to Income Ratio for this loan was approximately 39.40%, which is well above the traditional debt ratio of 36%. This ratio, which is computed by dividing the borrowers’ gross monthly income into the borrowers’ total debt payments, including the proposed mortgage that is being underwritten, is a key factor used by underwriters to assess the borrowers’ ability to repay the debt. It is our opinion that an argument could be made, that the lender should not have made this loan and put the borrower in a position where there was a high probability of failure.


From the documentation provided in the file, it appears that this loan might have been processed as a ‘stated income’ loan. The underwriter has apparently approved this loan based upon credit score and a belief that the property would continue to increase in value. No consideration of the ability of the borrower to repay this loan with a realistic means test appears to have been made.

APPARENT UNDERWRITING VIOLATION: UNREASONABLE STATED INCOME Auditor is of the opinion the Stated Income reflected on loan application (1003) in file is overstated and misrepresents borrowers’ actual income. The 1003 reflects Stated Income of $9243.48.00 per month. Origination underwriter violated his/her fiduciary responsibility to origination lender and the investors/subsequent purchasers of this Note and underlying security instrument. The underwriter has primary responsibility to assess the borrowers’ ability to repay the proposed mortgage debt and determine whether Stated Income on 1003 is reasonable for the job description, employment history, assets and credit profile presented by the borrower through information on the 1003.

The lenders underwriter failed to follow generally accepted underwriting practices by qualifying the borrowers based on the stated income without determining the reasonableness of the income.

APPARENT UNDERWRITING VIOLATION: PREDATORY LENDING PRACTICES

Practices widely identified as predatory include:

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

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

• making a loan that the borrower cannot afford to repay;

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

• flipping loans by inducing repeated refinancing, without benefit to the borrower,in order to generate fees.

The lender processed and approved this loan under a ‘Stated Income’ program that requires employment verification but does not require income verification. However, the lender has a responsibility to determine the reasonableness of the stated income. The lenders underwriter failed to follow generally accepted underwriting practices by qualifying the borrowers based on the stated income without determining the reasonableness of the income. Had the underwriter investigated the borrowers’ occupations on web sites such as salary.com, indeed.com or payscale.com it could have been determined that the borrowers stated income was overstated.


GOOD FAITH ESTIMATE AND TRUTH IN LENDING STATEMENTThe Truth in Lending Act requires initial disclosures to be issued within three (3)business days of receipt of loan application or within three (3) business days of anychanges to the terms of loan or program. File reviewed by Auditor did not include anInitial Good Faith Estimate (GFE) or an Initial TIL. Therefore the Initial Good FaithEstimate (GFE) and Initial TIL were apparently not provided within the 3 business days required byThe Truth in Lending Act.

Good Faith EstimateThe Good Faith Estimate Disclosure was not in the file and the Initial Application wasnot signed or dated by the borrower(s) or loan officer. Lenders are required to provideborrowers with a Good Faith Estimate with in three business days of Initial Applicationand the estimated fees included on the GFE must be a reasonable estimate of the actual fees charged to the borrower per the HUD-1 Settlement Statement.The Real Estate Settlement Practices Act of 1974 (RESPA) represents a response byCongress to perceived abuses in the real estate settlement process and an attempt toprotect consumers from unnecessarily high settlement charges resulting from thoseabuses. The stated purpose of RESPA was to bring about certain changes in thesettlement process for residential real estate that would result in; more effective advance disclosure of settlement costs to home buyers and sellers; elimination of kickbacks or referral fees that had the tendency to increaseunnecessarily the costs of certain settlement services; reduction in the amounts that home buyers were required to place in escrowaccounts established to insure the payment of real estate taxes and insurance; and significant reform and modernization of local record keeping of land titleinformation. 12 U.S.C.A. § 2601.The Real Estate Settlement Practices Act of 1974 applies to any "federally relatedmortgage loan," that is, a loan other than temporary financing such as a construction loan that is secured by a first or subordinate lien on residential property, including individual units of condominiums and cooperatives. 12 U.S.C.A. § 2602(1)(A). It also applies to loans made in whole or in part by any lender with deposits or accounts that are insured by a federal agency or a lender that is regulated by the federal government. 12 U.S.C.A. § 2602(1)(B)(i).


APPARENT VIOLATIONS: MISSING DOCUMENTSAs noted below, this file did not include various initial disclosures that are mandated under both State and Federal laws. If a broker does not deliver the initial disclosures to the borrower, it becomes incumbent for the lender to ensure that these disclosures were delivered to the borrower. If the borrower was not provided with these disclosures within three business days from the date of the original loan application, the borrower will need to complete a sworn statement testifying to that effect.

Initial TIL & GFE missing.

APPARENT VIOLATIONS: MISSING DOCUMENTS File is missing MOST initial disclosure documents and MOST final disclosures, including but not limited to:

Form 4506-T

Per RESPA (Real Estate Settlement Procedures Act – 12 USC 2601 et seq.) Good Faith Estimate Affiliated Business Arrangement Disclosure Servicing Disclosure Statement Escrow Account Disclosure

Per ECOA (Equal Credit Opportunity Act – Reg B – 12 CFR 202): Initial signed & dated Uniform Residential Loan Application (1003)

Per FCRA (Fair Credit Reporting Act – 15 USC 1681):Disclosure of Credit ScoresNotice to Home Loan Applicant


OTHER CONSIDERATIONS

Duty of Lender and BrokerThe duty of the broker is to deal with the consumer in good faith. If the broker knew orshould have known that the borrower will or had a likelihood of defaulting on this loanthey have a fiduciary duty to the borrower to NOT place them in that loan (in harmsway). Ordinarily it would be self evident that a banker or broker would not desire to put a borrower in a loan that is likely to fail, however in most instances over the last 10 years it appears that the party originating the loan had no risk of loss and therefore remained neutral as to whether the loan viable or not. The fact that the loan originator was neutral should have been disclosed to borrower. This is required under TIL disclosures.

Additionally broker has a contractual duty of good faith and fair dealings with the lenderwhich would be breached if they knowingly placed a loan with the lender failing todisclose the material fact that the borrower will likely default or file bankruptcy.

The duty of the lender is a responsibility to perform their own diligence to determine if acustomer is being placed in a loan that is legal, properly disclosed, is the best loan for the consumer given their financial circumstance and affordable over the life of the loan ifpresent financial positions hold steady.

If the lender is aware that the borrower would be better off with another type of loan thatthe lender offers, they have violated their duty to the consumer and such act of deception would likely be considered fraud on the consumer and a predatory lending practice.

It is the opinion of the examiner that the lender may have violated their duty to theborrower by:1. Placing the borrowers into their current loan product without regard for otherproducts that might have suited the borrower(s) better,2. Placing the borrower(s) into a loan whereby it was likely the borrowers woulddefault or incur bankruptcy as a result of the loan and it was reasonablyforeseeable that such would occur,3. Placing borrower(s) into a loan product that clearly was not viable as a result of the lenders apparent failure to verify employment or income.4. Placing the borrower(s) into a loan product without verifying the real estate appraisal. In many cases apparently this case included, the appraiser was utterly given instructions by lender or lenders representative to be shown as fair market value, which is based on the lenders desired


transaction, rather than fair market value. This is one of the abuses referred to above that results from table funded loans in which the originator has no risk of loss.

Supporting Case Law -This is not a complete list.• Am. Bankers’ Ins. Co. v. Wells, 819 So. 2d 1196 (Miss. 2001)• Barrett v. Bank of Am. 229 Cal. Rptr. 16 (Ct. App. 1986)• Charleswell v. Chase Manhattan Bank, N.A., 308 F. Supp. 2d 545 D. V.I.

2004)• Chedick v. Nash, 151 F. 3d 1077 (D.C. Cir. 1998)Hilgeman v. Am. Mortg.

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

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

Also, please see the Alternative Causes of Action at the end of this report. Additional ormissing documents may be provided with in 14 days of receipt of this audit report and the audit report will be updated and sent that reflects any changes.

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


on “stated” loans to the best of our ability. If there is any further related case law or other support that you can share with us, please feel free to let us know and we will incorporate it.

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

Stated Loans and Lending MisconductThe borrower has a right to rely on the superior knowledge & expertise of the broker & originating lender. Typically the borrower reasonably relied on the expertise and the superior knowledge The broker would then tell the or the broker, the combined representation that the fair market value exceeded the proposed loan balance together with the representationthat the loan will be refinanced providing the borrower with a buffer was entirely untrue.

In terms of our forensic loan audits, we look at the borrowers actual W-2 and tax returnsto determine their true debt to income (DTI) ratio at the time the loan was originated. Wethen compare that figure to what the stated income was put on the actual loan application.If the two numbers do not match up the attorneys frequently bring the following causes ofaction against the lender. Based upon our discussions with council in various states the following paragraphs would appear to apply in most instances. Laymen are advised to seek council before deciding to take any action.

Breach of Fiduciary DutyTraditionally, a credit transaction has been considered an arm’s length transaction inwhich there has been no special duty read into the creditor-debtor relationship. Mostcourts, however, have held that the presence of certain factors in the creditor-debtorrelationship may give rise to a fiduciary duty.

For example, a fiduciary relationship can arise when a party, generally a weaker party inthe sense of the ability to protect itself, places trust and confidence in another. Such a“duty of confidence” arguably can arise if a lender acts in the role of advisor and knowsor should have known the borrower trusted him. When such a relationship exists itcreates a duty to disclose.

This duty of confidence arises in most creditor lender relationships, but it occursexponentially more in situations where the loan is a “stated loan.” The borrower is theweaker party in the transaction due to their inability to negotiate many of the primaryterms of the loan. The loan is being offered to the borrower in a take-it-or-leave-itfashion where they have no ability to negotiate major terms such as APR or paymentschedule. Also in terms of legal strength the lender will have an entire legal department

at their disposal, where some borrowers will not even be able to afford an attorney. Dueto these disparities in negotiating power, the borrower puts their trust in the lender to


advise them as to the best course of action. This creates a fiduciary relationship whichrequires the lender to disclose all material information.

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

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

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

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

influence the borrower’s decision to accept the loan. In most cases the lender will beusing the “stated loan” to get the borrower into a loan that they otherwise could notafford. The lender knows the reason the borrower could not qualify for the needed loanbased on their actual income is because there is a high probability that they will defaulton the loan. Thus the borrower cannot afford the loan without the lenders help in fudgingthe numbers. The lender has disclosed the fact that he is fudging the number to enablethe borrowers to get into the home they want, however what he does not disclose is thefact that there is an extreme likelihood that the borrower will default on the loan. Thusthe lender has breached their fiduciary duty to disclose those facts that would presumably influence the borrower.

When there is a duty to disclose, failure to do so should give rise to a tort cause of action for nondisclosure, or the silence may be deemed a misrepresentation. Such claims can be used to invalidate the underlying mortgage transaction or to recover money damages to offset any delinquency.

UnconscionabilityThe common law contract defense of unconscionability may be applicable, when eitherthe mortgage terms are unreasonable favorable to the lender or certain aspects of thetransaction render it unconscionable. In re Maxwell, 281 B.R. 101 (Bankr. D. Mass.2002); Hager v. American Gen. Fin. Inc., 37 F.Supp. 2d 778 (1999). For example, aConnecticut court found a second mortgage contract to be unconscionable based on the facts that:

• The defendant’s financial situation made it apparent she could not reasonablyexpect to repay the mortgage

• At the closing, the defendant was not represented by an attorney and was rushedby plaintiff’s attorney to sign the loan document

• And there was an absence of meaningful choice on the part of the defendant.In addition, the court found that the contract was substantively unconscionable, because it contained a large balloon payment that the borrower had no means of paying, and that the borrower had no reasonable opportunity to understand the terms of the contract. Family Fin. Servc. V. Pencer, 677 A.2d 479, (Conn. Ct. App. 1996); Emigrant Mortg., Co., Inc., v. D’Angostino, 896 A.2d 814 (Conn. App. Ct. 2006).


If the broker knows that the borrower’s financial situation is such that there is noreasonable way that they would ever be able to repay the loan, then the loan isunconscionable and invalid under contracts law. This is exactly what brokers were doingwhen they were making “stated loans” for borrowers, so that they could get into thehouse they want, rather than the house they could afford. Based upon our discussions with council in various states the following paragraphs would appear to apply in most instances. Laymen are advised to seek council before deciding to take any action.

Fraudulent or Negligent Lending

Another argument for borrowers to raise is that the bank acted negligently in creating the “stated loan” because it was a loan that invited abuses. The bank knew or should have known that “stated loans” would be abused by the brokers in order to obtain largercommissions and more numerous clients. If the bank actually knew or must have known of the defects in the underwriting process that were not disclosed to the borrower then the action becomes an intentional tort known as fraud in the inducement. Recent cases between institutions regarding these mortgages strongly indicate that the fact pattern in most of the referenced loans falls squarely within the elements for fraud in the inducement this is another way of saying that had they not been intentionally deceived they would have never entered into the transaction tobegin with. The plaintiffs in these recent cases include insurers and counter parties to buy back or hedge provisions or instruments.

Borrowers seeking to assert tort claims based in negligence have met with mixed results. Whether styled as a claim for negligence or negligent servicing, courts have applied the same traditional four part test. Hutchinson v. Delaware Sav. Bank F.S.B., 410 F. Supp.2d 374 (D.N.J. 2006). In order, for plaintiff to prevail in such an action, they must show:

1. a duty of care owed by the defendant to the plaintiff

2. breach of that duty by the defendant3. injury to the plaintiff4. the defendant’s breach caused the plaintiff’s injury

The first hurdle for plaintiffs, and often times the hardest to overcome, in asserting acause of action based in negligence is establishing a duty of care owed by the servicer to the homeowner. Typically the borrower lender relationship is not one where any duty is recognized. In addition, some courts have even stated that the borrower lenderrelationship is an adversarial one. Jack v. City of Wichita, 23 Kan.App.2d 606, 614, 933P.2d 787 (1997). However, a duty can arise in some situations.


Generally a breach of contract alone will not give rise to a duty of care. A contract canprovide the basis for a tort claim only if a duty exists independently of the performance of the contract. Thus a negligence claim may be available when the law imposes some other duty of affirmative care. For example, a servicer’s violation of the duty imposed byRESPA to respond to qualified written request can provide the basis for a negligenceclaim. Rawlings v. Dovenmuehle Mortg. 64 F. Supp. 2d 1156, (M.D. Ala. 1999). Onecourt has found a duty of care in servicing loans “to maintain proper and accurate loanrecords and to discharge and fulfill the other incidents attendant to the maintenance,accounting and servicing of loan records.” Islam v. Option One Mortgage Corp., 432 F.Supp. 2d 181 (D. Mass. 2006).

More recently courts have begun to allow borrowers to bring claims of negligent lending,when the lender engages in a pattern of willful and negligent failure to perform even arudimentary verification of the information submitted by borrowers. However thesecases are still being resolved. Boykin v. CFS Enterprise, Inc., 2008 WL 4534400(D.Kan.2008)

A second significant challenge for homeowners is demonstrating that the servicer’sconduct was the proximate cause of their injuries. See Hutchinson. Proximate cause isthe act that sets off a natural chain of events that produces the injury. However, an“unforeseeable” intervening cause may break the causal relationship. For example, atleast one court has stated that numerous other negative credit items on the homeowner’s credit report, precluded a finding that the servicer’s incorrect reporting of her account status caused her to be denied later refinancing.

The borrower will have to prove that they would not have been injured but for the lenders negligent lending practices, and that the harm the borrower incurred was foreseeable by the lender at the time the loan was made. The borrower has the difficult task of proving that had the lender put them into a loan they could have afforded then they would still have made all the payments and successfully paid off the loan.

Negligent lending is a difficult claim to make by the borrower. Historically the courtshave not been willing to allow claims of negligence against lenders. However in thewake of the recent lending industry collapse courts are beginning to allow these claims on a more frequent basis. A number of cases have been brought in the last 6 months that have yet to be resolved. The mere fact that borrowers are being allowed to bring these negligence cases to court shows that there is a willingness by judges to dig deeper into the lending practices of the banks to find violations. Based upon our discussions with council in various states the following paragraphs would appear to apply in most instances. Laymen are advised to seek council before deciding to take any action.

Enforcement of Lost or Destroyed Instruments


The lending and real estate industry relies heavily upon paperwork and documentation. It is the nature of the industry to have stacks of paperwork and disclosures related to every loan and every piece of property. This is beneficial for everyone because in theory there is a record of every transaction that occurs and the specifics related to that transaction. However, the flip side to that is that when a document does go missing it creates quite a legal headache. One such piece of paperwork is the Deed of Trust or Mortgage.

A Deed of Trust is the actual legal document that creates a financial interest in the title to real property, held by a trustee, who holds it as security for a loan. Without the Deed of Trust there is no record that the borrower or lender has any financial interest in the real property, or that there was any security for the loan. Attorneys have begun to request that lender produce the Deed of Trust in conjunction with litigation. The thinking is that if the lender cannot produce the note then the agreement between lender and borrower is invalid and cannot be enforced. This is only partially true.

General law in the area of lost instruments is well settled for the most part. States vary in their exact wording and standard of proof, but overall the area of law is fairly static.

The party seeking to recover upon a lost instrument, in most cases, is the lender sincethey are seeking to enforce the loan and exercise their right to foreclose. The lender then has the burden of proving the former existence, delivery, execution, theft or loss, andcontents of the instrument. Thus, in proving up a lost or destroyed deed, the partyseeking to do so carries a very high burden in setting forth the description of the property, the nature and extent of his or her interest therein, a description of his or her evidence of title, the date and contents of that evidence of title, and the name of person who executed the same. While some courts state that one seeking enforcement of a lost promissory note must by clear and convincing evidence establish ownership of the instrument, an explanation for absence or loss of the instrument, and the terms of the instrument, others require entitlement to payment under a lost promissory note be proved by only a preponderance of the evidence.

It has also been said that the proof must be such as to leave no doubt, or no reasonabledoubt. Further, it has been held that parole evidence should show by a preponderance of the evidence that a lost deed was properly executed with the formalities required by law; that proof must be more than a mere preponderance of the evidence; and, on the contrary, that proof that defendant executed a lost note need not be by a preponderance of the evidence.The lender who wishes to enforce the missing instrument must prove that it once existed in order to enforce it. If the lender cannot sufficiently prove the existence and terms of the missing instrument, then it is like the instrument did not exist. However, this is highly unlikely. In most cases the lender will be able to prove to the court throughcircumstantial evidence the terms, execution, delivery, and consideration after showingthat proper but futile search has been made for deed where it would most likely be found.

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


should be considered. These “affirmative defenses” may take the form of or be assertedalong the following lines, provided they are asserted in good faith:

1. Upon information and belief, the mortgage note has been paid in whole or in part byone or more undisclosed third party(ies) who, prior to or contemporaneously with theclosing on the “loan”, paid the originating lender in exchange for certain unrecordedrights to the revenues arising out of the loan documents.

2. Upon information and belief and in connection with the matters the subject ofparagraph “1” above, Plaintiff (foreclosing party) has no financial interest in the note or mortgage.

3. Upon information and belief, the original note was destroyed or was transferred to astructured investment vehicle which may be located offshore, which also has no interestin the note or mortgage or revenue thereunder.

4. Upon information and belief, the revenue stream deriving from the note and mortgagewas eviscerated upon one or more assignments of the note and mortgage to third parties and parsing of obligations as part of the securitization process, some of whom were joined as co-obligors and co-obligees in connection with the closing.

5. To the extent that Plaintiff has been paid on the underlying obligation or has no legalinterest therein or in the note or mortgage, or does not have lawful possession of the note or mortgage, Plaintiff’s allegations of possession and capacity to institute foreclosure constitute a fraud upon the court.

6. Based upon one or more of the affirmative defenses set forth above, Defendant(borrower’s name) is entitled to a release and satisfaction of the note and mortgage anddismissal of the foreclosure claim with prejudice.

These argument may still be somewhat beneficial to the borrowers because if the deed of trust is not produced and circumstantial evidence is then used by the lender to prove the existence and terms of the Deed of Trust, then the borrower can also introduce their own circumstantial evidence as to terms. This could allow the borrower to focus on the terms that are most beneficial to them.


CURRENT STRATEGIES

1. Verify the ViolationIt is important to make sure that the attorney has an accurate file from the borrower andnothing is lost or being intentionally held back. A forensic loan audit from us willhighlight any violations made in the origination of the loan. The first thing that should bedone is that the violations should be verified. The forensic loan audit relies on thedocuments given to the auditors. This means that the auditors only have thedocumentation that has been given to them by the client when performing their audit.While we do our best to make sure all documents have been received from the clients,sometimes clients have lost documents. If a page was not provided, then it will not beconsider as part of the audit. This could cause our auditors to find a violation when inreality the page is just missing.

The attorney for the borrower should see what the lender has in their files to see if thelenders files and the borrowers file match. To do this the attorney should send a qualified written request to the lender upon signing a new client, notifying them of the violation and request any documentation they have relating to the loan to be sent back to the attorney. This will allow the attorney to verify that there was a violation. For example, if the audit finds a HOEPA violation because the loan was a high cost loan and no HOEPA disclosures were made, then the attorney should send the qualified written request to the lender to determine if the lender has any documentation that the HOEPA disclosures were in fact made.

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

During the negotiations for the workout agreement, the attorney needs to seriouslyevaluate the strength of the case. Some violations are more severe than others. Forexample, a TILA violation will allow the borrower to rescind the loan, however, a minorRESPA violation may only grant the borrower $2,000 to $3,000 in statutory damages.This is important because it will determine what type of modifications the attorney andthe borrower (client) are willing to accept. The forensic loan audit will greatly assist youin this evaluation by alerting attorney and their borrower(s) (client) to the frequency andseverity violations.

Bottom line the attorney needs to show the lender that it will be more cost effective togive the borrower(s) a loan modification than to foreclose on the property or to fight it incourt and risk the loan ultimately being rescinded. This should be approached byshowing the lender all the costs that it will incur by holding onto the loan.


Some of these considerations are;

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

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

(marketing, taxes, insurance, repairs, security),• attorney fees to defend the cause of action should the case go to court,• true overhead cost of the man hours the lender will dedicate to this case,• lender or Bank required reserves that may have to be met,• cost of defending against possible attack on foreclosure claim,• cost of negative impact on other holdings in the surrounding area (if bank has loaned in a

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

If the borrower raises all the different costs associated with the lender holding onto thehouse and the lender is still unwilling to give the borrower a modification, then theattorney and the borrower(s) (client) can then bring a lawsuit, enforcing their rights. Themost significant right that the borrower has is the right to rescind the transaction.

3. Bringing a Cause of Action to the Courts

Under TILA & Regulation Z, Recession means a declaration of any kind by the borrower of an intent to cancel the loan transaction. The effect of that declaration is to create an obligation on the part of the lender to either return the note as cancelled, file a satisfaction of reconveyance of the mortgage deed and return all monies paid by the borrower in connection with the purported loan transaction. In the alternative the lender may file a declaration of rights provided that they do so with in 20 days from the date of the declaration of canceling or rescinding the transaction.than what was initially borrowed. deleted text according to the statutes and Regulation Z the borrower has no obligation to tender any money to the lender unless the lender has compliedwith the fore-stated conditions proceeded. The tender by the borrower can be in any reasonable form including a payment schedule, where the principle balance is a net balance after deductions for statutory or common law damages.The right to rescission is powerful because it means that the borrower can tender theamount borrowed to the lender less any closing costs, fees, interest, payments made, orany other costs associated with the loan. This usually results in an amount much lessthan what was initially borrowed. Attorneys for the borrowers seem to agree that the burden of bringing the matter to court is on the lender and not the borrower.However lenders almostinvariably ignore declarations of rescission, forcing borrower to bring lawsuits for breach of TILA and Regulation Z because the borrower issued a declaration of rescission and the lender failed to respond in any matter.


The attorney has the option of enforcing Truth in Lending Act and other rescission rightsin federal district, state, or bankruptcy court. Of course, the relative advantages anddisadvantages of federal court, state court, and bankruptcy court vary from jurisdiction to jurisdiction. The attorney will want to choose the court that fits his/her specific situation best. For example, an attorney will not want to file in bankruptcy court unless he/she is planning on including a bankruptcy factor into the workout agreement in same way.

Regardless of which court the attorney may choose to file in, the general approach will be the same. The attorney needs to present their case showing that the lender violatedapplicable lending regulations allowing the borrower to rescind the loan. The forensicloan audit can be used throughout the trial process to highlight and emphasize violations made in the originating loan documents. Also we provide access to expert witnesses who are able to interpret the audit and testify in court as to the validity and accuracy of the audit.

If the attorney successfully brings a cause of action to the court, the attorney will be ableto recover significant damages depending on the actual violation made in the loan. Theultimate remedy is rescission, for reasons stated above. Other damages can includeactual damages, statutory damages, attorney fees, and in some cases punitive damages. Recently some courts have also begun to award loan modifications in cases that equity is required for the loan to be enforceable, such as HELOC’s, and fixed rate Seconds.

Audit Detail

The following portion of the audit file checks the detail of the borrowers file against Federal, State & Local laws.


MORTGAGE COMPLIANCE ANALYSIS REPORT

Product Name: ComplianceAnalyzer®

Report Version: 4 Egg Harbor Township, NJ 08234

RiskIndicator HOEPA TILA RESPAState & Local

PredatoryStateRegs

ExceptionsPolicies /Custom

FINDINGS SUMMARY

Federal HOEPA (Sections 32, 35)Result Loan Data Comparison Data Variance

HOEPA Higher-Priced Mortgage Loan: N/AHOEPA Higher-Priced Mortgage Loan Prepayment TermTest:

N/A

HOEPA Higher-Priced Mortgage Loan Document TypeTest:

N/A

HOEPA Higher-Priced Mortgage Loan Required EscrowAccount Test:

NOT TESTED

HOEPA Higher-Priced Mortgage Loan Jumbo RequiredEscrow Account Test:

NOT TESTED

HOEPA High Cost Mortgage APR Threshold Test: PASS 6.818% 12.690% -5.872%HOEPA High Cost Mortgage Points and Fees ThresholdTest:

PASS $1,889.00 $22,812.19 -$20,923.19

HOEPA High Cost Mortgage: NOHOEPA High Cost Mortgage Timing of Disclosure Test: N/AHOEPA High Cost Mortgage Balloon Payment Test: N/AHOEPA High Cost Mortgage Negative Amortization Test: N/AHOEPA High Cost Mortgage Prepayment Term Test: N/AHOEPA High Cost Mortgage Document Type Test: NOT TESTED

Federal TILAResult Loan Data Comparison Data Variance

TILA Finance Charge Test: FAIL $386,927.74 $387,315.74 -$388.00TILA Rescission Finance Charge Test: PASS $386,927.74 $387,315.74 -$388.00TILA Foreclosure Rescission Finance Charge Test: NOT TESTEDTILA APR Test: PASS 6.834% 6.818% 0.016%TILA Right of Rescission Test: PASSInitial TIL Disclosure Date Test: N/A

Federal RESPAResult Loan Data Comparison Data Variance

RESPA GFE Disclosure Date Test: FAILRESPA "Your Credit or Charge" (802) Disallowed Creditand Charge Test:

NOT TESTED

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


Lender Loan Number:

Report Type: Post-Close Mortgage Loan Borrower Name:Report Date/Time: 06/15/2011 11:51 AM (PDT) Property Address:

Result Loan Data Comparison Data VarianceGSE (Fannie Mae public guidelines) Predatory LendingGuidance:

PASS

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

PASS $845.00 $14,400.00 -$13,555.00

GSE (Fannie Mae public guidelines) HOEPA APR Test: PASS 6.818% 12.690% -5.872%GSE (Fannie Mae public guidelines) HOEPA Points andFees Test:

PASS $1,889.00 $22,812.19 -$20,923.19

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

PASS

GSE (Fannie Mae public guidelines) Prepayment PenaltyTerm Test:

PASS

GSE (Fannie Mae public guidelines) Interest OnlyMortgage Test:

NOT TESTED

GSE (Fannie Mae public guidelines) Points and FeesAlert:

ALERT

GSE (Fannie Mae public guidelines) Alert: ALERT

NJ Home Ownership Security Act of 2002 (NJ AB 75)Result Loan Data Comparison Data Variance

This loan is not covered by NJ Home Ownership SecurityAct of 2002 (NJ AB 75).

NOT COVERED

NJ Home Ownership Security Act as Amended 2004 (NJ SB 279)Result Loan Data Comparison Data Variance

Home Loan: YESNJ HOSA 2004 Home Loan Financing of InsurancePremiums Test:

PASS

NJ HOSA 2004 Home Loan Late Charge Test: PASSNJ HOSA 2004 Home Loan Grace Period Test: PASSNJ HOSA 2004 High-Cost Home Loan APR ThresholdTest:

PASS 6.818% 12.690% -5.872%

NJ HOSA 2004 High-Cost Home Loan Points and FeesThreshold Test:

PASS $10,529.00 $12,960.00 -$2,431.00

High-Cost Home Loan: NONJ HOSA 2004 High-Cost Home Loan Balloon PaymentTest:

N/A

NJ HOSA 2004 High-Cost Home Loan Potential NegativeAmortization Test:

N/A

NJ HOSA 2004 High-Cost Home Loan Financing ofPoints and Fees Test:

N/A

NJ HOSA 2004 Legislative Summary Alert: ALERTNJ HOSA 2004 Home Loan Points and Fees Alert: ALERTNJ HOSA 2004 Home Loan Points and Fees, Seller-PaidPoints and Fees Alert:

ALERT

NJ HOSA 2004 Home Loan Prohibited PracticesLegislative Summary Alert:

ALERT

NJ HOSA 2004 Home Loan Prohibited PracticesLegislative Summary Alert (Continued):

ALERT

NJ HOSA 2004 Liability Legislative Summary Alert: ALERTNJ HOSA 2004 Liability Legislative Summary Alert(Continued):

ALERT

NJ HOSA 2004 Liability Legislative Summary Alert(Continued):

ALERT

NJ HOSA 2004 Liability Legislative Summary Alert(Continued):

ALERT

State RegulationsResult Loan Data Comparison Data Variance

Tests pertaining to State Regulations were notperformed.

NOTPERFORMED

State Regulations Restricted Fees


Result Loan Data Comparison Data VarianceTests pertaining to State Regulations Restricted Feeswere not performed.

NOTPERFORMED

Threshold Index(es)Name Term Yield DateH.15 Conventional Mortgage Rate (Annual) 6.410% 01/01/2006Treasury Security 30 Year 4.690% 03/15/2007

TIL SUMMARY

Annual Percentage Rate Finance Charge Amount Financed Total of Payments6.818%

Interest Rate6.750%

$387,315.74 $285,152.32 $672,468.06

Payment ScheduleNumber of Payments Amount of Payments359 $1,867.961 $1,870.42

FINDINGS DETAIL

Federal HOEPA (Sections 32, 35)The HOEPA higher-priced mortgage loan threshold is not applicable to this loan for one of the followingreasons: ( 12 CFR §226.35(a)(3) as enacted in 2008 )

The loan has a date creditor received application (formerly application date) before the effective date ofOctober 1, 2009; orThe loan is a transaction to finance the initial construction of a dwelling; orThe loan is a temporary or "bridge" loan with a term of 12 months or less, such as a loan to purchase a newdwelling where the consumer plans to sell a current dwelling within 12 months.

N/A

The HOEPA higher-priced mortgage loan prepayment term test is not applicable to this loan. ( 12 CFR§226.35(a)(3), (b)(2) as enacted in 2008 )The loan is not a higher-priced mortgage loan.

N/A

The HOEPA higher-priced mortgage loan document type test is not applicable to this loan. ( 12 CFR§226.35(a) as enacted in 2008 )The loan is not a higher-priced mortgage loan.

N/A

This loan is not tested against the HOEPA higher-priced mortgage loan required escrow account test dueto one of the following reasons:

The loan is a first lien with a date creditor received application (formerly application date) before theeffective date for the escrow provisions of April 1, 2010; orThe loan is a first lien with a date creditor received application (formerly application date) after the effectivedate for the escrow provisions of April 1, 2011, and the principal obligation at consummation exceeds themaximum principal obligation eligible for purchase by Freddie Mac; orThe loan does not contain sufficient information to test the required escrow account test because this loandoes not provide sufficient information on collected reserves; orThe property type is a condominium or a high-rise condominium. Insurance premiums need not be includedin escrow accounts for loans secured by condominium units, where the condominium association has anobligation to the condominium unit owners to maintain a master policy insuring condominium units; orThe date the rate was set was not provided; orThe loan is an adjustable rate mortgage and does not contain information on when the first rate adjustmentwill occur.

If this loan contains sufficient information to test the required escrow account test, then ComplianceAnalyzercannot determine whether this loan is subject to the higher-priced mortgage loan required escrow accountprovisions because the information needed to determine whether the loan is a HOEPA higher-priced mortgageloan, as defined in Regulation Z, is missing.

NOT TESTED

This loan is not tested against the HOEPA higher-priced mortgage loan jumbo required escrow accounttest due to one of the following reasons:

The loan is a first lien with a date creditor received application (formerly application date) after the effectivedate for the escrow provisions of April 1, 2011, and the principal obligation at consummation does notexceed the maximum principal obligation eligible for purchase by Freddie Mac; orThe loan is a first lien with a date creditor received application (formerly application date) after the effectivedate for the escrow provisions of April 1, 2011, and the principal obligation at consummation exceeds the

NOT TESTED


maximum principal obligation eligible for purchase by Freddie Mac, but the applicable APOR threshold hasnot been met; orThe loan does not contain sufficient information to test the required escrow account test because this loandoes not provide sufficient information on collected reserves; orThe property type is a condominium or a high-rise condominium. Insurance premiums need not be includedin escrow accounts for loans secured by condominium units, where the condominium association has anobligation to the condominium unit owners to maintain a master policy insuring condominium units; orThe date the rate was set was not provided; orThe loan is an adjustable rate mortgage and does not contain information on when the first rate adjustmentwill occur.

If this loan contains sufficient information to test the required escrow account test, then ComplianceAnalyzercannot determine whether this loan is subject to the higher-priced mortgage loan required escrow accountprovisions because the information needed to determine whether the loan is a HOEPA higher-priced mortgageloan, as defined in Regulation Z, is missing.This loan passed the HOEPA high cost mortgage APR threshold test. ( 12 CFR §226.32(a)(1)(i) as enacted in1995, and amended in 2001 )The annual percentage rate (APR) at consummation is 6.818%, which does not exceed the yield of 4.690%, as ofMarch 15, 2007 on 30 year Treasury securities (the Treasury securities having comparable periods of maturity),plus 8.000 percentage points. The yield is as of the fifteenth day of the month immediately preceding the month ofthe application for extension of credit, which was received by the creditor on April 9, 2007.

PASS

This loan passed the HOEPA high cost mortgage points and fees threshold test. ( 12 CFR §226.32(a)(1)(ii)as enacted in 1995, and amended in 2001 )The total points and fees payable by the consumer at or before loan closing is $1,889.00, which does not exceedthe greater of 8 percent of the "total loan amount" of $285,152.32 (as defined in the official commentary toparagraph 32(a)(1)(ii)), or $547.00.

PASS

High Cost Mortgage ( 12 CFR §226.32(a)(1)(i), (ii) as enacted in 1995, and amended in 2001 ) ( 12 CFR §226.2as enacted in 1995 )The loan is not a high cost mortgage due to one of the following findings:

The loan passed both the high cost mortgage APR threshold test and the high cost mortgage points andfees threshold test; orThe loan is a residential mortgage transaction.

NO

The timing of disclosure test is not applicable to this loan due to one or more of the following findings: ( 12CFR §226.31(c) as enacted in 1995 ) ( 12 CFR §226.32(a) as enacted in 1995 )

Pre-close audits do not pertain to the consummation of a loan.The loan is not a high cost mortgage.

N/A

The balloon payment test is not applicable to this loan. ( 12 CFR §226.32(a) as enacted in 1995 )The loan is not a high cost mortgage.

N/A

The negative amortization test is not applicable to this loan. ( 12 CFR §226.32(a) as enacted in 1995 )The loan is not a high cost mortgage.

N/A

The prepayment term test is not applicable to this loan. ( 12 CFR §226.32(a) as enacted in 1995 )The loan is not a high cost mortgage.

N/A

This loan is not tested against the document type test. ( 12 CFR §226.32(e)(1) as enacted in 1995 , and§226.34(a)(4) as amended in 2001 , and 2008 )The loan's application date is before the law's effective date of October 1, 2009.

NOT TESTED

Federal TILAThis loan failed the TILA finance charge test. (12 CFR § 226.18(d)(1))The finance charge is $387,315.74. The disclosed finance charge of $386,927.74 is not considered accuratebecause it is understated by more than $100.

FAIL

This loan passed the TILA rescission finance charge test. (12 CFR § 226.23(g)(1))The finance charge is $387,315.74. The disclosed finance charge of $386,927.74 is considered accurate forpurposes of rescission because:

It is understated by no more than 1/2 of 1 percent of the face amount of the note or $100, whichever isgreater; orIt is greater than the amount required to be disclosed.

PASS

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

A disclosed finance charge was not provided; orYour company settings are not configured to run the TILA foreclosure rescission finance charge test as partof an audit report.

NOT TESTED

This loan passed the TILA APR test due to one or more of the following findings: (12 CFR § 226.22(a)(2),(4))The disclosed annual percentage rate (APR) of 6.834% is considered accurate because it is not more than1/8 of 1 percentage point above or below the APR of 6.818% as determined in accordance with the actuarialmethod; or

PASS


The disclosed APR results from the disclosed finance charge, and the disclosed finance charge isconsidered accurate under § 226.18(d)(1) (the finance charge test), or for purposes of rescission thedisclosed finance charge is considered accurate under § 226.23(g) or (h) (the rescission finance charge testor the foreclosure rescission finance charge test), whichever applies.

This loan passed the TILA right of rescission test.Closed-end (12 CFR § 226.23(a)(3)) , Open-end (12 CFR § 226.15(a)(3))The funding date is not before the third business day following consummation.The consumer may exercise the right to rescind until midnight of the third business day following consummation,delivery of the notice required by 12 CFR §226.23 or §226.15, or delivery of all material disclosures, whicheveroccurs last.

PASS

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

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

N/A

Federal RESPAThis loan failed the Good Faith Estimate disclosure date test due to one of the following reasons: ( 24 CFR§3500.7 , as amended in 2008 )The loan was audited under the "New Pre-Close or Post-Close Audit" selection from the ComplianceAnalyzermenu, and

The loan has a Good Faith Estimate disclosure date that is not within three business days of the loanoriginator's application date (or the date creditor received application if loan originator's application date isnot provided); orThe Good Faith Estimate disclosure date is after the closing date.

Or, the loan was audited under the "New Pre-Close or Post-Close Audit (Pre-2010 GFE/HUD-1)" selection fromthe ComplianceAnalyzer menu, and

The loan has a Good Faith Estimate disclosure date that is not within three business days of the applicationdate; orThe Good Faith Estimate disclosure date is after the closing date.

Not later than 3 business days after a loan originator (broker or lender) receives an application for a federallyrelated mortgage loan, or information sufficient to complete an application, the loan originator must provide theapplicant with a GFE. In the case of dealer loans, the lender must either provide the GFE or ensure that the dealerprovides the GFE. The lender is responsible for ascertaining whether the GFE has been provided, if a mortgagebroker is involved in the transaction. If the mortgage broker has provided a GFE, the lender is not required toprovide an additional GFE.Calculations take into account a submitted preference that this test treat the creditor's office as not being open tothe public on Saturdays for carrying on substantially all of its business functions, as described in 24 CFR §3500.2.

FAIL

The loan was not tested against the RESPA "Your Credit or Charge" (802) Disallowed Credit and Chargetest.The loan was audited under the "New Pre-Close or Post-Close Audit (Pre-2010 GFE/HUD-1)" selection from theComplianceAnalyzer menu. This test applies only to loans audited under the RESPA Final Rule published in theFederal Register on November 17, 2008.

NOT TESTED

GSE (Based on Fannie Mae Lender Announcements and Lender Letters)This loan passed the predatory lending guidance test due to the following findings:

The loan passed the allowable points and fees test.The loan does not exceed the HOEPA APR threshold for primary residences.The loan does not exceed the HOEPA points and fees threshold for primary residences.

PASS

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

PASS

This loan passed the GSE HOEPA APR test. (Fannie Mae Lender Letter Ann. 06-04)The APR does not exceed the GSE HOEPA APR threshold.

PASS

This loan passed the GSE HOEPA points and fees test. (Fannie Mae Lender Letter Ann. 06-04)The points and fees as calculated under GSE HOEPA do not exceed the GSE HOEPA threshold.

PASS

This loan passed the seller-paid points and fees exception test due to one or more of the followingfindings:

The loan is not covered by GSE guidance.The loan is not a purchase loan.The loan is a purchase loan covered by GSE guidance and a value was provided for "Seller-Paid Points andFees."

PASS

This loan passed the prepayment penalty term test. (Fannie Mae 2006 Selling Guide, Part IV, 201.02) PASS


The loan does not have a prepayment penalty with a term exceeding 3 years.This loan is not tested against the interest only mortgage test. (Fannie Mae Announcement SEL-2010-06)The loan was not tested against the interest only mortgage test for one or more of the following findings:

The latest available closing date is before the effective date of June 19, 2010.The loan provides an interest-only feature and may not be eligible for purchase by Fannie Mae.

NOT TESTED

GSE (Fannie Mae Public Guidelines) Points and Fees AlertExcludable Bona Fide Discount Points (Fannie Mae Lender Letter 04/11/2000)Points and fees do not include "bona fide discount points," a term that is undefined by the GSE.Checking the "Bona Fide - GSE" box next to the Loan Discount Fee on the loan data entry form will indicate thatthe discount points are bond fide. Check the box only if you know that your institution's policies for discount pointsmeet the GSE's criteria and if they can be verified for the loan in question.

ALERT

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

ALERT

NJ Home Ownership Security Act of 2002 (NJ AB 75)This loan is not covered by the New Jersey Home Ownership Security Act of 2002 due to one of thefollowing findings: (NJ AB 75, § 15.) , (NJ SB 279, § 7.)

The closing date of the loan (or application date, if the closing date is unknown) occurs before the effectivedate of November 27, 2003; orThe closing date of the loan (or application date, if the closing date is unknown) occurs on or after July 6,2004, which is the effective date of amendments to the Home Ownership Security Act.

NOT COVERED

NJ Home Ownership Security Act as Amended 2004 (NJ SB 279)Home Loan (NJ AB 75, § 3.) , (NJ SB 279, § 2.) , (NJAC 3:30-1.3 "home loan", as proposed) , (NJAC 3:30-1.3"home loan", final)The loan is a home loan, as defined in the legislation, due to the following findings:

The mortgage is secured by a dwelling which is or will be occupied by a borrower as the borrower's principaldwelling; andThe mortgage is not a construction loan, defined by regulations effective August 21, 2006 as a loan to anatural person having a term of two years or less, that is used to finance the construction of buildings orother structures and that does not automatically convert to permanent financing.

YES

This loan passed the home loan financing of insurance premiums test. (NJ AB 75, § 4. a.) , (NJ SB 279, § 3.)The home loan does not finance credit life, credit disability, credit accident, credit health, or credit unemploymentinsurance, or any payments for any debt cancellation or suspension agreement or contract.

PASS

This loan passed the home loan late charge test. (NJ AB 75, § 4. d.) , (NJ SB 279, § 3.)The home loan charges a late payment fee not more than 5% of the amount of the payment past due.

PASS

This loan passed the home loan grace period test. (NJ AB 75, § 4. d.) , (NJ SB 279, § 3.)The home loan charges a late payment fee assessed on a payment past due for 15 days or more.

PASS

This loan passed the high-cost home loan APR threshold test. (NJ AB 75, § 3.) , (NJ SB 279, § 2.)The APR of the loan is such that the loan does not exceed an APR threshold of HOEPA (Section 32), withoutregard to whether the loan is covered by HOEPA.The APR at consummation is 6.818%, which does not exceed the yield of 4.690%, as of March 15, 2007 on 30year Treasury securities (the Treasury securities having comparable periods of maturity), plus 8.000%.

PASS

This loan passed the high-cost home loan points and fees threshold test due to all of the followingfindings: (NJ AB 75, § 3.) , (NJ SB 279, § 2.)The total points and fees for this loan are $10,529.00 and the total loan amount for this loan is $288,000.00.

The total points and fees do not exceed 4.5% of the total loan amount if the total loan amount is $40,000 ormore; andThe total points and fees do not exceed 6% of the total loan amount if the total loan amount is $20,000 ormore but less than $40,000; andThe total points and fees do not exceed the lesser of 6% of the total loan amount or $1,000, if the total loanamount is less than $20,000.

PASS

High-Cost Home Loan (NJ AB 75, § 3.) , (NJ SB 279, § 2.)The loan is not a high-cost home loan, as defined in the legislation, due to one or more of the following findings:

The loan is not a home loan, as defined in the legislation; orThe loan is a home loan and passes both the high-cost home loan APR and high-cost home loan points andfees threshold tests; orThe loan is a home loan and the principal amount of the home loan exceeds $400,001.50.

NO

The high-cost home loan balloon payment test is not applicable to this loan. (NJ AB 75, § 5. a.)The loan is not a high-cost home loan, as defined in the legislation.

N/A


The high-cost home loan potential negative amortization test is not applicable to this loan. (NJ AB 75, § 5.b.)The loan is not a high-cost home loan, as defined in the legislation.

N/A

The high-cost home loan financing of points and fees test is not applicable to this loan. (NJ AB 75, § 5. l.)The loan is not a high-cost home loan, as defined in the legislation.

N/A

Attempts to Avoid the Act (NJ AB 75, § 6. d.) , (NJ SB 279, § 4.) , (NJAC 3:30-8.2 (e), as proposed) , (NJAC3:30-8.2 (e), final)It is a violation of this act for any person, in bad faith, to attempt to avoid the application of this act by

Dividing any loan transaction into separate parts; orAny other such subterfuge, with the intent of evading the provisions of this act.

ALERT

Excludable Discount Points (NJ AB 75, § 3.) , (NJ SB 279, § 2.)For the purposes of determining if a home loan is a high-cost home loan based on the points and fees thresholds,up to two bona fide discount points are excluded from the points and fees. If the "Loan Discount Fee" is designatedas "bona fide," the discount points should be as described by the following definition:

"Bona fide discount points" means loan discount points which are:Knowingly paid by the borrower;Paid for the express purpose of reducing, and which result in a reduction of, the interest rate applicableto the loan;In fact reduce the interest rate applicable to the loan from an interest rate which does not exceed theconventional mortgage rate (which rate is published by the Federal Reserve) for a first lien by morethan 2 percentage points, or for a junior lien by more than 3.5 percentage points; andRecouped within the first five years of the scheduled loan payments. Loan discount points will beconsidered to be recouped within the first five years of the scheduled loan payments if the reductionin the interest rate that is achieved by the payment of the loan discount points reduces the interestcharged on the scheduled payments such that the borrower's dollar amount of savings in interest overthe first five years is equal to or exceeds the dollar amount of loan discount points paid by the borrower.

ALERT

Seller-Paid Points and Fees (NJ DBI Bulletin 04-22, Question 27)The Department of Banking and Insurance (DBI) issued a Q&A bulletin (number 04-22) on October 28, 2004.Question 27 of this bulletin states that costs paid by the seller that would be included in points and fees if they werepaid by the borrower should be included when calculating the total points and fees threshold. This is based on aprovision of the New Jersey Act that provides that it is a violation for any person in bad faith to attempt to avoid theapplication of the Act by any subterfuge.This guideline by the DBI has not been formally enacted as a regulation. Until such time as it becomes aregulation, there is some question of how reliable these guidelines would be if reviewed by the courts. Even so,to provide a suitably cautious implementation the system will include the "Seller-Paid Points and Fees" fee in thepoints and fees calculation.

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Home Loan Prohibited Practices Legislative Summary Alert:Credit Insurance (NJ AB 75, § 4. a.) , (NJ SB 279, § 3.)In addition to the credit insurance premiums tested by the financing of insurance premiums test, no creditor makinga home loan shall finance any other life or health insurance or credit property insurance.Encouraging Default (NJ AB 75, § 4. c.) , (NJ SB 279, § 3.)No creditor shall recommend or encourage default on an existing loan or other debt prior to and in connection withthe closing or planned closing of a home loan that refinances all or any portion of that existing loan or debt.Late Payments (NJ AB 75, § 4. d.) , (NJ SB 279, § 3.) , (NJAC 3:30-1.3 "home loan", as proposed) , (NJAC3:30-1.3 "home loan", final)No creditor shall charge a late payment fee in relation to a home loan except according to the following rules:

The fee may not be charged more than once with respect to a single late payment. If a late payment feeis deducted from a payment made on the loan, and such deduction causes a subsequent default on asubsequent payment, no late payment fee may be imposed for such default. If a late payment fee has beenonce imposed with respect to a particular late payment, no such fee shall be imposed with respect to anyfuture payment which would have been timely and sufficient, but for the previous default.No fee shall be charged unless the creditor notifies the borrower within 45 days following the date thepayment was due that a late payment fee has been imposed for a particular late payment. No late paymentfee may be collected from any borrower if the borrower informs the creditor that nonpayment of aninstallment is in dispute and presents proof of payment within 45 days of receipt of the creditor's notice ofthe late fee.The creditor shall treat each and every payment as posted on the same date as it was received by thecreditor, servicer, creditor's agent, or at the address provided to the borrower by the creditor, servicer, or thecreditor's agent for making payments.

When a creditor that is a depository institution receives a home loan payment, the creditor shall treatthe payment as posted on the banking day that the payment is received. For purposes of the postingrequirements in this section, payments received by a servicer or agent of a depository institution shallbe treated as received by the depository institution.A payment received by a creditor that is not a depository institution shall, if received before the endof business hours, be posted on the business day that it is received or, if received after the end ofbusiness hours, on the next business day. For purposes of the posting requirements in this section,

ALERT


payments received by a servicer or agent of a non-depository entity shall be treated as received by thenon-depository entity."Banking day" means the part of a day on which a depository institution is open to the public forcarrying on substantially all of its banking functions."Business day" means any day on which the office or offices of the creditor are open to the public toprovide financial services.

Home Loan Prohibited Practices Legislative Summary Alert (Continued):Acceleration of Indebtedness (NJ AB 75, § 4. e.) , (NJ SB 279, § 3.)No home loan shall contain a provision that permits the creditor, in its sole discretion, to accelerate theindebtedness. This provision does not prohibit acceleration of the loan in good faith due to the borrower's failure toabide by the material terms of the loan.Payoff Balance (NJ AB 75, § 4. f.) , (NJ SB 279, § 3.)No creditor shall charge a fee for informing or transmitting to any person the balance due to pay off a home loanor to provide a release upon prepayment. Payoff balances shall be provided within seven business days after therequest.

ALERT

Liability Legislative Summary Alert:Home Loans, Manufactured Home Loans, Home Improvement Home Loans (NJ AB 75, § 6. a.) , (NJ SB 279,§ 4.) , (NJAC 3:30-8.1, as proposed) , (NJAC 3:30-8.1, final)

1 If a home loan was made, arranged or assigned by a seller of manufactured homes or of homeimprovements to the dwelling of a borrower, or was made by or through a creditor to whom the borrowerwas referred by such a seller, the borrower may assert against the original creditor and any person whopurchases or is otherwise assigned the loan all affirmative claims and any defenses that the borrowermay have against such a seller of manufactured homes or home improvements, including any claims anddefenses available under N.J.S.A. 46:10B-22 et seq. against a home improvement contractor retained bythe seller of home improvements to make home improvements on the borrower's dwelling. The amountsof any such affirmative claims and defenses shall be limited to amounts required to reduce or extinguishthe borrower's liability under the home loan, plus the total amount paid by the borrower in connection withthe transaction, plus amounts required to recover costs, including reasonable attorney's fees against thecreditor, any assignee or holder, in any capacity.

2 If a loan covered by (a) was made by the seller or assigned to a creditor by the seller, all payments madeto the seller including down payments, deposits, periodic payments, late fees and other payments areconsidered paid in connection with the transaction.

3 If a loan covered by (a) was made by a creditor by way of a referral or arrangement through the seller, downpayments, deposits, periodic payments, late fees and other payments made to the seller are not consideredpaid in connection with the transaction.

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Liability Legislative Summary Alert (continued):High-Cost Home Loans (NJ AB 75, § 6. b.) , (NJ SB 279, § 4.) , (NJAC 3:30-8.2, as proposed) , (NJAC 3:30-8.2,final)

1 Pursuant to N.J.S.A. 46:10B-27b, any person who purchases or is otherwise assigned a high-cost homeloan shall be subject to all affirmative claims and any defenses with respect to the loan that the borrowermay assert against the original creditor or broker of the loan; except that the liability thereunder shall notarise if the purchaser or assignee demonstrates, by a preponderance of the evidence, that a reasonableperson exercising reasonable due diligence could not determine that the loan was a high-cost home loan.In any administrative action commenced under N.J.S.A. 46:10B-22 et seq. or N.J.A.C 3:30-1.1 et seq., itshall be presumed by the Department that a purchaser or assignee of a high cost home loan has exercisedsuch due diligence if the purchaser or assignee demonstrates by a preponderance of the evidence that it:

1 Has in place, at the time of the purchase or assignment of the loan, policies that expressly prohibit itspurchase or acceptance of assignment of any high-cost loan;

2 Requires by contract that all sellers or assignors of home loans represent and warrant to the purchaseror assignee that either:It will not sell or assign any high-cost home loan to the purchaser or assignee, orThat the seller or assignor is a beneficiary of a representation and warranty from a previous seller orassignor to that effect; and

3 Exercises reasonable due diligence at the time of the purchase or assignment of home loans or withina reasonable period of time thereafter, which due diligence is intended by the purchaser or assignee toprevent it from purchasing or taking assignment of any high-cost loan.

2 With respect to a claim brought under N.J.S.A. 46:10B-27c, notwithstanding any other law to the contrary, aborrower acting only in an individual capacity may, within six years of the closing of a high-cost home loan,assert against the creditor or any subsequent holder or assignee of the home loan a violation of N.J.S.A.46:10B-22 et seq. in connection with the loan as an original action.

3 With respect to a claim brought under N.J.S.A. 46:10B-27c, notwithstanding any other law to the contrary,a borrower acting only in an individual capacity may, at any time during the term of a high-cost home loanafter an action to collect on the home loan or foreclose on the collateral securing the home loan has beeninitiated or the debt arising from the home loan has been accelerated or the home loan has become 60 daysin default, assert against the creditor or any subsequent holder or assignee of the high-cost home loan anydefense, claim or counterclaim.

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Pursuant to N.J.S.A. 46:10B-27c, the damages sought in any original action as referenced in (b) above, or in anyclaim or counterclaim as referenced in (c) above, shall be limited to amounts required to reduce or extinguish theborrower’s liability under the home loan plus amounts required to recover costs, including reasonable attorney'sfees not included in the principal amount of the loan.The limitations on assignee liability with respect to high cost home loans as set forth in (a) above shall not apply toassignee liability asserted on any ground other than N.J.S.A. 46:10B-27.b.Liability Legislative Summary Alert (continued):High-Cost Home Loans (NJ AB 75, § 6. b.) , (NJ SB 279, § 4.) , (NJAC 3:30-8.2, as proposed) , (NJAC 3:30-8.2,final)The limitations in N.J.A.C 3:30-1.1 et seq. shall apply to any assignee liability arising under N.J.S.A. 46:10B-27regardless of whether an individual asserting assignee liability pursuant to N.J.A.C. 3:30-1.1 et seq. chooses topursue such an action under the Consumer Fraud Act, as authorized under N.J.S.A. 46:10B-29a, or under the Act,as authorized under N.J.S.A. 46:10B-29b. Regardless of which alternative method for seeking damages againstan assignee the borrower chooses to pursue, whenever a borrower alleges assignee or holder liability pursuantto N.J.S.A. 46:10B-27, the limitations and conditions set forth in the applicable subsections of N.J.S.A. 46:10B-27shall apply to such assignee liability.Any borrower asserting a claim under N.J.S.A. 46:10B-22 et seq. may, in appropriate circumstances, recoverdamages under both N.J.S.A. 46:10B-27.a and 27.c from one assignee on the basis of separate claims broughtsimultaneously under N.J.S.A. 46:10B-27.a and 27.c in connection with the same loan transaction. In such acase the limitations on damages set forth in N.J.S.A. 46:10B-27 would apply to the respective claims made underN.J.S.A. 46:10B-27.a and 27.c.The limitations upon and conditions for assignee liability prescribed by N.J.S.A. 46:10B-27 may not be avoidedby a borrower seeking to obtain separate compensatory and punitive damages against the same assignee. Thelimitations on damages set forth in N.J.S.A. 46:10B-27 apply to the total of all types of damages.If a seller of home improvements or manufactured homes is not otherwise involved in the transaction as specifiedin N.J.S.A. 46:20B-27.a, the loan shall not give rise to assignee liability pursuant to N.J.S.A. 46:10B-27.a. This ruleapplies irrespective of whether the loan is secured by a first lien, or by a second or subsequent lien (sometimesreferred to as a "junior lien"), whether the transaction is a cash-out refinance, and whether the proceeds of the loanare used to pay for home improvements or to purchase a manufactured home.1. A seller of manufactured homes or home improvements who has referred a borrower to a creditor shall bedeemed to be otherwise involved as set forth in N.J.S.A. 46:10B-27.2. Where a borrower refinances without the involvement of a seller of manufactured homes or home improvementsas set forth in N.J.S.A. 46:10B-27.a and subsequently uses the funds obtained in the process to pay for amanufactured home or for home improvements, the seller of manufactured homes or home improvements shall notbe deemed to be otherwise involved in the transaction.

ALERT

Liability Legislative Summary Alert (continued):High-Cost Home Loans (NJ AB 75, § 6. b.) , (NJ SB 279, § 4.) , (NJAC 3:30-8.2, as proposed) , (NJAC 3:30-8.2,final)The exercise of reasonable due diligence as referenced in N.J.S.A. 46:10B-27.b (3) does not, in all cases, requirecompliance review of one hundred percent of the loans being acquired. Depending upon the size of the loanpool being purchased or acquired by an assignee and/or the assignee being aware of information material tothe determination of whether a lender engages in making high-cost home loans, including but not limited toany indication of the presence of high cost home loans in a loan pool, sampling, if properly performed, shall beconsidered reasonable due diligence by the Department. In order for sampling to be considered reasonable duediligence by the Department, purchasers or assignees shall, at a minimum, conduct quality control review ofappropriate loan documentation at the beginning of the buyer/seller relationship, whenever a particular problemis identified, and throughout the relationship by random sampling. When a loan pool is very small or initial reviewhas uncovered a high number of high cost loans, more extensive review is required to meet the reasonable duediligence standard.Creditors may utilize third party software packages or internally developed computer programs to comply with therequirements of N.J.S.A. 46:10B-27.b (3) or to determine whether loans are home loans or high cost home loans.Such software programs shall be calibrated and tested prior to use and periodically tested as part of an ongoingcompliance review process. Periodic manual oversight and monitoring shall be done to ensure that the software isperforming adequately and to evaluate matters not addressed by the software.A creditor may secure documentation from the borrower in which the borrower represents that no contractoror seller referred the borrower to the creditor, arranged the loan or was otherwise involved in facilitating theloan transaction. The Department shall consider such documentation when contemplating the exercise of itsadministrative authority pursuant to the Act.

ALERT

State RegulationsNo state license was selected for the loan. NOT PERFORMED

State Regulations Restricted FeesNo state license was selected for the loan. NOT PERFORMED


LOAN DETAIL

Client

Report Type: Post-Close Mortgage Loan

LenderLender Name: Countrywide Bank, FSB :

Originator: Payless Mortgage Corp :

License Type: Not ConfiguredDIDMCA Exempt: NoHUD Approved Lender: Yes

NMLS IDCompany NMLS ID: Branch NMLS ID:Individual NMLS ID:

PoliciesDefault:Lending Policy: GSE (Fannie Mae public guidelines)

Borrower

Total Income: $9,292.10 / month DTI Ratio: 39.400%

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

City County State Zip

Egg Harbor Township NJ 08234Type: Detached SFD Number of Units: 1Occupancy: Primary Residence

Loan InformationLoan Amount:(exclude PMI, MIP, Funding Fee financed)

$288,000.00 Loan Amount:(with Finance Charge)

$288,000.00

Program Type: Fixed Interest Rate: 6.750%Loan Purpose: Refinance Undiscounted Rate:Purpose of Refinance: Cash-Out/Other Disclosed APR: 6.834%Refinancing Portfolio Loan: No Disclosed Finance Charge: $386,927.74LTV Ratio: 78.950% Irregular Payment Transaction: NoCLTV Ratio: 78.950% Maturity Term: 360 monthsLoan Type: Conventional Amortization Term: 360 monthsLien Type: First Mortgage Late Charges: 5.000%Document Type: No Asset or Income

VerificationGrace Period: 15 days

Prepayment PenaltyProgram Name: No Prepayment PenaltyPrepayment Penalty Program: This Prepayment Penalty is defined by the following program:

If the borrower makes a prepayment, he/she will not be required to pay a prepayment charge.

Prepayment Term: 0 months Max. Prepayment Penalty Amount:(for high-cost points & fees)

$0.00

Construction / Construction to PermanentRate: Construction Term:Estimate Interest on: Amount Advanced Interest Reserve:

Adjustable Rate Mortgage


Lender Loan Number :

MIN: :

First Name: Last Name:

ARM Margin: First Adjustment: Cap PeriodARM Index: Subsequent Adjustment: Cap PeriodCeiling:Floor: Adjustment Rounding: Round nearest 1/8

Graduated Payment MortgageRate: Term:

Potential Negative Amortization (Option ARM)Negative AmortizationType:

NoneBuydown1. Rate: Term:2. Rate: Term:3. Rate: Term:4. Rate: Term:5. Rate: Term:

Interest Only (excl. Negative Amortization and Option ARM)Term:

Dual AmortizationInitial Amortization Term: Period:Subsequent Amortization Term: Period:

Mortgage Insurance (PMI)Upfront Premium: Monthly Premium (Initial):

or Prepaid FinanceCharge

or Period

Cash/Credit Monthly Premium (Renew):Financed$0.00 or Period

Cancel atAdjust Payments Due

to Upfront PremiumCalculate Premiums UsingLoan Amount

Cancel At Midpoint

DatesApplication Date: 04/09/2007 Closing / Settlement Date: 05/09/2007Initial GFE Disclosure Date: 05/09/2007 Funding / Disbursement Date: 05/14/2007Initial TIL Disclosure Date: 05/09/2007 Date Rate Was Set:Sec. 32 (HOEPA) Disclosure Date:

800: Items Payable in Connection with LoanPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

801 Loan Origination Fee $ Lender802 Loan Discount Fee $ Bona Fide - GSE

Bona Fide - State Lender

803 Appraisal Fee $ 300.00 Other804 Credit Report Fee $ 18.00 Affiliate

of Lender


805 Lender Inspection Fee (performed prior toclosing)

$ Other

Lender Inspection Fee (performed postclosing)

$ Other

806 Mortgage Insurance Application Fee $ Other807 Assumption Fee $ Other

Modification Fee $ LenderTie-in Fee $ OtherMortgage Broker Fee (Direct) $Mortgage Broker Discount Fee (for NJproperties only)

$

Mortgage Broker Fee (Indirect / POC) $Yield Spread Premium (Indirect / POC) $ 8,640.00CLO Access Fee $ OtherApplication Fee $ 170.00 BrokerRate Lock Fee $ OtherCommitment Fee $ LenderProcessing Fee $ BrokerUnderwriting Fee $ LenderAdministration Fee $ LenderAppraisal Review Fee $ LenderAppraisal Re-Inspection Fee $ LenderFlood Determination - Initial Fee $ 26.00 Affiliate

of LenderFlood Determination - Life of Loan Fee $ OtherDocument Preparation Fee $ LenderDocument Signing Fee $ LenderCourier / Messenger Fee $ LenderTax Related Service Fee $ 80.00 Affiliate

of LenderWire Transfer Fee $ LenderWarehousing Fee $ OtherAdvance Mortgage Payments $ OtherCredit Life Insurance Premium $ OtherAccident Insurance Premium $ OtherHealth Insurance Premium $ OtherLoss of Income Insurance Premium $ OtherDebt Cancellation Fee $ OtherPrepayment Penalty $ OtherCompliance Audit / Quality Control Fee $ OtherSeller-Paid Points and Fees $ 0.00Application Fee $ 525.00 Lender

$$$$$$$

900: Items Required by Lender to be Paid in AdvancePrepaidFinanceCharges

FinancedBy Lender

CompensationTo

901 Interest $ 958.68 for 16 day(s) Lender


902 Mortgage Insurance Premium $ Other903 Hazard Insurance Premium $ Other

County Property Taxes $ OtherFlood Insurance Premium $ Other

$$$$

1000: Reserves Deposited with LenderPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

1001 Hazard Insurance Reserve $ 821.25 Lender1002 Mortgage Insurance Reserve $ Other1003 City Property Taxes Reserve $ Lender1004 County Property Taxes Reserve $ 1,308.33 Lender1005 Annual Assessments $ Other

$$$$$

1100: Title ChargesPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

1101 Settlement / Closing / Escrow Fee $ 350.00 Other1102 Abstract / Title Search Fee $ Other1103 Title Examination Fee $ Other1104 Title Insurance Binder Fee $ Other1105 Title Document Preparation Fee $ Other1106 Notary Fee $ 25.00 Other1107 Attorney's Fee $ Excludable due to borrower

choice Other

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

Other

1108 Title Insurance $ 1,112.00 Other1109 Lender's Coverage $ Other1110 Owner's Coverage $ Other

Assignment Endorsement Fee $ OtherSub-Escrow Fee $ OtherReconveyance Fee $ OtherTitle Courier Fee $ 50.00 OtherFunding, Wire, or Disbursement Fee $ 20.00 Other

$$$$$

1200: Government Recording and Transfer ChargesPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

1201 Recording Fee $ 325.00 Other


1202 City / County / Tax / Stamps $ Other1203 State Tax / Stamps $ Other

Subordination Recording Fee $ OtherAssignment Recording Fee $ OtherRecording Service Fee $ OtherIntangible Tax $ Other

$$$$

1300: Additional Settlement ChargesPrepaidFinanceCharges

FinancedBy Lender

CompensationTo

1301 Survey Fee $ Other1302 Pest Inspection Fee $ Other

Architectural / Engineering Fee $ OtherBuilding Permit $ Other

$$$$$


1 record matched your search:

Servicer: BAC Home Loans Servicing, LP! ! Phone: (800) 669-6607! ! Simi Valley, CAInvestor: Fannie Mae! ! ! ! ! Phone: (202)752-7000! ! Washington, DC

MERS & Securitization

Mortgage Electronic Registration System (MERS) has been named the beneficiary for this loan.MERS was created to eliminate the need for the executing and recording of assignment ofmortgages, with the idea that MERS would be the mortgagee of record. This would allow"MERS" to foreclose on the property, and at the same time, assist the lenders in avoiding therecording of the Assignments of Beneficiary on loans sold. This saved the lenders money inmanpower and the costs of recording these notes. It was also designed to "shield" investorsfrom liability as a result of lender misconduct regarding the process of mortgage lending.

MERS is simply an "artificial" entity designed to circumvent certain laws and other legalrequirements dealing with mortgage loans. By designating certain member employees to beMERS corporate officers, MERS has created a situation whereby the foreclosing agency andMERS "designated officer" has a conflict of interest.

Since neither MERS nor the servicer have a beneficial interest in the note, nor do they receivethe income from the payments, and since it is actually an employee of the servicer signing theAssignment in the name of MERS, the Assignment executed by the MERS employee is illegal.The actual owner of the note has not executed the Assignment to the new party. An assignmentof a mortgage in the absences of the assignment and physical delivery of the note will result in anullity.

It must also be noted that the lender or other holder of the note registers the loan on MERS.Thereafter, all sales or assignments of the mortgage loan are accomplished electronically underthe MERS system. MERS never acquires actual physical possession of the mortgage note, nordo they acquire any beneficial interest in the Note.

The existence of MERS indicated numerous violations of Unfair and Deceptive Acts andPractices due to the conflicting nature and identity of the servicer and the beneficiary. Each ofthese practices were intentionally designed to mislead the borrower and benefit the lenders.

So the question becomes, is MERS the foreclosing party or the Servicer? Since the Servicer isthe party initiating the foreclosure and they take the documents to their own employee who hasalso been designated as a "Corporate Officer of MERS", and who conveniently signs thedocument for MERS, aren't they the "foreclosing party"?


MIN: Note Date: 05/09/2007! MIN Status: Inactive

Is MERS the Beneficial Owner of the Note?

1. MERS is named as the beneficiary on the Deed of Trust and holds only legal title to theinterest granted by Borrower in this Security Instrument...has the right: to exercise anyor all of those interest, including, but not limited to, releasing and canceling this securityinstrument.2. MERS has no actual possession of the Note, though they claim to hold the Note.3. MERS receives no payments or income from the monthly payments. This money goes tothe ultimate Investor. The Investor has the beneficial interest in the Note by reason ofthe Investor receiving the payments.4. MERS agreement says that MERS shall at all time comply with the instructions of theholder of mortgage loan promissory notes. Additionally, it says "in the absence ofcontrary instructions from the beneficial owner, MER may rely on instructions from theservicer shown on the MERS system in accordance with these rules and the procedureswith respect to transfers of beneficial ownership.5. MERS has testified in Florida Courts that they are not the beneficial owner of the note.

Assignment of Beneficiary

MERS does not record the assignment of beneficiary as required by law, until the foreclosureprocess starts and the Notice of Default has been filed, and apparently, only when it appearsthat the borrower will not be able to reinstate the loan and then foreclosure is inevitable. Itmaintains itself as the beneficiary throughout the entire process up to foreclosure.

MERS has represented in Florida Courts that its sole purpose is as a system to trackmortgages. It has stated that it does not do the entries itself, but the lenders and servicers do.When an Assignment of Beneficiary is executed, it is the member servicer or lender that goes tothe website, downloads the necessary forms, completes the forms and then takes it to thedesignated "MERS officer" to sign.

MERS agreements state that MERS and the Member agree that: (i) the MERS System is not avehicle for creating or transferring beneficial interest in mortgage loans, (ii) transfer of servicinginterests reflecting on MERS System are sUbject to the consent of the beneficial owner.

Since neither MERS nor the servicer have a beneficial interest in the note, nor do they receivethe income from the payments, and since it is actually an employee of the servicer signing theAssignment in the name of MERS, this begs the question:

Is the assignment executed by the MERS employee even legal, since the actual owner of thenote has not executed the assignment to the new party?

A good indicator might be in Sobel v Mutual Development, Inc, 313 So 2d 77 (1st DCA Fla1975). An assignment of a mortgage in the absence of the assignment and physical delivery ofthe note in question is a nullity.


Possession of the Note & Holder in Due Course

Possession of the Note is a key argument coming to the forefront. The foreclosing entity mustprove possession and ownership of the original Note in order to foreclose. This comes to theforefront because it has been reported that upwards of 40% of the Notes are missing andcannot be found. MERS is once again involved in this.

In Judicial Foreclosure states, MERS foreclosure lawsuits often include a Lost, Missing, orDestroyed Affidavit. This affidavit "testifies" that the Note cannot be found, and that the Noteprior to being lost was in the possession of MERS. This has become very problematic forMERS, since they have admitted in Courts that they do not own the Note or even hold the Note.If this is so, then MERS is likely filing fraudulent Affidavits.

When challenged, one defense that MERS uses to support its "legal standing" is that theservicer has possession of the Note and Deed. MERS, by the act of having its own "Officers" asemployees of the servicer, entitles it to foreclose on behalf of the servicer and the beneficiary.When confronted with this defense, the response should be for the servicer to produce the note.

It must also be noted that the lender or other holder of the note registers the loan on MERS.Thereafter, all sales or assignments of the mortgage loan are accomplished electronically underthe MERS system. MERS never acquires actual physical possession of the mortgage note, nordo they acquire any beneficial interest in the Note.

Securitization Process

Securitization is the name for the process by which the final investor for the loan ended up withthe loan. It entailed the following:

1. Mortgage broker had client who needed a loan and delivered the loan package to thelender.

2. The lender approved the loan and funded it. This was usually through ''warehouse" linesof credit. The lender hardly ever used their own money instead using the warehouse linethat had been advanced to the lender by major Wall Street firms like J.P. Morgan.

3. The lender "sold" the loan to the Wall Street lender, earning from 2.5 - 8 points per loan.This entity is known also as the mortgage aggregator.

4. The loan, and thousands like it, are sold together to an investment banker.

5. Investment banker sells the loans to a securities banker.

6. Securities banker sells the loans to the final investors, as a Securitized Instrument,


where a Trustee is named for the investors, and the Trustee will administer allbookkeeping and disbursement of funds.

7. The issue with the securitization process is that when the Securitized Instrument wassold, it was split apart and sold in tranches, (in slices like a pie). There were few or norecords kept of which notes went into which tranche. Nor were their records of howmany investors bought into each particular tranche. Additionally, there were noassignments designed or signed in anticipation of establishing legal standing toforeclose.

8. The tranches were rated by Rating Agencies at the request of the Investment Bankerswho paid the Rating Agencies.

9. When the tranches were created, each "slice" was given a rating, "AAA, AA, A, BBB, BB,etc. The ratings determined which tranche got "paid" first out of the monthly proceeds. Ifsignificant numbers of loans missed payments, or went into default, the AAA tranchewould receive all money due, and this went on down the line. The bottom tranches withthe most risk would receive the leftover money.

These were the first tranches to fail. Even if the defaulting loans were in the AAA tranche, theAAA tranche would still be paid and the lowest tranche would not. Wall Street, after the 2000Dot.com crash, had large amounts of money sitting on the sidelines, looking for new investmentopportunities. Returns on Investments were dismal, and investors were looking for newopportunities. Wall Street recognized that creating Special Investment Vehicles offered a newinvestment tool that could generate large commissions.Other Pertinent Facts of Securitization

1. Wall Street created pooling agreements where they defined in the agreements the loans thatthey would accept for each investment vehicle. They executed agreements with the lenders andthen immediately issued warehouse lines of credit to the lenders.

2. Lenders then let brokers know the loan parameters to meet the pooling agreement guidelinesand the brokers went out and found the borrowers.

3. Wall Street took all the loans, packaged them up and sold them as bonds and other securityinstruments to other investors, i.e. Joes Pension, and paid off original investors or reissued newline of credit, and earned commissions on both ends.

4. The process was repeated time and again.

5. What we do know now is that in most cases, the reality is that the reported lender on theDeed of Trust was NOT the actual lender. The actual lender who lent the money was the WallStreet Investment Bank. They simply rented the license of the lender, so that they would not runafoul of banking regulations and/or avoid liability and tax issues. For all purposes, Wall Streetwas the true lender and there are arguments that suggest that Disclosures should have been


required naming Wall Street as the lender.

Now it can be easier to understand how possession of the Note and ownership of the Note playa significant part. In most cases, it is unknown which tranche will contain any particular note.Nor will it be known how many investors, and who bought the individual tranches withoutsignificant and time-consuming investigation.

Hence, without the "True Owners" of the note stepping forward to demand foreclosure, anyforeclosure that was securitized may be completely unlawful.

Assignee Liability

Assignee liability is another issue being contested. Under TILA and RESPA, if on the face of theloan documents it is evident that there are violations of the statutes, then assignees have asignificant liability when they assume the loan. However, the question arises as to if assigneeliability can be claimed when there are no violations on the face of the documents.

It is believed that MERS became the "beneficiary" for so many notes to address the AssigneeLiability problem. By keeping MERS as the beneficiary, and avoiding the recording ofassignments, it becomes more difficult to determine assignee liability and holder in due courseissues.

This could offer "cover" for all the parties participating in the Securitization process, since noAssignments were recorded, and "proof of ownership" of the note could not be easilydetermined. The only way to determine ownership of the Notes would be to track the monthlypayments made to the investors, determining which party received the monthly payment. Thiswould be time consuming and likely only Discovery would prove the process necessary to getthis information.

In Cazares v Pacific Shore Funding, CD. Cal. Jan 3, 2006, assignee that actively participated inoriginal lender's act and dictated loan terms may be liable under UDAP.

The question then arises as to assignments further down the "chain of title". Under thesecircumstances, the UDAP codes can be utilized for attacking the lenders. Show fraud and othercauses of action, then the contracts can be "voided or rescinded" common law and UDAPcodes, especially CA B&P § 17200, and CA Civil Code §1689, which allows for contractrescission.


Summary of

Applicable Laws

and Other

Information


Lender to provide special information booklet. Subject to the exceptions set forth in this paragraph, the lender shall provide a copy of the special information booklet to a person from whom the lender receives, or for whom the lender prepares a written application for a federally related mortgage loan. When two or more persons apply together for a loan, the lender is in compliance if the lender provides a copy of the booklet to one of the persons applying.

RESPA Law

Sec.3500.6 Special information booklet at time of loan application

(a)

The lender shall provide the special information booklet by delivering it or placing it in the mail to the applicant not later than three business days (as that term is defined in 3500.2) after the application is received or prepared. However, if the lender denies the borrower's application or credit before the end of the three business day period, then the lender need not provide the booklet to the borrower. If a borrower uses a mortgage broker, the mortgage broker shall distribute the special information booklet and the lender need not do so.

(1)

In the case of a federally related mortgage loan involving an open ended credit plan (as defined in 226.2(a) (20) of Regulation Z (12 CFR)) a lender or mortgage broker that provides the borrower with a copy of the brochure entitled "When Your Home is on the Line: What you should know about Home Equity lines of credit", or any successor brochure issued by the Board of Governors of the Federal Reserve System, is deemed to be in compliance with this section.

(2)

In the catagories of transactions set forth at the end of this paragraph, the lender or mortgage broker does not have to provide the booklet to the borrower. Under the authority of section 19(a) of RESPA (12 U.S.C. 2617(a)), the secretary may choose to endorse the forms or booklets of other Federal agencies. In such an event, the requirements for delivery by lenders and the availability of the booklet or alternative materials for these transactions will be set forth in a Notice in the Federal Register. This paragraph shall apply to the following transactions:

(3)

Refinancing transactions;(i)

Closed end loans as defined in 12 CFR 226.2 (a) (10) of Regulation Z, when the lender takes a subordinate lien;

(ii)

Reverse mortgages; and(iii)

Any other federally related mortgage loan whose purpose is not the purchase of a 1 to 4 family residence

(iv)

Revision. The secretary may, from time to time, revise the special information booklet by publishing a notice in the Federal Register.

(b)

Reproduction. The special information booklet may be reproduced, in any form, provided that no change is made other than as provided under paragraph (d) of this section. The special information booklet may not be made a part of a larger document for purposes of distribution under RESPA and this section. Any color, size, and quality of paper, type of print, and method of reproduction may be used so long as the booklet is clearly legible.

(c)


Permissible changes. (1) No changes to, deletions from, or additions to the special information booklet currently prescribed bhy the Secretary shall be made other than those specified in this paragraph (d) or any others approved in writing by the Secretary. A request of the Secretary for approval of any changes shall be submitted in writing to the address indicated in 3500.3, stating the reasons why the applicant believes such changes, deletions, or additions are necessary.

(d)

The cover of the booklet may be in any form and may contain any drawings, pictures, or artwork, provided the words "settlement costs" are used in the title. Names, addresses, and telephone numbers of the lender, or other similar information, may appear on the cover, but not discussion of the matters covered in the booklet shall appear on the cover.

(2)

The special information booklet may be translated into languages other than English.(3)


Regulation Z (12 CFR 226) implements the Truth in Lending Act (TILA) (15 USC 1601 et seq), which was enacted in 1968 as Title I of the Consumer Credit Protection Act. Since its implementation, the regulation has been amended many times to incorporate changes to the TILA or to address changes in the consumer credit marketplace.

TILA Law

Regulation Z

In the 1990's, Regulation Z was amended to implement the Home Ownership and Equity Protection Act of 1994, which imposed new disclosure requirements and substantive limitations on certain higher cost closed‐end mortgage loans and included new disclosure requirements for reverse mortgage transactions.

The Truth in Lending Act is intended to ensure that credit terms are disclosed in a meaningful way so that consumers can compare credit terms more readily and more knowledgeably.

The finance charge (226.4) is a measure of the cost of consumer credit represented in dollars and cents. Along with the APR disclosures, the disclosure of the finance charge is central to the uniform credit cost disclosure envisioned by the TILA. One of the more complex tasks under Regulation Z is determining whether a charge associated with an extension of credit must be included in or excluded from the disclosed finance charge. The finance charge initially includes any charge that is, or will be, connected with a specific loan. Charges imposed by third parties are finance charges if the institution requires use of the third party. Charges imposed by settlement or closing agents are finance charges if the institution requiresthe specific service that gave rise to the charge and the charge is not otherwise excluded.

(A)

Credit secured by real property or a dwelling, the disclosed finance charge is considered accurate if it does not vary from the actual finance charge by more than $100.00. Also, overstatments are not violations.

(1)

Determination of the Finance Charge and the APR

A prepaid finance charge (226.18 (b)) is any finance charge that (1) is paid separately to the financial institution or to a third party, in cash or by check, before or at closing, settlement, or consummation of a transaction or (2) is withheld from the proceeds of the credit at any time. Prepaid finance charges effectively reduce the amount of funds available for the consumer's use, usually before or at the time the transaction is consummated.

(B)

For certain transactions consummated on or after September 30, 1995, the finance charge tolerances are as noted below:

(C)

Rescission rights after the three‐business‐day rescission period, the disclosed finance charge is considered accurate if it does not vary from the actual finance charge by more than one‐half of 1 percent of the credit extended.

(2)

Rescission rights in foreclosure, the disclosed finance charge is considered accurate if it does not vary from the actual finance charge by more than $35.00. Also, overstatements are not considered violations and the consumer is entitled to rescind if a mortgage broker fee is not included as a finance charge.

(3)

Credit costs may vary depending on the interest rate, the amount of the loan and other charges, the timing and amounts of advances, and the repayment schedule (226.22). The Annual Percentage Rate (APR), which must be disclosed in nearly all consumer credit transactions, is designed to take into account all relevant factors and to provide a uniform measure for comparing the costs of various credit transactions.

(D)


The APR is a measure of the total cost of credit, expressed as a nominal yearly rate. It relates the amount and timing of value received by the consumer to the amount and timing of payments made by the consumer. The disclosure of the APR is central to the uniform credit cost disclosure envisioned by the TILA.

(E)

The disclosed annual percentage rate (APR) on a closed‐end transaction is considered accurate if for regular transactions (including any single‐advance transaction with equal payments and equal payment periods or transaction with an irregular first or last payment and/or an irregular first payment period), the APR is within one‐eighth of 1 percentage point of the APR calculated under Regulation Z (section 226.23(a)(2)).

(F)

If for irregular transactions (including multiple‐advance transactions and other transactions not considered regular), the APR is within one‐quarter of 1 percentage point of the APR calculated under Regulation Z (section 226.22(a)(3)).

(G)

If for mortgage transactions, the APR is within one‐eighth of 1 percentage point for regular transactions or one‐quarter of 1 percentage point for irregular transactions and the rate results from the disclosed finance charge would be considered accurate under section 226.18(d)(1) or section 226.23(g) or (h) of Regulation Z (section 226.22(a)(4)).

(H)

Variable‐Rate Loans (226.18(f))

If the terms of the legal obligation allow the financial institution, after consummation of the transaction, to increase the APR, the financial institution must furnish the consumer with certain information on variable rates. Some of the more transaction‐specific variable‐rate disclosure requirements under section 226.18:

Disclosures for the variable‐rate loans must cover the full term of the transaction and must be based on the terms in effec at the time of consummation.

(A)

IF the variable‐rate transaction includes either a seller buydown that is reflected in a contract or a consumer buydown, the disclosed APR should be a composite rate based on the lower rate for the buydown period and the rate that is the basis for the variable‐rate feature for the remainder of the term.

(B)

If the initial rate is not determined by the index or formula used to make later interest rate adjustments, as in a discounted APR must reflect a composite rate based on the initial rate for as long as it is applied and, for the remainder of the term, the index or formula at the time of consummation (that is, the fully indexed rate).

(C)

If a loan contains a rate or payment cap that would prevent the initial rate, or payment at the time of the adjustment, from changing to the fully indexed rate, the effect of that rate or payment cap needs to be reflected in the disclosure.

(D)

The index at consummation need not be used if the contract provides for a delay in implementation of changes in an index value. For example, the contract indicates that future rate changes are based on the index value in effect for some specified period, such as forty‐five days before the change date. Instead, the financial institution may use any rate from the date of consummation back to the beginning of the specified period (for example, during the previous forty‐five day period).

(E)


Special Rules for Certain Home Mortgage Transactions

The requirements of section 226.32 apply to a consumer credit transaction secured by the consumer's principal dwelling in which either:

The APR at consummation will exceed by more than 8 percentage points for first‐lien mortgage loans, or by more than 10 percentage points for subordinate‐lien mortgage loans, the yield on Treasury securities having periods of maturity comparable to the loan's maturity (as of the 15th day of the month immediately preceeding the month in which the application of the extension of credit is received by the creditor).

(A)

The total points and fees payable by the consumer at or before the loan closing will exceed the greater of 8 percent of the total loan amount or a dollar amount that is adjusted annually on the basis of changes in the consumer price index.

(B)

The following are exempt from section 226.32:

Residential mortgage transactions (generally purchase money mortgages).(A)

Reverse mortgage transactions subject to section 226.33 of Regulation Z.(B)

Open‐end credit plans subject to subpart B of the regulation.(C)


Regulation B

TILA Law

Sec. 202.9 Notifications

(g) Disclosure of Credit Scores by Certain Mortgage Lenders

(1) In general, any person who makes or arranges loans and who uses consumer credit score, as defined in subsection (f), in connection with an application initiated or sought by a consumer for a closed end loan or the establishment of an open end loan for a consumer purpose that is secured b 1 to 4 units of residential real property (hearafter in this subsection referred to as the "lender") shall provide the following to the consumer as soon as reasonably practicable:

(A) Information Required under Subsection (f)

In general, a copy of the information indentified in subsection (f) that was obtained from a consumer reporting agency or was developed and used by the user of the information.

(i)

Notice under subparagraph (D). In addition to the information provided to it by a third party that provided the credit score or scores, a lender is only required to provide the notice contained in subparagraph (D).

(ii)

(B) Disclosures in Case of Automated Underwriting System

In general, if a person that is subject to this subsection uses an automated underwriting system to underwrite a loan, that person may satisfy the obligation to provide a credit score by disclosing a credit score and associated key factors supplied by a consumer reporting agency.

(i)

Numerical credit score. However, if a numerical credit score is generated by an automated underwriting system used by an enterprise, and that score is disclosed to the person, the score shall be disclosed to the consumer consistent with subparagraph (C).

(ii)

Enterprise defined. For purposes of this subparagraph, the term "enterprise" has the same meaning as in paragraph (6) of section 1303 if the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

(iii)

(C) Disclosures of credit scores not obtained from a consumer reporting agency.

A person that is subject to the provisions of this subsection and that uses a credit score other than a credit score provided by a consumer reporting agency, may satisfy the obligation to provide a credit score by disclosing a credit score and associated key factors supplied by a consumer reporting agency.

(D) Notice to home loan applicants. A copy of the following notice, which shall include the name, address, and telephone number of each consumer reporting agency providing a credit score that was used:

"Notice To The Home Loan Applicant"

"In connection with your application for a home loan, the lender must disclosed to you the score that a consumer reporting agency distributed to users and the lender used in connection with your home loan, and the key factors affecting your credit scores."


"The credit score is a computer generated summary calculated at the time of the request and based on information that a consumer reporting agency or lender has on file. The scores are based on data about your credit history and payment patterns. Credit scores are important because they are used to assist the lender in determining whether you will obtain a loan. They may also be used to determine what interest rate you may be offered on the mortgage. Credit scores can change over time, depending on your conduct, how your credit history and payment patterns change, and how credit scoring technologies change. Because the score is based on information in your credit history, it is very important that you review the credit‐related information that is being furnished to make sure it is accurate. Credit records may vary from one company to another."

"If you have quesitons about your credit score or the credit information that is furnished to you, contact the consumer reporting agency at the address and telephone number provided with this notice, or contact the lender, if the lender developed or generated the credit score."

The consumer reporting agency plays no part in the decision to take any action on the loan application and is unable to provide you with specific reasons for the decision on a loan application.

"If you have quesitons concerning the terms of the loan, contact the lender."

(E) Actions not required under this subsection. This subsection shall not require any person to:

explain the information provided pursuant to subsection (f);(i)

disclose any information other than a credit score or key factors, as defined in subsection (f);(ii)

disclose any credit score or related information obtained by the user after a loan has closed;(iii)

provide more than one disclosure per loan transaction;(iv)

or provide the disclosure required by this subsection when another person has made the disclosure to the consumer for that loan transaction.

(v)

(F) No Obligation for Content

In general, the obligation of any person pursuant to this subsection shall be limited soley to providing a copy of the information that was received from the consumer reporting agency.

(i)

Limit on liability. No person has liability under this subsection for the content of that information or for the omission or any information within the report provided by the consumer reporting agency.

(ii)

(G) Person defined as excluding enterprise. As used in this subsection, the term "person" does not include an enterprise (as defined in paragraph (6) of section 1303 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992).

(2) Prohibition on Disclosure Clauses Null and Void

In general, any provision in a contract that prohibits the disclosure of a credit score by a person who makes or arranges loans or a consumer reporting agency is void.

(A)

No liability for disclosure under this subsection, a lender shall not have liability under any contractual provision for disclosure of a credit score pursuant to this subsection.

(B)


Definition: A "consumer" is an individual who obtains or has obtained a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes, or that individual's legal representative.

GLB Law (Gramm, Leach, Bliley Act)

Federal Trade Commission

Provide an initial (or "short‐form") notice about the availability of the privacy policy if the financial institution shares information outside the permitted exceptions.

Bureau of Consumer Protection

Division of Financial Practices

The Gramm‐Leach‐Bliley Act

Privacy of Consumer Financial Information

IV. Consumers and Customers

A. Consumers

Examples of Consumer Relationships:

* Applying for a loan

* Obtaining a cash from a foreign ATM, even if it ocurrs on a regular basis

* Cashing a check with a check‐cashing company

* Arranging for a wire transfer

General Obligations to Consumers

Provide an opt‐out notice with a "reasonable opportunity" to opt out before disclosing non‐public personal information about them ot non‐affiliated third parties, such as 30 days from the date the notice is mailed.

Provide an opt‐out notice with the initial notice or separately prior to the financial institution sharing non‐public personal information about them ot non‐affiliated third parties.

If a consumer elects to opt out of all or certain disclosures, a financial institution must honor the opt out direction as soon as is reasonably practicable after the opt out is received.

If you change your privacy practices such that the most recent privacy notice you provided to a consumer is no longer accurate (e.g. you disclose a new category of NPI to a new non‐affliated third party outside of specific exceptions and those changes are not adequately described in your prior notice), you must provide new revised and opt out notices.


ALTERNATIVE CAUSES OF ACTION

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

Contractual Causes of Action Breach of Contract Borrower may claim that the Lender “breached its contractual obligations to Plaintiff, including, without limitation, those obligations created by the Note and Security Agreement and its oral agreement to make a residential mortgage loan as described on the Loan Application.” Breach of Oral Agreement - Campbell v. Machias, 865 F. Supp. 26 (D. Me. 1994).

Borrower may allege that when they applied for a loan, the lender's loan officer made certain statements and representations about the nature and character of the loan. For example she would be required to make a five-percent downpayment and security on the home but no security on her land. Borrowers can claim that, by accepting their loan application, the Lender offered her a loan in compliance with those representations. Borrower further contends that, when they accepted this offer, the parties entered into an oral agreement. Borrower argues that the Lender breached this oral agreement by failing to comply with the representations made but the loan officer. It should be noted that an oral promise to enter into a home loan agreement, which usually extends over a number of years, would very likely present problems under most state’s Statute of Frauds. Translation of Contracts negotiated in language other than English - CA Civil Code

§ 1632(b)

CA Civil Code § 1632(b) states that any person engaged in trade or business who negotiates primarily in Spanish, Chinese, Tagalong, Vietnamese, or Korean, orally or in writing, in the course of entering into any of the following, shall deliver to the other party to the contract or agreement and prior to the execution thereof, a translation of the contract or agreement in the language in which the contract or agreement was negotiated, which includes a translation of every term and condition in that contract or agreement A borrower, who negotiated the loan in a language other than English, must be provided with a copy of the agreement in the language in which you negotiated. This applies to


disclosures required by Regulation M, Regulation Z, Truth in Lending Act, or any other disclosures promulgated by the Board of Governors of the Federal Reserve System If the borrower is not provided a copy of the agreement in the language in which it was negotiated in then Cal. Civ. Code § 1632(k) states upon a failure to comply with the provision of this section, the person aggrieved may rescind the contract or agreement.

Tort Claims

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

439, 449 (D.Me.1993)

Borrower may possibly make a claim of negligent and intentional infliction of emotional distress. This is only applicable in instances where the Lender has done something above and beyond the traditional notions of reasonableness. For example, a bank officer refusing to provide information, berating the borrower and calling them names in a loud voice in the middle of the bank office when a large number of people were present and could hear him. Another example of this would be the bank attempting to disrupt the borrower’s relationship with their attorney and to intimidate them into halting their investigation by taking extreme actions, including filing false criminal charges against her for stealing the bank's file on the burrower’s loan. To succeed on a claim for intentional infliction of emotional distress a plaintiff must show that:

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

• The defendant's conduct was so extreme and outrageous as to exceed all possible bounds of decency and must be regarded as atrocious and utterly intolerable in a civilized community;

• The defendant's conduct caused the plaintiff emotional distress; and

• Plaintiff's emotional distress was so severe that no person reasonably could be expected to endure it.

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

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

• The defendant acted negligently,

• That psychic injury was foreseeable given the nature of the defendant's conduct, and

• The plaintiff suffered severe emotional distress as a result of the defendant's negligence.

Fraud/Misrepresentation

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


People Trust & Saving Bank v. Humphrey, 451 N.E. 2d 1104 (Ind. Ct. App. 1983). In this case, the consumers went to their own bank for a home construction loan. The bank promised them a “good loan” at a 9.5% rate. That was merely the initial rate. The permanent financing was actually a variable rate loan and included a clause that allowed the bank to demand full payment at their discretion. The court held that “when parties to a contract have prior understanding about the contract terms, and the party responsible for drafting the contract includes contrary terms and then allows the other party to sign it without informing him of the changes, the drafter’s conduct is fraudulent.” The court in Humphrey dismissed the lender’s foreclosure, reformed the contract by deleting the demand and variable rate clauses, and awarded $1000 actual and $40,000 punitive damages. Greene v. Gibraltar Mortgage Investment Corp, 488 F. Supp. 177 (D.D.C. 1980), 839 F.2d 680 (D.C. Cir. 1980). This was another misrepresentation case. The court found the failure to disclose an unconscionably high broker fee and the lender’s charging of interest on that fee to be a misrepresentation. The lender also falsely represented the loan amount and claimed to offer a market interest rate. Accordingly, the court voided the promissory note and deed of trust and permanently enjoined foreclosure proceedings. Mahaffe v. Investors National Security, 747 P.2d 890 (Nev. 1987). This case involved a common home improvement fraud. The borrowers were promised home insulation which would cut fuel consumption in half, the borrower’s home would be used for promotional purposes, and the total cost would be $5300. work was begun before the 3 day cooling off period, but never completed; what was done was done improperly. The contractors induced the borrowers to sign a completion certificate despite the incomplete work by threatening them with “skyrocketing interest rates” and “troubles.” The assignee tried to foreclose but the Nevada Supreme Court found the contract to be null and void because of the fraudulent inducement and failure of consideration on the contractor’s part. First Charter National Bank v. Ross, 29 Conn. App. 667, 617 A.2d 909 (1992). Fraud may also be available as a defense when a borrower is tricked by a family member into signing mortgage documents. In this case a wife was allowed to assert fraud as a special defense to foreclosure action when her husband had given her loan documents to sign with the signature page on top, had discouraged her from looking at the documents, and had told her that the documents had nothing to do with their home. The court ruled that the defense of fraud was not barred by the general rule that a person has a duty to read what they sign and that notice of the content of signed documents is imputed. The court said the official rule does not apply when there is fraud and only applies if nothing is said to mislead the person signing. It should be noted, however, that some courts have refused to invalidate a mortgage when the fraud was committed by a party other than the


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

When various and conflicting promises in the loan origination process were made by a lender, a court may find that the effect of some of the promises is to estop the lender from enforcing others. In First State Bank v. Phillips, 13 Ark. App. 157, 681 S.W.2d 408 (1984), the court held that a bank was estopped from enforcing a balloon payment clause in a note and dismissed the foreclosure. The consumer in Phillips had assumed a mortgage extended by the bank to the person from whom the consumer bought the house. The mortgage indicated it would be fully paid with monthly payments. A separate promissory note provided that after a period of regular monthly payments, the balance of the note would be due in a single lump-sum balloon payment. The mortgage which the consumer saw did not contain the balloon payment. When the consumer talked to bank employees about assuming the mortgage, the balloon payment was not disclosed. In dismissing the foreclosure, the court found that the nondisclosure of the balloon payment forfeited the bank’s right to enforce it. Incompetence

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

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

• The defendant had limited knowledge of English, was uneducated and did not read very well

• The defendant’s financial situation made it apparent she could not reasonably expect to repay the mortgage

• At the closing, the defendant was not represented by an attorney and was rushed by plaintiff’s attorney to sign the loan document

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

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


borrower had no reasonable opportunity to understand the terms of the contract. Family Fin. Servc. V. Pencer, 677 A.2d 479, (Conn. Ct. App. 1996); Emigrant Mortg., Co., Inc., v. D’Angostino, 896 A.2d 814 (Conn. App. Ct. 2006). Invalid Security Instruments

If the mortgage (or the deed of trust) is not a legally enforceable instrument then there can be no valid foreclosure. In re Hudson, 642 S.E. 2d 485 (N.C. Ct. App. 2007). A deed or mortgage that is forged is presumptively invalid. Ex Parte Floyd, 796 So. 2d 303 (Ala. 2001). As a result, forgery of a mortgage is generally an absolute defense to foreclosure. Similarly, where a deed has been forged and the new title holder then encumbers the property, courts have held both the deed and the mortgages are null. Flagstar v. Gibbons, 367 Ark. 225 (2006). The validity of security instruments in some community property states may require both spouses to execute instruments encumbering a homestead. For example, under Wisconsin law, a court found that a mortgage on a married couple’s homestead that was not signed by both spouses was void as to both spouses, regardless of their respective ownership interests. In re Larson, 346 B.R. 486 (Bankr. E.D. Wis. 2006). The failure to follow the formal requisites in acknowledging deeds and mortgages may also result in a void instrument. Many deed and mortgage fraud cases involve situations in which the person whom the notary certified as having appeared did not, in fact, appear. In re Fisher, 320 B.R. 52 (E.D. Pa. 2005). In fraudulent mortgage cases, borrowers are often instructed to sign a stack of documents that are then taken elsewhere for notarization. Goldone Credit Corp. v. Hardy, 503 So. 2d 1227 (Ala. Civ. App. 1987). Alternatively, improper notarization may result from the taking of an actual acknowledgment from an imposter, incompetent person, or over the telephone. Regardless, of the reason for the defective acknowledgment, practitioners should investigate whether such defects may render the instrument invalid. Breach of Fiduciary Duty - Reid v. Key Bank, 821 F.2d 9, 18 (1

st Cir. 1987).

Traditionally, a credit transaction has been considered an arm’s length transaction in which there has been no special duty read into the creditor-debtor relationship. Most courts, however, have held that the presence of certain factors in the creditor-debtor relationship may give rise to a fiduciary duty. Borrower can allege a cause of action for breach of fiduciary duty, if they can prove that they relied upon the lender's superior position and skills and placed their trust and confidence in the lender to act in a fair and reasonable manner for their best interests. For this to be a valid cause of action borrower must also show that they had a confidential relationship with the lender. The essential element of a confidential relationship is there be actual placing of trust or confidence in fact, by one party in another and a great disparity of position and influence between the parties to the relation. Such a “duty of confidence” arguably can arise if a lender acts in the role of advisor and knows or should have known the borrower tested


him. When such a relationship exists it creates a duty to disclose. A plaintiff bears a heavy burden in establishing such a relation. A creditor-debtor relationship, by itself, does not create a fiduciary duty. Such a relationship may be created, however, by circumstances such as a “diminished emotional or physical capacity or of the letting down of all guards and bars that defines disparity of position in the context of a confidential relation.” If established, the existence of a fiduciary duty gives rise to a duty of fair and honest disclosure of all facts which might be presumed to influence the consumer to act. Barrett v. Bank of Am. 229 Cal. Rptr. 16 (Ct. App. 1986). When there is a duty to disclose, failure to do so should give rise to a tort cause of action for nondisclosure, or the silence may be deemed a misrepresentation. Such claims can be used to invalidate the underlying mortgage transaction or to recover money damages to offset any delinquency. Duty to Maximize Net Present Value - CA Civil Code § 2923.6

The Legislature has found and declared that any duty servicers may have to maximize net present value under their pooling and servicing agreements, is owed to all parties in a loan pool, not to any particular parties, and that a servicer acts in the best interests of all parties if it agrees to or implements a loan modification or workout plan for which both of the following apply:

• The loan is in payment default or payment default is reasonably foreseeable

• Anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis

Special Circumstances for Elder Homeowners

Elder homeowners, are particularly vulnerable to, and often targets of, unfair lending practices. Many lived in their homes for decades, have paid down their mortgages, and have accumulated substantial equity in their homes. Elder homeowners may stand to lose their homes as a result of two types of misconduct: reverse mortgage abuse and exploitation by family members.

Reverse Mortgage Abuse Reverse mortgages are rising debt loans made to elder homeowners which are secured by equity in the home. Repayment of a reverse mortgage loan is generally not required until certain events occur, such as the homeowner’s death or sale of the home. Typically reverse mortgage loans are paid out to the homeowner in monthly installments. The amount of the monthly proceeds received by the homeowner is determined by the value of the home, the interest rate and other fees charged, the loan term, the amount of any initial lump sum disbursed to the homeowner, and the homeowner’s age. Reverse mortgages are subject to some additional disclosure requirements under the federal Truth in Lending Act, 15 U.S.C. § 1648; 12 C.F.R. § 226.33, such as payment disclosures which reflect that a single payment is due when one of the specified events


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

• Limits on Liability – limitation of the burrower’s or the estate’s liability to the lesser of the proceeds of the sale of the home or the amount of the debt, as well as prohibition of prepayment penalties. Mont. Code Ann. § 90-6-506(5); N.C. Gen. Stat. § 53-257(6).

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

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

• Minimum Time Requirements Between Loan Maturity and Default – After the loan matures, as a result of either the death of the borrower or the borrower’s default of an obligation under the contract, a reasonable time must be allowed for the borrower or the estate to arrange for repayment. N.C. Gen. Stat. § 53-268.

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

Exploitation by Family Members Exploitation by family members can take many forms. For example, an elder parent trying to help younger son make a down payment on a new home, mortgages her home to lend the money to the son, which the son never repays and the mother is not able to pay, forcing a foreclosure. A child convinces elder parent to give the child ownership of the home, the child then mortgages the property to pay their own debts and defaults on the mortgage on the parent’s property. An elder parent cosigns a loan for a child with bad credit, pledging their home as collateral. When the child fails to repay the loan, the bank threatens to foreclose on the parent’s home. If the borrower believes that there has been some elder homeowner abuse, they should consider the following questions.

• Does the elder homeowner have a cause of action against the relative for fraud, duress, or undue influence?

o Is the elder willing to assert the claim

• Did the lender participate in the relative’s fraud or did the lender acquiesce in the fraud?

• Did the transaction occur when the elder was incapacitated?

• Was there any forgery involved? There is a growing trend that statutes provide for increased penalties when the fraud is targeted at elders. Arkansas, California, Florida, Georgia, Illinois, Iowa, Minnesota, Nevada, and Wisconsin already allow for such increased damages. Ark. Code Ann. § 4-


88-101; Cal. Bub. & Prof. Code § 17206; Cal. Civ. Code § 1750; Fla. Stat. § 501.2077; Ga. Code Ann. § 10-1-390; 815 Ill. Comp. Stat. § 505; Iowa Code § 714.16A; Minn. Stat. § 325F.71(b); Nev. Rev. Stat. § 598.0973; Wis. Stat. § 100.264. Property Flipping

Property flipping scams typically involve speculators who buy dilapidated residential properties at low prices and resell them at huge markups to unsophisticated first –time home buyers. Often these flipping schemes are targeted at low or moderate-income racial minorities. Buyers are often persuaded to enter into purchase agreements only after the seller has promised to make necessary or agreed upon repairs to the property. When the closing date arrives, however, the seller has made few, if any, of the repairs. Once at the closing table, buyers are threatened with the loss of their earnest money deposit and the “opportunity to be a homeowner” if they do not complete the transaction. The end result if that the buyer has purchased property in questionable condition and is saddled with a debt loan that exceeds the market value of the property. These homeowners will be unable to resell the home in an arms-length transaction because the mortgage indebtedness exceeds the fair market value of the property. Ultimately, the homeowner will loose their homes due to foreclosure sales because the home’s condition is much worse than represented, promised repairs are not performed, and the consumer’s mortgage payments may be higher than the consumer can afford. Sellers, appraisers and mortgage brokers frequently conspire to mislead the buyer as to the property’s market value, the condition of the property, and the mortgage financing terms. Commonly, fraudulent documents and bogus appraisals are used to secure a loan for the inflated purchase price. Lenders may also actively participate in the flipping scheme, particularly when the loans are insured by the federal government. M&T Mortg. Corp. v. Miller, 323 F. Supp. 2d 405 (E.D.N.Y. 2004). Actual damages in property flipping cases can be significant. Vaughn v. Consumer Home Mortg. 293 F. Supp. 2d 206 (E.D.N.Y. 2003). Generally, if the homebuyer has lost the home in a foreclosure, all monies spent by the homeowner, for moving in and out, for inspections, repairs, and all payments on the mortgage should be recoverable. Hoffman v. Stamper, 843 A.2d 153 (Md. Ct. Spec. App. 2003). If the homebuyer has been able to keep the home, actual damages may include monies spent on repairs, the difference between the appraised value and the actual value, and the excess mortgage payments, calculated based on the difference between the monthly payments assuming the true value of the home and the actual monthly payments using the inflated appraised valuations. Posner v. Davis, 395 N.E. 2d 133 (Ill. App. Ct. 1979). Where recoverable, a claim for emotional distress should also be developed. Appraiser Liability While sellers are obvious defendants in property flipping schemes, appraisers, with whom consumers may have has little contact, are essential to the scam. Bird v. Delacruz, 411 F. Supp. 2d 891 (S.D. Ohio 2005). An inflated appraisal is the linchpin of these transactions. United States v. Owens, 301 F.3d 521 (6th Cir. 2002). As a result,


advocates should carefully examine the appraisal and investigate the appraiser in these cases. Inflated values are typically achieved by misrepresenting the condition of the property or by comparing sales that are not really comparable. Appraisals in sub-prime transactions may be inflated over 1000% above the actual fair market value in order to create a loan to value ratio of between 60% and 75% to satisfy the underwriting requirements of the lender and secondary market. Federal Housing Administration appraisals typically are inflated by 30% to 50% because FHA-insured loans are made at close to 100% of the appraised value. There can be little question that the preparation of a falsified appraisal is misrepresentation that will support a fraud claim and falls within the scope of most state UDAP statutes. UDAP claims may be particularly promising since in most states the consumer does not have to show reliance, privity of contracts is unnecessary, and nondisclosure is just as actionable as affirmative deception. Appraisers may also be liable for fraudulent concealment, civil conspiracy and civil RICO violations, and violations of state licensing laws. Adcock v. Brakegate, Ltd., 164 Ill. 2d 54, 645 N.E.2d 888 (1994). Lender Liability While the ultimate holder of the mortgage loan may stand to lose in these property flipping schemes (except to the extent the loan is federally insured), loan originators can stand to make significant profits on these transactions. As a result, lenders may also engage in fraudulent conduct in documenting and underwriting the loan. Consumer Prot. Div. v. Morgan, 874 A. 2d 919 (Md. 2005). Credit applications and down payments also are routinely falsified in both “sub-prime” and FHA-insured transactions. For example, in M&T Mortgage Corporations v. Miller, the plaintiffs alleged that the lender falsified and inflated their income level on the loan application to deceive HUD and FHA into believing that the loan was affordable. In another recent case, a loan officer assisted the seller to evade HUD requirements and then actively participate in defrauding the consumer. Hoffman v. Stamper, 385 Md. 1, 867 A.2d 276 (2005). Even where lenders do not participate in the scheme, lenders have often been indifferent to the incidence of property flipping in their portfolios. In addition to fraud, conspiracy, UDAP, and civil RICO claims, advocates should investigate potential claims for reverse redlining under federal discrimination laws and claims under the federal False Claims Act in cases where the lender or holder submits an insurance claim. Liability of Other Parties In addition to the seller, appraiser and lender, other parties may be liable for their participation in a flipping scheme. For example, building contractors what were hired to perform renovations, but who either did not do the work or misrepresented the extent of the work have been implicated. Polonetsky v. Better Homes Depot, Inc., 97 N.Y. 2d 46 (2001). Consumers have also sufficiently pleaded claims against mortgage brokers, closing attorneys, property inspectors, and title companies.


Anti-Flipping Regulations In an attempt to curb the increasing number of property flipping schemes, the FHA recently implemented property flipping guidelines. These guidelines seek to hold lenders accountable for the quality of appraisals on properties secured by FHA-insured mortgages. The final rule requires that:

• Only owners of record can sell properties that will be financed using FHA-insured mortgages (the transaction may not involve any sale or assignment of the sales contract);

• Any re-sale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing;

• For re-sale of a property may not occur 91-180 days where the new sales price exceeds the previous sales price by 100%, FHA will require additional documentation validating the property’s value. 24 C.F.R. § 203.37a.

The 90 day no flip prohibition is waived when the sellers of the property are:

• HUD itself, disposing of property in it’s REP portfolio;

• Sales of properties that were acquired by the seller through inheritance;

• Fannie Mae, Freddie Mac or other federally chartered financial institutions are disposing of REP;

• Local or state housing agencies;

• Nonprofit organizations that have previous approvals to purchase HUD REP properties at a discount; and

• Properties located in a presidentially declared disaster area, provided FHA has issued an announcement of eligibility.

In addition to the specific limitation set forth in the regulation, the rules provide flexibility for FHA to examine and require additional evidence for appraised value when properties are resold within 12 months. 24 C.F.R. § 203.37a.


Injunction Restricting Foreclosure of Abusive ARM Subprime Loans Disclaimer: The law in this section is only controlling precedent in Massachusetts. However, it may be used as persuasive precedent in other jurisdictions. Courts are beginning to hear this and similar arguments in light of the current housing market situation. The case of Commonwealth v. Fremont Inv. & Loan, 452 Mass. 733 (2008). was recently decided. In this case the court found that a loan was presumptively unfair if it met certain characteristics. The court allowed the borrower to obtain a preliminary injunction against the lender to stop a foreclosure sale once they made a sufficient showing of evidence to prove that all 4 of the characteristics were present in their loan. The court held that a borrower can obtain a preliminary injunction if the mortgage loan was presumptively unfair. A mortgage loan will be deemed to be presumptively unfair if it contains four characteristics. These four characteristics must be shown through evidence in order for the judge to grant the preliminary injunction.

Adjustable rates with an introductory period of three years or less; A teaser rate at least 3% lower than the fully indexed rate; The borrower has a debt to income ratio that would exceed 50% if the debt were

measured under the fully indexed rate (and not the teaser rate); and The loan to value ratio of the loan is 100% or the loan carries a substantial

prepayment penalty or the loan carries a prepayment penalty that extends beyond the introductory rate period.

If all four of these characteristics are in a loan, the borrower will be able to stop any foreclosure action that the lender attempts to initiate. The court held that the lender knew or should have known that loans with the four characteristics were doomed to foreclose if housing prices declined. Therefore making these loans likely amounted to an unfair practice prohibited by the state UDAP statute, even without evidence of deception or concealment. It is not clear how far this argument can be taken and what happens once the foreclosure sale is injoined, but if nothing else, the preliminary injunction can halt a foreclosure sale and allow the borrower a chance for their case to be heard against the lender.


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12 CFR Ch. II (1–1–08 Edition) § 226.18

39 For certain residential mortgage trans-actions, § 226.19(a)(2) permits redisclosure no later than consummation or settlement, whichever is later.

40 Good faith estimates of settlement costs provided for transactions subject to the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) may be substituted for the disclo-sures required by paragraph (c) of this sec-tion.

may be required under paragraph (f) of this section, § 226.19, or § 226.20.

(f) Early disclosures. If disclosures re-quired by this subpart are given before the date of consummation of a trans-action and a subsequent event makes them inaccurate, the creditor shall dis-close before consummation:39

(1) Any changed term unless the term was based on an estimate in accordance with § 226.17(c)(2) and was labelled an estimate;

(2) All changed terms, if the annual percentage rate at the time of con-summation varies from the annual per-centage rate disclosed earlier by more than 1⁄8 of 1 percentage point in a reg-ular transaction, or more than 1⁄4 of 1 percentage point in an irregular trans-action, as defined in § 226.22(a).

(g) Mail or telephone orders—delay in disclosures. If a creditor receives a pur-chase order or a request for an exten-sion of credit by mail, telephone, or facsimile machine without face-to-face or direct telephone solicitation, the creditor may delay the disclosures until the due date of the first payment, if the following information for rep-resentative amounts or ranges of credit is made available in written form or in electronic form to the consumer or to the public before the actual purchase order or request:

(1) The cash price or the principal loan amount.

(2) The total sale price. (3) The finance charge. (4) The annual percentage rate, and if

the rate may increase after consumma-tion, the following disclosures:

(i) The circumstances under which the rate may increase.

(ii) Any limitations on the increase. (iii) The effect of an increase. (5) The terms of repayment. (h) Series of sales—delay in disclosures.

If a credit sale is one of a series made under an agreement providing that subsequent sales may be added to an outstanding balance, the creditor may delay the required disclosures until the due date of the first payment for the current sale, if the following two condi-tions are met:

(1) The consumer has approved in writing the annual percentage rate or rates, the range of balances to which they apply, and the method of treating any unearned finance charge on an ex-isting balance.

(2) The creditor retains no security interest in any property after the cred-itor has received payments equal to the cash price and any finance charge at-tributable to the sale of that property. For purposes of this provision, in the case of items purchased on different dates, the first purchased is deemed the first item paid for; in the case of items purchased on the same date, the lowest priced is deemed the first item paid for.

(i) Interim student credit extensions. For each transaction involving an in-terim credit extension under a student credit program, the creditor need not make the following disclosures: the fi-nance charge under § 226.18(d), the pay-ment schedule under § 226.18(g), the total of payments under § 226.18(h), or the total sale price under § 226.18(j).

[Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 52 FR 48670, Dec. 24, 1987; 61 FR 49246, Sept. 19, 1996; 66 FR 17338, Mar. 30, 2001; 67 FR 16982, Apr. 9, 2002; 72 FR 63474, Nov. 9, 2007]

§ 226.18 Content of disclosures. For each transaction, the creditor

shall disclose the following informa-tion as applicable:

(a) Creditor. The identity of the cred-itor making the disclosures.

(b) Amount financed. The amount fi-nanced, using that term, and a brief de-scription such as the amount of credit provided to you or on your behalf. The amount financed is calculated by:

(1) Determining the principal loan amount or the cash price (subtracting any downpayment);

(2) Adding any other amounts that are financed by the creditor and are not part of the finance charge; and

(3) Subtracting any prepaid finance charge.

(c) Itemization of amount financed. (1) A separate written itemization of the amount financed, including:40

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379

Federal Reserve System § 226.18

41 The following payees may be described using generic or other general terms and need not be further identified: public offi-cials or government agencies, credit report-ing agencies, appraisers, and insurance com-panies.

42 For any transaction involving a finance charge of $5 or less on an amount financed of $75 or less, or a finance charge of $7.50 or less

on an amount financed of more than $75, the creditor need not disclose the annual per-centage rate.

43 Information provided in accordance with §§ 226.18(f)(2) and 226.19(b) may be substituted for the disclosures required by paragraph (f)(1) of this section.

(i) The amount of any proceeds dis-tributed directly to the consumer.

(ii) The amount credited to the con-sumer’s account with the creditor.

(iii) Any amounts paid to other per-sons by the creditor on the consumer’s behalf. The creditor shall identify those persons.41

(iv) The prepaid finance charge. (2) The creditor need not comply with

paragraph (c)(1) of this section if the creditor provides a statement that the consumer has the right to receive a written itemization of the amount fi-nanced, together with a space for the consumer to indicate whether it is de-sired, and the consumer does not re-quest it.

(d) Finance charge. The finance charge, using that term, and a brief de-scription such as ‘‘the dollar amount the credit will cost you.’’

(1) Mortgage loans. In a transaction secured by real property or a dwelling, the disclosed finance charge and other disclosures affected by the disclosed fi-nance charge (including the amount fi-nanced and the annual percentage rate) shall be treated as accurate if the amount disclosed as the finance charge:

(i) Is understated by no more than $100; or

(ii) Is greater than the amount re-quired to be disclosed.

(2) Other credit. In any other trans-action, the amount disclosed as the fi-nance charge shall be treated as accu-rate if, in a transaction involving an amount financed of $1,000 or less, it is not more than $5 above or below the amount required to be disclosed; or, in a transaction involving an amount fi-nanced of more than $1,000, it is not more than $10 above or below the amount required to be disclosed.

(e) Annual percentage rate. The annual percentage rate, using that term, and a brief description such as ‘‘the cost of your credit as a yearly rate.’’ 42

(f) Variable rate. (1) If the annual per-centage rate may increase after con-summation in a transaction not se-cured by the consumer’s principal dwelling or in a transaction secured by the consumer’s principal dwelling with a term of one year or less, the fol-lowing disclosures:43

(i) The circumstances under which the rate may increase.

(ii) Any limitations on the increase. (iii) The effect of an increase. (iv) An example of the payment

terms that would result from an in-crease.

(2) If the annual percentage rate may increase after consummation in a transaction secured by the consumer’s principal dwelling with a term greater than one year, the following disclo-sures:

(i) The fact that the transaction con-tains a variable-rate feature.

(ii) A statement that variable-rate disclosures have been provided earlier.

(g) Payment schedule. The number, amounts, and timing of payments scheduled to repay the obligation.

(1) In a demand obligation with no al-ternate maturity date, the creditor may comply with this paragraph by disclosing the due dates or payment pe-riods of any scheduled interest pay-ments for the first year.

(2) In a transaction in which a series of payments varies because a finance charge is applied to the unpaid prin-cipal balance, the creditor may comply with this paragraph by disclosing the following information:

(i) The dollar amounts of the largest and smallest payments in the series.

(ii) A reference to the variations in the other payments in the series.

(h) Total of payments. The total of pay-ments, using that term, and a descrip-tive explanation such as ‘‘the amount


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380

12 CFR Ch. II (1–1–08 Edition) § 226.19

44 In any transaction involving a single payment, the creditor need not disclose the total of payments.

45 A required deposit need not include, for example: (1) An escrow account for items such as taxes, insurance or repairs; (2) a de-posit that earns not less than 5 percent per year; or (3) payments under a Morris Plan.

you will have paid when you have made all scheduled payments.’’ 44

(i) Demand feature. If the obligation has a demand feature, that fact shall be disclosed. When the disclosures are based on an assumed maturity of 1 year as provided in § 226.17(c)(5), that fact shall also be disclosed.

(j) Total sale price. In a credit sale, the total sale price, using that term, and a descriptive explanation (including the amount of any downpayment) such as ‘‘the total price of your purchase on credit, including your downpayment of $ll.’’ The total sale price is the sum of the cash price, the items described in paragraph (b)(2), and the finance charge disclosed under paragraph (d) of this section.

(k) Prepayment. (1) When an obliga-tion includes a finance charge com-puted from time to time by application of a rate to the unpaid principal bal-ance, a statement indicating whether or not a penalty may be imposed if the obligation is prepaid in full.

(2) When an obligation includes a fi-nance charge other than the finance charge described in paragraph (k)(1) of this section, a statement indicating whether or not the consumer is enti-tled to a rebate of any finance charge if the obligation is prepaid in full.

(l) Late payment. Any dollar or per-centage charge that may be imposed before maturity due to a late payment, other than a deferral or extension charge.

(m) Security interest. The fact that the creditor has or will acquire a security interest in the property purchased as part of the transaction, or in other property identified by item or type.

(n) Insurance and debt cancellation. The items required by § 226.4(d) in order to exclude certain insurance premiums and debt cancellation fees from the fi-nance charge.

(o) Certain security interest charges. The disclosures required by § 226.4(e) in order to exclude from the finance charge certain fees prescribed by law or certain premiums for insurance in lieu of perfecting a security interest.

(p) Contract reference. A statement that the consumer should refer to the appropriate contract document for in-formation about nonpayment, default, the right to accelerate the maturity of the obligation, and prepayment rebates and penalties. At the creditor’s option, the statement may also include a ref-erence to the contract for further in-formation about security interests and, in a residential mortgage transaction, about the creditor’s policy regarding assumption of the obligation.

(q) Assumption policy. In a residential mortgage transaction, a statement whether or not a subsequent purchaser of the dwelling from the consumer may be permitted to assume the remaining obligation on its original terms.

(r) Required deposit. If the creditor re-quires the consumer to maintain a de-posit as a condition of the specific transaction, a statement that the an-nual percentage rate does not reflect the effect of the required deposit.45

[46 FR 20892, Apr. 7, 1981; 46 FR 29246, June 1, 1981, as amended at 52 FR 48670, Dec. 24, 1987; 61 FR 49246, Sept. 19, 1996]

§ 226.19 Certain residential mortgage and variable-rate transactions.

(a) Residential mortgage transactions subject to RESPA—(1) Time of disclosures. In a residential mortgage transaction subject to the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) the creditor shall make good faith esti-mates of the disclosures required by § 226.18 before consummation, or shall deliver or place them in the mail not later than three business days after the creditor receives the consumer’s writ-ten application, whichever is earlier.

(2) Redisclosure required. If the annual percentage rate at the time of con-summation varies from the annual per-centage rate disclosed earlier by more than 1⁄8 of 1 percentage point in a reg-ular transaction or more than 1⁄4 of 1 percentage point in an irregular trans-action, as defined in § 226.22, the cred-itor shall disclose all the changed


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[Code of Federal Regulations] [Title 24, Volume 5] [Revised as of April 1, 2001] From the U.S. Government Printing Office via GPO Access [CITE: 24CFR3500.7] [Page 255-256] TITLE 24--HOUSING AND URBAN DEVELOPMENT CHAPTER XX--OFFICE OF ASSISTANT SECRETARY FOR HOUSING--FEDERAL HOUSING COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT--Table of Contents Sec. 3500.7 Good faith estimate. (a) Lender to provide. Except as provided in this paragraph (a) or paragraph (f) of this section, the lender shall provide all applicants for a federally related mortgage loan with a good faith estimate of the amount of or range of charges for the specific settlement services the borrower is likely to incur in connection with the settlement. The lender shall provide the good faith estimate required under this section (a suggested format is set forth in appendix C of this part) either by delivering the good faith estimate or by placing it in the mail to the loan applicant, not later than three business days after the application is received or prepared. (1) If the lender denies the application for a federally related mortgage loan before the end of the three-business-day period, the lender need not provide the denied borrower with a good faith estimate. (2) For ``no cost'' or ``no point'' loans, the charges to be shown on the good faith estimate include any payments to be made to affiliated or independent settlement service providers. These payments should be shown as P.O.C. (Paid Outside of Closing) on the Good Faith Estimate and the HUD-1 or HUD-1A. (3) In the case of dealer loans, the lender is responsible for provision of the good faith estimate, either directly or by the dealer. (4) If a mortgage broker is the exclusive agent of the lender, either the lender or the mortgage broker shall provide the good faith estimate within three business days after the mortgage broker receives or prepares the application. (b) Mortgage broker to provide. In the event an application is received by a mortgage broker who is not an exclusive agent of the lender, the mortgage broker must provide a good faith estimate within three days of receiving a loan application based on his or her knowledge of the range of costs (a suggested format is set forth in appendix C of this part). As long as the mortgage broker has provided the good faith estimate, the funding lender is not required to provide an additional good faith estimate, but the funding lender is responsible for ascertaining that the good faith estimate has been delivered. If the application for mortgage credit is denied before the end of the three- business-day period, the mortgage broker need not provide the denied borrower with a good faith estimate. (c) Content of good faith estimate. A good faith estimate consists of an estimate, as a dollar amount or range, of each charge which: (1) Will be listed in section L of the HUD-1 or HUD-1A in accordance with the instructions set forth in appendix A to this part; and (2) That the borrower will normally pay or incur at or before settlement based upon common practice in the locality of the mortgaged property. Each such estimate must be made in good faith and bear a


reasonable relationship to the charge a borrower is likely to be required to pay at settlement, and must be based upon experience in the locality of the mortgaged property. As to each charge with respect to which the lender requires a particular settlement service provider to be used, the lender shall make its estimate based upon the lender's knowledge of the amounts charged by such provider. (d) Form of good faith estimate. A suggested good faith estimate form is set forth in appendix C to this part and is in compliance with the requirements of the Act except for any additional requirements of paragraph (e) of this section. The good faith estimate may be [[Page 256]] provided together with disclosures required by the Truth in Lending Act, 15 U.S.C. 1601 et seq., so long as all required material for the good faith estimate is grouped together. The lender may include additional relevant information, such as the name/signature of the applicant and loan officer, date, and information identifying the loan application and property, as long as the form remains clear and concise and the additional information is not more prominent than the required material. (e) Particular providers required by lender. (1) If the lender requires the use (see Sec. 3500.2, ``required use'') of a particular provider of a settlement service, other than the lender's own employees, and also requires the borrower to pay any portion of the cost of such service, then the good faith estimate must: (i) Clearly state that use of the particular provider is required and that the estimate is based on the charges of the designated provider; (ii) Give the name, address, and telephone number of each provider; and (iii) Describe the nature of any relationship between each such provider and the lender. Plain English references to the relationship should be utilized, e.g., ``X is a depositor of the lender,'' ``X is a borrower from the lender,'' ``X has performed 60% of the lender's settlements in the past year.'' (The lender is not required to keep detailed records of the percentages of use. Similar language, such as ``X was used [regularly] [frequently] in our settlements the past year'' is also sufficient for the purposes of this paragraph.) In the event that more than one relationship exists, each should be disclosed. (2) For purposes of paragraph (e)(1) of this section, a ``relationship'' exists if: (i) The provider is an associate of the lender, as that term is defined in 12 U.S.C. 2602(8); (ii) Within the last 12 months, the provider has maintained an account with the lender or had an outstanding loan or credit arrangement with the lender; or (iii) The lender has repeatedly used or required borrowers to use the services of the provider within the last 12 months. (3) Except for a provider that is the lender's chosen attorney, credit reporting agency, or appraiser, if the lender is in an affiliated business relationship (see Sec. 3500.15) with a provider, the lender may not require the use of that provider. (4) If the lender maintains a controlled list of required providers (five or more for each discrete service) or relies on a list maintained by others, and at the time of application the lender has not yet decided which provider will be selected from that list, then the lender may satisfy the requirements of this section if the lender: (i) Provides the borrower with a written statement that the lender will require a particular provider from a lender-controlled or -approved list; and


(ii) Provides the borrower in the Good Faith Estimate the range of costs for the required provider(s), and provides the name of the specific provider and the actual cost on the HUD-1 or HUD-1A. (f) Open-end lines of credit (home-equity plans) under Truth in Lending Act. In the case of a federally related mortgage loan involving an open-end line of credit (home-equity plan) covered under the Truth in Lending Act and Regulation Z, a lender or mortgage broker that provides the borrower with the disclosures required by 12 CFR 226.5b of Regulation Z at the time the borrower applies for such loan shall be deemed to satisfy the requirements of this section. (Approved by the Office of Management and Budget under control number 2502-0265) [61 FR 13233, Mar. 26, 1996, as amended at 61 FR 58476, Nov. 15, 1996]


CHAPTER 64

AN ACT prohibiting certain abusive lending practices and supplementing Title 46 of the RevisedStatutes.

BE IT ENACTED by the Senate and General Assembly of the State of New Jersey:

C.46:10B-22 Short title.1. This act shall be known and may be cited as the "New Jersey Home Ownership Security

Act of 2002."

C.46:10B-23 Findings, declarations relative to abusive lending practices.2. The Legislature finds and declares that:a. Abusive mortgage lending has become an increasing problem in this State, exacerbating

the loss of equity in homes and causing an increase in the number of foreclosures in recent years.One of the most common forms of abusive lending is the making of loans that are equity-based,rather than income-based. The financing of points and fees in these loans provides immediateincome to the originator and encourages the repeated refinancing of home loans. The lender'sability to sell loans reduces the incentive to ensure that the homeowner can afford the paymentsof the loan. As long as there is sufficient equity in the home, an abusive lender benefits even ifthe borrower is unable to make the payments and is forced to refinance. In addition, thefinancing of high points and fees causes the loss of precious equity in each refinancing and oftenleads to foreclosure.

b. Abusive lending has threatened the viability of many communities and caused decreasesin home ownership. While the marketplace appears to operate effectively for conventionalmortgages, too many homeowners find themselves victims of overreaching lenders who provideloans with unnecessarily high costs and terms that are unnecessary to secure repayment of theloan.

c. As competition and self-regulation have not eliminated the abusive terms from loanssecured by a consumer's home, the consumer protection provisions of this act are necessary toencourage lending at reasonable rates with reasonable terms.

C.46:10B-24 Definitions relative to abusive lending practices.3. As used in this act:"Affiliate" means any company that controls, is controlled by, or is under the common control

with any company, as set forth in 12 U.S.C. s.1841 et seq."Bona fide discount points" means loan discount points which are:(1) Knowingly paid by the borrower;(2) Paid for the express purpose of reducing, and which result in a reduction of, the interest

rate or time-price differential applicable to the loan;(3) In fact reducing the interest rate or time-price differential applicable to the loan from an

interest rate which does not exceed the conventional mortgage rate for a home loan secured bya first lien, by more than two percentage points, or for a home loan secured by a junior lien, bymore than three and one half percentage points; and

(4) Recouped within the first five years of the scheduled loan payments. Loan discountpoints will be considered to be recouped within the first five years of the scheduled loanpayments if the reduction in the interest rate that is achieved by the payment of the loan discountpoints reduces the interest charged on the scheduled payments such that the borrower's dollaramount of savings in interest over the first five years is equal to or exceeds the dollar amountof loan discount points paid by the borrower.

"Borrower" means any natural person obligated to repay the loan, including a coborrower,cosigner, or guarantor.

"Commissioner" means the Commissioner of Banking and Insurance."Conventional mortgage rate" means the most recently published annual yield on conventional

mortgages published by the Board of Governors of the Federal Reserve System, as published inStatistical Release H.15 or any publication that may supersede it, as of the applicable time setforth in 12 C.F.R. 226.32(a)(1)(I).

"Conventional prepayment penalty" means any prepayment penalty or fee that may becollected or charged in a home loan, and that is authorized by law other than by this act,


P.L. 2003, CHAPTER 642

provided the home loan (1) does not have an annual percentage rate that exceeds theconventional mortgage rate by more than two percentage points; and (2) does not permit anyprepayment fees or penalties that exceed two percent of the amount prepaid.

"Covered home loan" means a home loan in which:(1) The total points and fees payable in connection with the loan, excluding either a

conventional prepayment penalty or not more than two bona fide discount points, exceed 4percent of the total loan amount, or 4.5 percent of the total loan amount if the total loan amountis $40,000 or less, and 4.5 percent of the total loan amount if the loan is insured by the FederalHousing Administration or guaranteed by the federal Department of Veterans Affairs; or

(2) The home loan is such that it is considered a high-cost home loan under this act."Creditor" means a person who extends consumer credit that is subject to a finance charge

or is payable by written agreement in more than four installments, and to whom the obligationis payable at any time. Creditor shall also mean any person brokering a home loan, which shallinclude any person who directly or indirectly solicits, processes, places, or negotiates home loansfor others or who closes home loans which may be in the person's own name with funds providedby others and which loans are thereafter assigned to the person providing the funding of suchloans, provided that creditor shall not include a person who is an attorney providing legalservices to the borrower or a person or entity holding an individual or organization insuranceproducer license in the line of title insurance or a title insurance company, as defined bysubsection c. of section 1 of P.L.1975, c.106 (C.17:46B-1), or any officer, director or employeethereof, providing services in the closing of a home loan who is not also funding the home loanand is not an affiliate of the creditor or an assignee that is subject to the provisions of section6 of this act.

"Department" means the Department of Banking and Insurance."High-cost home loan" means a home loan for which the principal amount of the loan does

not exceed $350,000, which amount shall be adjusted annually to include the last publishedincrease of the housing component of the national Consumer Price Index, New York-Northeastern New Jersey Region, in which the terms of the loan meet or exceed one or more ofthe thresholds as defined in this section.

"Home loan" means an extension of credit primarily for personal, family or householdpurposes, including an open-end credit plan, other than a reverse mortgage transaction, in whichthe loan is secured by:

(1) A mortgage or deed of trust on real estate in this State upon which there is located orthere is to be located a one to six family dwelling which is or will be occupied by a borrower asthe borrower's principal dwelling; or

(2) A security interest in a manufactured home which is or will be occupied by a borroweras the borrower's principal dwelling.

"Manufactured home" means a structure, transportable in one or more sections, which in thetraveling mode is eight body feet or more in width or 40 body feet or more in length or, whenerected on site is 320 or more square feet and which is built on a permanent chassis and designedto be used as a dwelling with a permanent foundation when erected on land secured inconjunction with the real property on which the manufactured home is located and connectedto the required utilities and includes the plumbing, heating, air-conditioning and electricalsystems contained therein; except that such term shall include any structure which meets all therequirements of this paragraph except the size requirements and with respect to which themanufacturer voluntarily files a certification required by the Secretary of the United StatesDepartment of Housing and Urban Development and complies with the standards establishedunder the federal National Manufactured Housing Construction and Safety Standards Act of1974, 42 U.S.C. s.5401 et seq. Such term does not include rental property or second homes ormanufactured homes when not secured in conjunction with the real property on which themanufactured home is located.

"Points and fees" means:(1) All items listed in 15 U.S.C. s.1605(a)(1) through (4), except interest or the time-price

differential;(2) All charges listed in 15 U.S.C. s.1605(e);



(3) All compensation paid directly or indirectly to a mortgage broker, including a broker thatoriginates a loan in its own name in a table-funded transaction;

(4) The cost of all premiums financed by the creditor, directly or indirectly for any credit life,credit disability, credit unemployment or credit property insurance, or any other life or healthinsurance, or any payments financed by the creditor directly or indirectly for any debtcancellation or suspension agreement or contract, except that insurance premiums calculated andpaid on a monthly basis shall not be considered financed by the creditor;

(5) The maximum prepayment fees and penalties that may be charged or collected under theterms of the loan documents;

(6) All prepayment fees or penalties that are incurred by the borrower if the loan refinancesa previous loan made or currently held by the same creditor or an affiliate of the creditor; and

(7) For open-end loans, the points and fees are calculated by adding the total points and feesknown at or before closing, including the maximum prepayment penalties which may be chargedor collected under the terms of the loan documents if prepayment penalties are authorized by lawother than by this act, plus the minimum additional fees the borrower would be required to payto draw down an amount equal to the total credit line.

"Points and fees" shall not include the following items: title insurance premiums and fees,charges and premiums paid to a person or entity holding an individual or organization insuranceproducer license in the line of title insurance or a title insurance company, as defined bysubsection c. of section 1 of P.L.1975, c.106 (C.17:46B-1);taxes, filing fees, and recording andother charges and fees paid or to be paid to public officials for determining the existence of orfor perfecting, releasing, or satisfying a security interest; and reasonable fees paid to a personother than a creditor or an affiliate of the creditor or to the mortgage broker or an affiliate of themortgage broker for the following, provided that the conditions in 12 C.F.R. s.226.4(c)(7) aremet: fees for tax payment services; fees for flood certification; fees for pest infestation and flooddeterminations; appraisal fees; fees for inspections performed prior to closing; fees for creditreports; fees for surveys; attorneys' fees; notary fees; escrow charges; and fire and floodinsurance premiums, provided that the conditions in 12 C.F.R. s.226.4(d)(2) are met.

"Rate" means that annual percentage rate for the loan calculated at closing based on the pointsand fees set forth in this act and according to the provisions of 15 U.S.C. s. 1601 et seq. and theregulations promulgated thereunder by the Federal Reserve Board.

"Threshold" means any one of the following two items, as defined:(1) "Rate threshold" means the annual percentage rate of the loan at the time the loan is

consummated such that the loan is considered a "mortgage" under section 152 of the federal"Home Ownership and Equity Protection Act of 1994," Pub.L. 103-325 (15 U.S.C. s.1602(aa)),and the regulations promulgated by the Federal Reserve Board, including 12 C.F.R. s.226.32,without regard to whether the loan transaction is or may be a "residential mortgage transaction,"as defined in 12 C.F.R. s.226.2(a)(24).

(2) "Total points and fees threshold" means that the total points and fees payable by theborrower at or before the loan closing, excluding either a conventional prepayment penalty orup to two bona fide discount points, exceed:

(a) 5% of the total loan amount if the total loan amount is $40,000 or more; or(b) the lesser of 6%of the total loan amount or $1,000, if the total loan amount is less than

$20,000, and 6% if the total loan amount is $20,000 or more but less than $40,000."Total loan amount" means the principal of the loan minus those points and fees as defined

in this section that are included in the principal amount of the loan. For open-end loans, the totalloan amount shall be calculated using the total line of credit allowed under the home loan.

C.46:10B-25 Creditors, prohibited practices relative to home loans.4. a. No creditor making a home loan shall finance, directly or indirectly, any credit life, credit

disability, credit unemployment or credit property insurance, or any other life or healthinsurance, or any payments directly or indirectly for any debt cancellation or suspensionagreement or contract, except that insurance premiums or debt cancellation or suspension feescalculated and paid on a monthly basis shall not be considered financed by the creditor.

b. No creditor shall engage in the unfair act or practice of "flipping" a home loan.



"Flipping" occurs when a creditor makes a covered home loan to a borrower that refinances anexisting home loan that was consummated within the prior 60 months when the new loan doesnot have reasonable, tangible net benefit to the borrower considering all of the circumstances,including the terms of both the new and refinanced loans, the economic and noneconomiccircumstances, the purpose of the loan, the cost of the new loan, and the borrower'scircumstances. In addition, the following home loan refinancings shall be presumed to beflipping if:

(1) The primary tangible benefit to the borrower is an interest rate lower than the interest rateon a debt satisfied or refinanced in connection with the home loan, and it will take more thanfour years for the borrower to recoup the costs of the points and fees and other closing coststhrough savings resulting from the lower interest rate; or

(2) The new loan refinances an existing home loan that is a special mortgage originated,subsidized, or guaranteed by or through a state, tribal or local government, or nonprofitorganization, which either bears a below-market interest rate at the time the loan was originated,or has nonstandard payment terms beneficial to the borrower, such as payments that vary withincome or are limited to a percentage of income, or where no payments are required underspecified conditions, and where, as a result of refinancing, the borrower will lose one or moreof the benefits of the special mortgage.

Without limiting the foregoing, it is hereby declared that subsection b. of this section shallcreate no presumption that any home loan that is not a covered home loan or a high-cost homeloan, and any refinancing outside the durational limits set forth above, is not unconscionable, andit is hereby further declared that subsection b. of this section shall create no presumption thatany home loan that is not a covered home loan or a high-cost home loan, and any refinancingoutside the durational limits set forth above, shall not constitute an unlawful practice underP.L.1960, c.39 (C.56:8-1 et seq.), based on factors including those set forth in subsection b. ofthis section alone or in conjunction with any other circumstances.

c. No creditor shall recommend or encourage default on an existing loan or other debt priorto and in connection with the closing or planned closing of a home loan that refinances all or anyportion of that existing loan or debt.

d. No creditor shall charge a late payment fee in relation to a home loan except accordingto the following rules:

(1) The late payment fee may not be in excess of 5%of the amount of the payment past due.(2) The fee may only be assessed by a payment past due for 15 days or more.(3) The fee may not be charged more than once with respect to a single late payment. If a

late payment fee is deducted from a payment made on the loan, and such deduction causes asubsequent default on a subsequent payment, no late payment fee may be imposed for suchdefault. If a late payment fee has been once imposed with respect to a particular late payment,no such fee shall be imposed with respect to any future payment which would have been timelyand sufficient, but for the previous default.

(4) No fee shall be charged unless the creditor notifies the borrower within 45 days followingthe date the payment was due that a late payment fee has been imposed for a particular latepayment. No late payment fee may be collected from any borrower if the borrower informs thecreditor that nonpayment of an installment is in dispute and presents proof of payment within 45days of receipt of the creditor's notice of the late fee.

(5) The creditor shall treat each and every payment as posted on the same date as it wasreceived by the creditor, servicer, creditor's agent, or at the address provided to the borrowerby the creditor, servicer, or the creditor's agent for making payments.

e. No home loan shall contain a provision that permits the creditor, in its sole discretion,to accelerate the indebtedness. This provision does not prohibit acceleration of the loan in goodfaith due to the borrower's failure to abide by the material terms of the loan.

f. No creditor shall charge a fee for informing or transmitting to any person the balance dueto pay off a home loan or to provide a release upon prepayment. Payoff balances shall beprovided within seven business days after the request.

C.46:10B-26 High-cost home loans, limitations, prohibited practices.



5. A high-cost home loan shall be subject to the following additional limitations andprohibited practices:

a. No high-cost home loan shall contain a scheduled payment that is more than twice aslarge as the average of earlier scheduled payments. This provision shall not apply when thepayment schedule is adjusted to the seasonal or irregular income of the borrower.

b. No high-cost home loan shall include payment terms under which the outstandingprincipal balance will increase at any time over the course of the loan because the regularperiodic payments do not cover the full amount of interest due.

c. No high-cost home loan shall contain a provision that increases the interest rate afterdefault. This provision shall not apply to interest rate changes in a variable rate loan otherwiseconsistent with the provisions of the loan documents, provided the change in the interest rate isnot triggered by the event of default or the acceleration of the indebtedness.

d. No high-cost home loan shall include terms under which more than two periodicpayments required under the loan are consolidated and paid in advance from the loan proceedsprovided to the borrower.

e. Without regard to whether a borrower is acting individually or on behalf of otherssimilarly situated, any provision of a high-cost home loan agreement that allows a party torequire a borrower to assert any claim or defense in a forum that is less convenient, more costly,or more dilatory for the resolution of a dispute than a judicial forum established in this State ifthe borrower may otherwise properly bring a claim or defense or limits in any way any claim ordefense the borrower may have is unconscionable and void.

f. A creditor shall not make a high-cost home loan unless the creditor has given thefollowing notice, or substantially similar notice, in writing, to the borrower, acknowledged inwriting and signed by the borrower not later than the time the notice is required under the noticeprovision contained in 12 C.F.R. s.226.31(c).

NOTICE TO BORROWER

YOU SHOULD BE AWARE THAT YOU MIGHT BE ABLE TO OBTAIN A LOAN AT ALOWER COST. YOU SHOULD SHOP AROUND AND COMPARE LOAN RATES ANDFEES. MORTGAGE LOAN RATES AND CLOSING COSTS AND FEES VARY BASED ONMANY FACTORS, INCLUDING YOUR PARTICULAR CREDIT AND FINANCIALCIRCUMSTANCES, YOUR EMPLOYMENT HISTORY, THE LOAN-TO-VALUEREQUESTED AND THE TYPE OF PROPERTY THAT WILL SECURE YOUR LOAN. THELOAN RATE AND FEES COULD ALSO VARY BASED ON WHICH CREDITOR ORBROKER YOU SELECT.

IF YOU ACCEPT THE TERMS OF THIS LOAN, THE CREDITOR WILL HAVE AMORTGAGE LIEN ON YOUR HOME. YOU COULD LOSE YOUR HOME AND ANYMONEY YOU PUT INTO IT IF YOU DO NOT MEET YOUR PAYMENT OBLIGATIONSUNDER THE LOAN.

YOU SHOULD CONSULT AN ATTORNEY-AT-LAW AND A QUALIFIED INDEPENDENTCREDIT COUNSELOR OR OTHER EXPERIENCED FINANCIAL ADVISOR REGARDINGTHE RATE, FEES AND PROVISIONS OF THIS MORTGAGE LOAN BEFORE YOUPROCEED. A LIST OF QUALIFIED COUNSELORS IS AVAILABLE BY CONTACTINGTHE NEW JERSEY DEPARTMENT OF BANKING AND INSURANCE.

YOU ARE NOT REQUIRED TO COMPLETE THIS LOAN AGREEMENT MERELYBECAUSE YOU HAVE RECEIVED THIS DISCLOSURE OR HAVE SIGNED A LOANAPPLICATION.

REMEMBER, PROPERTY TAXES AND HOMEOWNER'S INSURANCE ARE YOURRESPONSIBILITY. NOT ALL CREDITORS PROVIDE ESCROW SERVICES FOR THESEPAYMENTS. YOU SHOULD ASK YOUR CREDITOR ABOUT THESE SERVICES.



ALSO, YOUR PAYMENTS ON EXISTING DEBTS CONTRIBUTE TO YOUR CREDITRATINGS. YOU SHOULD NOT ACCEPT ANY ADVICE TO IGNORE YOUR REGULARPAYMENTS TO YOUR EXISTING CREDITORS.

g. A creditor shall not make a high-cost home loan to a borrower who finances points andfees in connection with a high-cost home loan without first receiving certification from a third-party nonprofit credit counselor, approved by the United States Department of Housing andUrban Development and the Department of Banking and Insurance, that the borrower hasreceived counseling on the advisability of the loan transaction or completing another substantialrequirement developed by the department.

h. A creditor shall not pay a contractor under a home-improvement contract from theproceeds of a high-cost home loan, unless the instrument is payable to the borrower or jointlyto the borrower and the contractor, or, at the election of the borrower, through a third-partyescrow agent in accordance with terms established in a written agreement signed by theborrower, the creditor, and the contractor prior to the disbursement.

i. A creditor shall not charge a borrower any fees or other charges to modify, renew,extend, or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan.

j. A creditor shall not charge a borrower points and fees in connection with a high-costhome loan if the proceeds of the high-cost home loan are used to refinance an existing high-costhome loan held by the same creditor as note holder.

k. Notwithstanding any other law to the contrary, a creditor making a high-cost home loanthat has the legal right to foreclose shall use the judicial foreclosure procedures of this State solong as the property securing the loan is located in this State.

l. No creditor making a high-cost home loan shall directly or indirectly finance points andfees in excess of 2% of the total loan amount.

C.46:10B-27 Affirmative claims, defenses by borrower.6. a. Notwithstanding any other law to the contrary, if a home loan was made, arranged, or

assigned by a person selling either a manufactured home, or home improvements to the dwellingof a borrower, or was made by or through a creditor to whom the borrower was referred by suchseller, the borrower may assert all affirmative claims and any defenses that the borrower mayhave against the seller or home-improvement contractor limited to amounts required to reduceor extinguish the borrower's liability under the home loan, plus the total amount paid by theborrower in connection with the transaction, plus amounts required to recover costs, includingreasonable attorney's fees against the creditor, any assignee or holder, in any capacity.

b. Notwithstanding any other provision of law, any person who purchases or is otherwiseassigned a high-cost home loan shall be subject to all affirmative claims and any defenses withrespect to the loan that the borrower could assert against the original creditor or broker of theloan; provided that this subsection shall not apply if the purchaser or assignee demonstrates, bya preponderance of the evidence, that a reasonable person exercising reasonable due diligencecould not determine that the mortgage was a high-cost home loan. It shall be presumed that apurchaser or assignee has exercised such due diligence if the purchaser or assignee demonstratesby a preponderance of the evidence that it: (1) has in place at the time of the purchase orassignment of the loan, policies that expressly prohibit its purchase or acceptance of assignmentof any high-cost home loan; (2) requires by contract that a seller or assignor of home loans tothe purchaser or assignee represents and warrants to the purchaser or assignee that either (a)itwill not sell or assign any high-cost home loan to the purchaser or assignee or (b) that the selleror assignor is a beneficiary of a representation and warranty from a previous seller or assignorto that effect; and (3) exercises reasonable due diligence at the time of purchase or assignmentof home loans or within a reasonable period of time thereafter intended by the purchaser orassignee to prevent the purchaser or assignee from purchasing or taking assignment of any high-cost home loan.

c. Notwithstanding any other law to the contrary, but limited to amounts required to reduceor extinguish the borrower's liability under the home loan plus amounts required to recover costs



including reasonable attorney's fees, a borrower acting only in an individual capacity may assertagainst the creditor or any subsequent holder or assignee of the home loan:

(1) within six years of the closing of a covered home loan, a violation of this act inconnection with the loan as an original action, or as a defense, claim or counterclaim after anaction to collect on the home loan or foreclose on the collateral securing the home loan has beeninitiated or the debt arising from the home loan has been accelerated or the home loan hasbecome 60 days in default; and

(2) at any time during the term of a high-cost home loan after an action to collect on thehome loan or foreclose on the collateral securing the home loan has been initiated or the debtarising from the home loan has been accelerated or the home loan has become 60 days in default,any defense, claim or counterclaim.

d. It is a violation of this act for any person, in bad faith, to attempt to avoid the applicationof this act by:

(1) Dividing any loan transaction into separate parts; or(2) Any other such subterfuge, with the intent of evading the provisions of this act.e. Nothing in this section shall be construed to limit the substantive rights, remedies or

procedural rights, including, but not limited to, recoupment rights under the common law,available to a borrower against any creditor, assignee or holder under any other law. Thelimitations on assignee liability in subsection b. of this section shall not apply to the assigneeliability in subsections a., c. and d. of this section.

C.46:10B-28 Enforcement by department.7. a. The department shall conduct examinations and investigations and issue subpoenas and

orders to enforce the provisions of this act with respect to a person licensed or subject to theprovisions of the "New Jersey Licensed Lenders Act," P.L.1996, c.157 (C.17:11C-1 et seq.).

b. The department shall examine any instrument, document, account, book, record, or fileof a person originating or brokering a high-cost home loan under this act. The department shallrecover the cost of examinations from the person. A person originating or brokering high-costhome loans shall maintain its records in a manner that will facilitate the department indetermining whether the person is complying with the provisions of this act and the regulationspromulgated thereunder. The department shall require the submission of reports by personsoriginating or brokering high-cost home loans which shall set forth such information as thedepartment shall require by regulation.

c. In the event that a person fails to comply with a subpoena for documents or testimonyissued by the department, the department may request an order from a court of competentjurisdiction requiring the person to produce the requested information.

d. If the department determines that a person has violated the provisions of this act, thedepartment may do any combination of the following that it deems appropriate:

(1) Impose a civil penalty of up to $10,000 for each offense, 40% of which penalty shall bededicated for and used by the department for consumer education through nonprofitorganizations which can establish to the satisfaction of the department that they have sufficientexperience in credit counseling and financial education. In determining the penalty to beassessed, the commissioner shall consider the following criteria: whether the violation waswillful; whether the violation was part of a pattern and practice; the amount of the loan; thepoints and fees charged; the financial condition of the violator; and other relevant factors. Thedepartment may require the person to pay investigative costs, if any.

(2) Suspend, revoke, or refuse to renew any license issued by the department.(3) Prohibit or permanently remove an individual responsible for a violation of this act from

working in his present capacity or in any other capacity related to activities regulated by thedepartment.

(4) Order a person to cease and desist any violation of this act and to make restitution foractual damages to borrowers.

(5) Pending completion of an investigation or any formal proceeding instituted pursuant tothis act, if the commissioner finds that the interests of the public require immediate action toprevent undue harm to borrowers, the commissioner may enter an appropriate temporary order



to be effective immediately and until entry of a final order. The temporary emergent order mayinclude: a temporary suspension of the creditor's authority to make high-cost home loans underthis act; a temporary cease and desist order; a temporary prohibition against a creditortransacting high-cost home loan business in this State, or such other order relating to high-costhome loans as the commissioner may deem necessary to prevent undue harm to borrowerspending completion of an investigation or formal proceeding. Orders issued pursuant to thissection shall be subject to an application to vacate upon two days' notice, and a preliminaryhearing on the temporary emergent order shall be held, in any event, within five days after it isissued, in accordance with the provisions of the "Administrative Procedure Act," P.L.1968,c.410 (C.52:14B-1 et seq.).

(6) Impose such other conditions as the department deems appropriate.e. Any person aggrieved by a decision of the department and who has a direct interest in the

decision may appeal the decision of the department to the commissioner. The appeal shall beconducted in accordance with the provisions of the "Administrative Procedure Act," P.L.1968,c.410 (C.52:14B-1 et seq.).

f. The department may maintain an action for an injunction or other process against anyperson to restrain and prevent the person from engaging in any activity violating this act.

g. A decision of the commissioner shall be a final order of the department and shall beenforceable in a court of competent jurisdiction. The department shall publish the finaladjudication issued in accordance with this section, subject to redaction or modification topreserve confidentiality.

h. The provisions of this section shall not limit the authority of the Attorney General or thePublic Advocate as established pursuant to P.L. , c. (C. ) (now before the Legislatureas Assembly Committee Substitute for Assembly Bill Nos. 345 and 2341) from instituting ormaintaining any action within the scope of their respective authority with respect to the practicesprohibited under this act.

C.46:10B-29 Violations, remedies, liability.8. a. Any violation of this act constitutes an unlawful practice under P.L.1960, c.39 (C.56:8-1

et seq.). Any borrower may seek damages under the provisions of section 7 of P.L.1971, c.247(C.56:8-19) or subparagraph (a) of paragraph (1) of subsection b. of this section, but not both.

b. Except as provided in subsection a. of this section and, where applicable, subject to anylimitation on the amounts recoverable against a holder or assignee pursuant to section 6 of thisact, in addition to the remedies available to a borrower under P.L.1960, c.39 (C.56:8-1 et seq.)and without limiting those remedies:

(1) Any person found by a preponderance of the evidence to have violated this act shall beliable to the borrower for the following:

(a) For material violations, statutory damages equal to the finance charges agreed to in thehome loan agreement, plus up to 10% of the amount financed;

(b) Punitive damages, when the violation was malicious or reckless in appropriatecircumstances as determined by the fact-finder; and

(c) Costs and reasonable attorneys' fees.(2) A borrower may be granted injunctive, declaratory, and such other equitable relief as the

court deems appropriate in an action to enforce compliance with this act.(3) The remedies provided in this section are not intended to be the exclusive remedies

available to a borrower, nor must the borrower exhaust any administrative remedies providedunder this act or any other applicable law before proceeding under this section.

c. A creditor in a home loan who, when acting in good faith, fails to comply with theprovisions of this act, will not be deemed to have violated this section if the creditor establishesthat either:

(1) Within 45 days of the loan closing, the creditor has made appropriate restitution to theborrower, and appropriate adjustments are made to the loan; or

(2) Within 90 days of the loan closing and prior to receiving any notice from the borrowerof the compliance failure, and the compliance failure was not intentional and resulted from abona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid such



errors, the borrower is notified of the compliance failure, appropriate restitution is made to theborrower, and appropriate adjustments are made to the loan.

Examples of bona fide errors include clerical, calculation, computer malfunction andprogramming, and printing errors. An error of legal judgment with respect to a person'sobligations under this section is not a bona fide error.

d. The remedies provided in this section are cumulative.

C.46:10B-30 Rights, remedies, prohibitions declared additional, cumulative.9. The rights, remedies, and prohibitions accorded by the provisions of this act are hereby

declared to be in addition to and cumulative of any other right, remedy, or prohibition accordedby the common law or statutes of the United States or of this State, and nothing herein shall beconstrued to deny, abrogate, or impair any such common law or statutory right, remedy, orprohibition. Without limiting the foregoing, the rights, remedies and prohibitions accorded bythe provisions of this act are hereby further declared to create no presumption that any homeloan or any term in a home loan is not unconscionable, whether or not the home loan or loanterm, alone or in conjunction with other terms of the loan, violates the provisions of this act.

C.46:10B-31 Law of state of location of property applicable.10. The law of the state in which the property is located shall be applied to all transactions

governed by this act regardless of where those transactions originated. This act shall apply toall loans made or entered into after the effective date of this act.

C.46:10B-32 Program of consumer counseling, awareness.11. The Director of the Division of Banking in the Department of Banking and Insurance, in

consultation with the Director of the Division of Consumer Affairs and the Division of CivilRights in the Department of Law and Public Safety, shall develop and implement a program ofconsumer counseling and awareness designed to inform the public about the methods by whichpredatory creditors impose unconscionable and noncompetitive fees and charges as part ofcomplex home mortgage transactions, to protect the public from incurring those fees andcharges, and otherwise to encourage the informed and responsible use of credit.

C.46:10B-33 Liability of mortgage broker.12. Notwithstanding any provision of this act to the contrary, a mortgage broker shall be

liable under the provisions of this act only for acts performed by the mortgage broker in thecourse of providing mortgage brokering services. However, a mortgage broker may be heldliable for acts performed by the mortgage broker outside the scope of mortgage brokeringservices if the acts are related to the purchasing or the making of a home loan and are otherwiseprohibited under this act.

C.46:10B-34 Preemption of local rules, regulations.13. No municipality, county or political subdivision thereof, shall enact an ordinance or

resolution or promulgate any rules or regulations relating to this act. The provisions of anyordinance or resolution or rules or regulations of any municipality or county relative to abusivehome loan lending practices are superseded by the provisions of this act.

C.46:10B-35 Regulations.14. The Commissioner of Banking and Insurance shall promulgate regulations pursuant to

the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) necessary toeffectuate the provisions of subsections f. and g. of section 5 and section 11 of this act exceptthat prior to the effective date of this act the commissioner may take those actions andpromulgate those regulations necessary to implement these provisions.

15. This act shall take effect on the 210th day following enactment and shall apply to homeloans closed on and after that date, except that section 14 shall take effect immediately, andexcept that a loan in existence on the effective date of this act and which meets the definition of


P.L. 2003, CHAPTER 6410

home loan in this act shall be a home loan for the purposes of subsection b. of section 4 of thisact

Approved May 1, 2003.
