Loan Mod Forensics Releases May 2009 Mortgage Consumer Protection Index

(I-Newswire) June 1, 2009 - Loan Mod Forensics (LMF), a leader in residential mortgage regulatory compliance auditing software and services, today announced the release of its May 2009 LMF Mortgage Consumer Protection Index (MCPI).

The Loan Mod Forensics MCPI analyzes a monthly sample of mortgage loans that are delinquent or otherwise at risk of default, providing a comprehensive measure of consumer protection violations. The sample loans are analyzed for compliance with more than 335 federal and state residential mortgage consumer protection laws. The regulatory analysis includes regulatory requirements at the federal level, all 50 states and the District of Columbia. The MCPI summarizes the results of audits performed each month on a sample of loans where borrowers have initiated modification or other workout negotiations with lenders or servicers. The audits identify regulatory violations committed by lenders at the time the loan was originated. The index is the industry's most comprehensive and precise measure of consumer protection violations associated with non-performing or "at risk" mortgages.

In May 2009, 32% of the loans sampled violated one or more federal or state consumer protection laws, down from 39% in April. Truth In Lending (TIL) disclosure issues accounted for the largest share of regulatory violations. Statutory damages can arise from TIL violations. A mistake in disclosures may also extend the rescission period for three years beyond the initial three-day rescission period. This means that the borrower may be able to effectively cancel the loan. In a foreclosure action against the borrower's home, a relatively small mistake (causing a $35 under-disclosure) in failing to classify a fee as a finance charge may permit a borrower to file a successful rescission claim.

State prohibitions on prepayment penalties accounted for the second largest share of violations. Unenforceable prepayment penalties are a significant consumer protection issue because such penalties may discourage borrowers from refinancing into a more affordable mortgage prior to missing any payments.

Additionally, 40% of loans contained regulatory "red flags" that indicated a high probability of a regulatory violation. Loans falling into this category lacked sufficient information to classify them as noncompliant but contained features that made them highly suspect.

The Loan Mod Forensics MCPI found that only 28 percent of the loans sampled did not violate any of the 335 laws covered in the analysis.

"The MCPI continue to show a strong correlation between loan performance and consumer protection violations," said Tracey Ethridge, Marketing Director for LMF. "In most cases, identifying violations provide troubled borrowers better options and increased leverage in negotiating a workout."



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