Auditor’s Executive Summary
This summary is based on the documentation that was provided by the borrower. The subject property was purchased by
Dick and Jane Family in November of 1997 for $255,000.00. The subject loan was a cash-out refinance with a settlement
date of January 26, 2007. The underlying lien that was paid off was in the amount of $400,012.44 and the cash-to-borrower
at closing was in the amount of $62,435.31. The cash was used to purchase investment property that was being promoted
by the broker of this transaction which was The Mortgage Exchange 3010 Highland Parkway #800 Downers Grove, IL 60515.
The total principal amount of the new loan was $468,000.00. This loan is an option ARM based on the trailing 12 month
treasury average index (12 MAT) with a beginning payment rate for the first 12 months of 1.45%. Neither the current index
nor the margin was shown on the Truth-in-Lending Disclosure Statement (TIL) at the time of closing. Based on my research
the index at the time of closing was 4.983%. Adding the index of 4.983% and the margin of 3.99% would make the “fully-
indexed” rate 8.973%. The amount in the “Amount Financed” box on the TIL showed $463,424.00 when the actual amount
financed was $468,000.00. It appears the lender used 8.973% to simulate the projected payments on the TIL. The lender
shows the Principal reaching 115% of the original Principal amount after 30 months due to the negative amortization
assuming the monthly minimum payments will be made by the borrower and the payment amount will increase by 7.5%
year after year until the 115% principal balance is reached at which time the loan gets fully amortized and set to be paid off
in 450 payments.
This loan would be considered a Jumbo loan being that it was above $417,000. The Broker was compensated by the lender
in the amount of $15,210.00 (3.25% of 468K) outside of closing in the form of a Yield Spread Premium (YSP). On the HUD-1
there’s a Broker Credit for Closing and Title fees of $2,323.00 which leads me to believe that the broker advertised a “No
Closing Costs” refinance. The broker and the lender have enjoyed the benefits of Unjust Enrichment as well as unearned
fees under RESPA. CFR sec. 226.4(a), 226.17, and 18(d) and (c)(1)(iii) Under the ECOA, a borrower is entitled to the same
terms of credit issuance that another borrower of equal characteristics is entitled to. The lender put the borrower into a loan
that had a significantly higher interest rate than what was qualified for. This was a result of paying a Broker Premium to the
Broker (which benefited the lender).
I was provided an appraisal, that was performed by Gregory Feldman for The Mortgage Exchange, of the subject property
dated May, 8 2006 that showed an appraised value using the sales comparison approach, of $575,000. During the same
time period of the above mentioned appraisal through the date of the subject refinance, the historical data on Zillow.com
shows values ranging between $400,000 and $415,000. These figures may indicate an inflated appraised value on the
property by the above mentioned appraiser that was hired by The Mortgage Exchange.
On the Uniform Residential Loan Application (1003) the interviewers name is Maureen Hayes Phillips and the date next to her
name was 12/14/2006 and her signature was not on this application. This 1003, which was the only 1003 provided to me,
had the borrower’s signature and the date of 02/26/2007 which was the date of the closing. The Gross Monthly Income that
was stated on this 1003 was $0. It appears that based on the comparison of the “Present” Mortgage payments to the
“Proposed” the monthly savings in cash-flow for the borrower would be approximately $950 per month; however the 1003
left out the taxes and insurance on the “Present” figures which would actually increase the amount of cash-flow savings per
month to approximately $1633. This is the type of cash flow savings, regardless of the negative amortization, that entice
borrowers into these loan products.
Based on my findings I believe the borrowers, along with many other borrowers that used The Mortgage Exchange, were
taken advantage of by way of “steering” homeowners into loan products that may not be in their best interest or that they
are overqualified for.