Buy Back - Material Misrepresentations?

[Quartermoon]

Hello,

Where do I start?

We went to a broker to get a loan for a new home. (Four teenagers - space)
We had a smaller home with 20,000 equity. I had recently remarried and had some remnants left over from divorce that stained my credit but my income was substantial. The broker 'encouraged' us into refi the home to pay down some debt -- 80/20 but the over inflated the appraisal. 100,000 instead of the 82,000 that 3 months before we had appraised. They wanted to use their appraisal service even though I wanted a local more familiar with demographics.

The same week, they were apply for a new loan for the house we wanted to buy nearby - modest, larger and still local so kids would be near their dad. Always first in my mind... my children and well being.

We were shocked by the refi sending us a check for 10,000. I called saying there must have been a mistake, Broker said.. do what you want with it.. pay off some of your bills.

We did.

Then we were unable to sell the house for the price 100,000 and ended having to take two loans one for 5,000 and the other 12,000 out of my husbands 401K which take home pay was interrupted to half of what we expected to have while living in the new house. We are still paying off that 401K loan.

We nearly had to take a short sale on the first home. We had 20,000 in equity on the house. We only owed 62,000 on the house worth 82,000 before we met the broker.

6 months we paid 3 mortgages.

Now our ARM is coming due.. the prepayment is finally over and I get a letter from lawyers representing First Franklin that there were material misrepresentations on our loan. They are going after the broker as well but may have to indemnify us and buy back the loan?

My score was low, they only used my husband on the loan and his debt but had all my income included.

The TIL Disclosure were not complete. The bottom half is not marked for prepaid and other key areas are also left unmarked. ITwas an incomplete form, and should not have passed underwriting. I discovered now.

I have to respond to the Attorney's rep the lender FF.
I have one week to validate the debt or it's mine.

Questions: TILA- could I recover the 37,000 in interest I paid in 2 years?
I have never been late on any payments.

The process of originating servicing and securitizing loans involves many participants along the way, any one of which may bear some causal responsibility for the subject loan being, or becoming something less than an "investment quality" asset.

What do I do? How do I resond? I am currently considering a remod of the loan that is said to increase in 90 days considerably.

This buy back letter has me baffled...

Thank you for your help.

I can provide the letters.

Welcome to the forum and thank you for joining....

That letter has me confused, they are asking you the borrower to indemnify this obligation and Broker buy back....hummmm, that is extremely confusing in that this is known as confirmed material misrepresentation and the broker is generally the indemnifying party and the party they look to for the Buy Back...your income, your husbands debts?

The TIL is not an underwriting function, it is a closing function and as such a QA problem on sale of the loan or delivery of the loan for funding between the financial entities...however it would be rescission issue for you if this were a refinance loan. Which it appears that it is not, it is a purchase loan, over 1 year since origination and inception/funding so no relief there.

Can you please recite the letter that you received in a post...I need to see the actual language that was used in order to determine just how they read this problem and who they are assigning "blame" to. I have no other way to effectively address the situation and understand the issues that you are facing and provide adequate advice for you. I am not an attorney, but I have forced buy back and dealt with multiple confirmed misrep problems, with in the industry and assigned the "blame" as to who did what to whom and just who was the party that we went after for recourse in the matter.

So far if there was income used from other than the borrower...that is a huge problem, the only income on a front end loan that can be used is the borrower's income, if you ain't on the loan, your income does NOT enter into the equation for qualifying purposes....that in itself is misrep...I need to see the actual wording of this letter.

Please answer me this, were you aware that the broker used your income to qualify on the loan in your husband's name at the time of origination, and if so what were you told by the broker regards this? I need to know a little more on that end as well....

With that information and perhaps more, depending on the data that you post, I may need some other questions answered, I might be able to direct you to an appropriate source of remedy/relief in PA.

[Quartermoon]

Thank you for your help. I am thankful.

----------------------------- First Letter ---------------------------
Dear Our Name:

Enclosed please find correspondence which our office sent to the loan broker who submitted your loan documentation to First Franklin Financial Corp. “First Franklin” with regard to the above-referenced home loan FF made to you. Although FF sold the loan, it may have an obligation to repurchase the loan, or otherwise indemnify the buyer, for any losses. Based upon FF’s determination that your loan file contains material misrepresentations as set forth in the accompanying correspondence, we hereby demand that you contact your loan broker to arrange to resolve this issue.

This demand is currently premised upon the material misrepresentations FF has discovered regarding your loan. Nevertheless, to the extent this communication may be deemed an effort to collect a debt, please note that the following: any info obtained may be used for that purpose; the law allows you thirty day period; if you do dispute the debt, or any portion by notifying this office within the thirty day period that the debt, or any portion is disputed, we will verify the original debt and will mail you proof of the debt.

FF considers the existence of material misrepresentations in the original loan package to be quite serious and looks forward to having this matter resolved.

--------------------------- enclosure copy to Broker -------------

Our office represents the interest of First Franklin with regard to the above-referenced loan which your company WFS acted as the loan broker.

Material Misrepresentations

The above-referenced loan was funded on or about 3.15.06 in the principal amount of 155,000 based upon WFS representations that the subject loan was suitable investment and did not contain any material misrepresentations.

FF has recently discovered that the loan package contains misrepresentations with the regard to, among other things, the borrower’s income. Specifically, the borrower stated on his loan application that he earned a monthly income which a re-verification of employment revealed to be substantially overstated.

These material misrepresentations have now caused FF to determine that the subject loan is not suitable investment quality, and as soon as FF secondary market investor is apprised of the info, it will demand that FF repurchase the loan, or otherwise make it whole for its losses, which it will be required to do.


Mortgage Broker Agreement

On or about 12.8.04 you on behalf of WWF, entered into a Mortgage Broker Agreement with FF, whereby WWF made certain warranties and representations to FF with regard to the quality of loans WWF would submit to FF for funding, as well as WWF obligation to indemnify FF for any losses incurred thereby.

Pursuant to the Agreement, WWF represented and warranted to FF that none of the statements or information set forth tin the loan docs submitted to FF will contain any untrue statement or omit to state a face necessary in order to make such statements or info not misleading whether or not broker has knowledge, or reason to suspect, any inaccuracy contained therein.

Demand by FF
Base upon this agreement, as well as the above referenced misrepresentations surrounding the loan, FF hereby demands that your office immediately refi the loan or make some other arrangement to remove this loan from FF’s books. You have 30 days to date of this correspondence to satisfy this demand.

You should be aware that in event FF is force to file a law suit in an effort to recover any losses incurred by way of loan, fF will be entitled to recover its attorney’s fees, costs vs WFF, pursuant to the agreement.

While FF is hopeful this matter can be resolve without the need for litigation, based upon the materiality of misrepresentations surround the loan, as well as substantial loss that FF will incur when its secondary market investor demands that loan be repurchased, FF will have no choice but to initiate litigation against WWF, you the broker of record, the loan representative, and others for claims including intentional and negligent misrepresentations, negligence, express indemnification arising from the agreement, unjust enrichment, and equitable indemnification. Please be further advice that FF reserves the right to take all appropriate steps to mitigate its damages.

[Quartermoon]

Regarding income: It's been two years, but I remember sending them our taxes, and pay stubs. They told me I could not be on the loan. It is only in my husbands name. I am on the deed.

I am open to any help.

After two years an feeling as though we went backwards two years.

4 kids, 2 in college one leaving for college next year.
We were so naive. I am almost ashamed how naive we were.

This is a letter that was sent to you the borrower to put you on notice that the misrepresentation was confirmed and they expect that the Broker refinance the loan into a loan that is out of their portfolio. End of discussion, they really mean it....really. They are prepared to call this loan.

The misrep was determined to exist during the sale or after the sale by QA of this loan to and by another investor. It was confirmed and I will state with very firm conviction that this loan, the Broker and any others they deemed involved have been SAR'd to the Treasury Boys. Without the file in front of me I can not determine whose lap to place the misrep. that is an issue of who did what to whom, represented what and how...I have my ideas though.

When you sign the final Application at closing, there is a warning just above the signature line....1010 warning...it explains the penalties and situations under which you are signing this application and their remedies if there is misrep confirmed in the file.

You are not validating the debt, trust me the Broker WWF is being called to refinance you out of this loan or alternatively they are calling on you to refinance with someone else, NOW. Do not pass go, do not collect 200.00, get a new loan and get this one paid off as it is materially flawed and they are really not happy campers.

You were put on notice for what they consider to be good reason in this chain of notification and that does not really make me feel all warm and fuzzy. So....without further ado, you need to contact the State Attorney General of PA regarding this issue, now having said that if you were materially involved in the representation of income in this file and had constructive knowledge of the fact that it was misrepresented at the time of application, origination and funding....you too are in the soup. So self help can be considered to be self incrimination in that case.

You have to do nothing except refinance this loan --- NOW, they will call this loan and make no bones about it they will come after everyone in the transaction with all four feet. This letter is a composite of the letter that was sent to the Broker to also put you on notice of the situation, your performance in this whole affair is nothing more than refinance the loan, that and that alone. The Broker has to answer this letter, not you. They have to buy back the loan, not you, they have to indemnify not you. You have to refinance and mitigate the exposure that FF feels they have been made party to.

So here are your options in a nut shell....Refinance and it will go away, Do not refinance and they will call the loan in full (if the Broker buys it back, that would not occur, is the Broker still in business, let alone can they afford to buy it back?), get a hold of the State Attorney General of PA regarding the misrep if you were unwittingly a party to the situation and had no constructive knowledge of the issues at closing, or hire a very, very good attorney and go from there.....I do mean very, very good attorney, FF means business in this issue and they are not backing down. Again if you were not party to this and had no knowledge of it you also have to go to the DA in the County/Township/Borough/City that you originated this loan in and make a full report as well, NOW.

This is serious stuff, you are not required to answer this letter, you were sent a copy of it as they feel that you are in the chain of these events and need notification of the issues. The portion of the letter addressed to you is that which says, contact the Broker and refinance this loan NOW. The Broker is the one being called out on this as far as to the Repurchase of the Loan/Refinance the Borrower issues/Indemnification issues, you are being told through this letter in no uncertain terms to refinance this loan immediately or other steps will be initiated in the process of FF making themselves whole.

Are you presently delinquent on this loan? I knew that there are huge amounts of loans now being audited for the material misrep issues, I was asked recently to run a job on one of these pools that has a real performance problem....generally the red flags are payment default. However, we are seeing that the investors are flagging a sample of pools now to go through what is known as Fraud Detect....so it may have been picked up that way.

Please respond back to me with regards to some of the issues above and let me know what the "knowledge" level was at the time of origination and funding....if as regards your original post you were aware that they used your income in lieu of your husbands to qualify the loan and compel approval...then there are some real issues that you need to immediately address.

[Quartermoon]

I did call the lender when I discovered they used my income and not my debt.
They said it was legal because we were married and it was community property.

We are not behind on the payments at all. We have paid every month for the last two years. We just received a rate adjustment notice in 90 days from FF.

I was working with one of their loan officers to do a loan modification.

I recently received a decent amount of money and it was my intention this month to pay off credit card debt to zero and I will have a reserve. I wanted to wait for the CR Agencies to realize my cards are zero balance. So my DTIR looks better.

My score is 621 currently.

We put a new kitchen, restored the hardwood floors and put an iron fence around the property, tiled the bathroom. We did a great deal of work on the house to keep the value up.

We tried to phone the lender after this loan went through, email them and they would NOT return our emails or our telephone calls.

I did take note that they used my income and called them out.
The Broker's husband is a lawyer and part owner of this Broker Service
he stated to me that it was legal since it was marital assets.

Thanks for your help. It is a God sent. My son left for Afghanistan this week and the sorrow we feel about his departure is enough to bear and the worry about this letter/refi/mortgage modification..etc.. is adding to the stress in our home.

Thank you again.

[Quartermoon]

I did contact the AG of PA, the Real Estate Board of PA and Department of Banking filed complaint similar to what you stated above.

I thought I was doing the right thing. I did not admit I was a party to misrepresentation of materials.

The loan officer stated in the loan modification I would have to be put on the loan. Also to send her a copy of the buy-back letter.
pay stubs for us both and tax returns.

[Quartermoon]

Sorry it wouldn't allow me to edit it. Rephrase that:

The loan officer told me when I called about a loan modification that I would have to be put on the loan. She instructed me to send her a copy of the buy-back letter, pay stubs for us both and tax returns, monthly budget.

Admission or not you were constructive in the knowledge and it was not OK to have the income represented as such...the Broker was misleading and frankly reprehensible in their advice. However, when you sign the final and the initial application in the procurement of a mortgage loan that 1010 warning statement is right above the signature line and as such the case is made....

PA is not a Community Property State, that is something that I am very aware of, the property may be jointly owned, but the actual state is not a Community Property State as such there is no enjoining of property, debts, whatever in the equation there. Income is never considered as community income...that is as old as the hills.

Now if they are willing through all of this to do a modification and use your income as part of the household income....Loan Officer....do you mean Loss Mit negotiator...???? Then FF is being very generous and wants to make this file work, however as I read the letter that you posted they want a refinance and nothing more will work.

Now from what you posted they want you on the loan, then it is not modification as a new Deed of Trust must be filed with you as a directly obligator on the Deed of Trust, unless they have figured a way to codicil the Deed of Trust and add you to it after the fact...not likely.

You are most likely in a situation where they are looking at the prospect of trying to redo the loan, i.e. remake the old loan into a new one with you and your husband on the Deed of Trust...all income established and verified for future purposes. All in all if they are willing to do that at FF they are more than fair, however, I would look at the possibility of refinancing with a reputable Direct Lender in your area....i.e. Credit Union, Bank or true Mortgage Banker. No more Brokers.

The last caveat is that First Franklin imploded on Friday....they are no longer originating new loans at least to the public, this will have to be something that they are doing in house totally as an accommodation loan, as they are not any longer taking new business on the origination side of the world. Merrill Lynch shut them down as they actually own FF.

Please keep us posted as to your progress and I would seriously suggest that if your FHA loan limits in your area will allow, check out the possibility of a totally new loan utilizing FHA through as I said your Credit Union, Bank or a Direct Mortgage lender....I would pursue both FF and that avenue very aggressively.

[Quartermoon]

This was the last email I had from the lender

We don't do underwriting, so would not be taking your cred score into
account to modify..if you can re-fi by all means do so because that will
permanently cure the problem, our modifications are generally for
limited time period only, although we are considering modifications with
more flexible conditions..if re-fi not possible at this time you can
always submit the info for a mod..

We try to get as accurate a financial picture for each of our
customers as possible..so please include all income that you receive in the household, net not gross, and only the expenses you actually have to pay out of pocket..We are looking for willingness and ability to make the payments once a modification has been approved, so you would have to exceed expenses on a monthly basis but not by so much that you do not need assistance..You may need to be added to the loan for income, so if that is the case we would need you to sign a request for that and also for your husband to req that in writing..


She is in Home Loan Services Department.

[Quartermoon]

At the top of the loan it states this:

This application is designed to be completed by the applicant(s) with the Lender’s assistance. Applicants should complete this form as “Borrower” or “Co-Borrower,” as applicable. Co-Borrower information must also be provided (and the appropriate box checked) when (check box here not checked) the income or assets of a person other than the Borrower (including the Borrower’s spouse) will be used as a basis for loan qualification or (check box here is checked) the income or assets of the Borrower’s spouse or other person who has community property or similar rights pursuant to applicable state law will not be used as a basis for loan qualification, but his or her liabilities must be considered because the spouse or other person who has community property or similar rights and the Borrower resides in a community property state, the security property is located in a community property state, or the Borrower is relying on other property located in a community property state as a basis for repayment of the loan.

So was that before or after the letter reflecting the QA audit of the loan for the problems that were confirmed...

Also understand that the modification process and that letter may have no internal relationship. In other words, the letter that you received is not something that they are aware of in the modification/Loss Mit side of the house.

If it were me, I would be looking for a refinance really, really fast. Modification may not be the solution here if there is this letter pending as well without the Modification people aware of the Risk Mitigation folks work. Loss Mit and Risk Mit are two very different departments.

I am getting the feeling that Loss Mit does not know what Risk Mit has in their department.

[Quartermoon]

Sorry Poppy, Not sure what "that" you are referring to:

Contact with the lender was a few weeks ago before the letter arrived.
The text I submitted to you was from the application we submitted to the broker in Feb 06.

Then they are not modifying that loan...this is a call letter or the start of a call letter and demand. They found the misrep after the request for the modification was started and now all bets are off. Besides that the Broker has no role in modification that is between you and the servicer/lender.

Come Monday, you need to make arrangements to go to a Credit Union, Bank or Direct Mortgage Banking source and apply for a new loan, refinancing this one out entirely.

They will not modify this loan, I was under the impression that you were still communicating with the Loss Mit people for Modification all along....no, they did a QA on this file and they are now in the process of calling the loan.

Do not make contact with this Broker any further....you are in the soup because of them, they are the type that will put you further in the soup or throw you under the bus. Find a solid reputable direct lender for FHA and Agency product and proceed immediately with a refinance application to pay off FF.

The verbiage you reflected is from the first page top of the 1003/Application and has no bearing on the situation that you are in now. That is language that is reflective of the nature of the loan and is purely for the purposes of information in situations where both, some of or all issues of the borrower's spouse are reflected in community property and states where debt issues become the obligation of both parties and in particular on government loans. That is purely for community property states, not PA, community property states are AZ, NV, CA, NM, to name a few, PA is not a community property state, and that language does not enter into this picture in any way, shape or form. That language is not GERMANE in this case.

The language you want is on page 3 just above the signature lines of the application. The income that was used is irregular and frankly we are using the polite word here with misrep...the accurate word is Fraud, which we in our consummate political correctness these days no longer use. There was a SAR's issued on this loan, of that I would bet my bottom dollar, they are protecting themselves at the FF side of the world in Risk Mit. In order to avoid any additional unpleasantness on this loan you need to arrange for an immediate refinance of the obligation. Believe me it can get very unpleasant real fast...since I have been on the delivery side of that unpleasantness...I am giving you very sound and very provident advice as an industry professional for the last 30 years or so.

Please, please do not hesitate in the application for a refinance of this loan. You are also equally well advised to retain legal counsel to determine if there is any further fall out that can affect/effect you under the circumstances. There may or may not be as FF sees fit to pursue their remedies, however if they did SAR's the loan, then there very well could be, particularly if this Broker was a repeat offender as many are.

[nitag]

Poppy reading this makes me sick to my stomach!!! I have a question, what happens if they are unable to refi?

Depends on how hard FF wants to pursue the situation, if the Broker can be established to have committed material misrep, confirmed, there would be a very serious investigation of the matter, the results....depends on the depth and degree of misrep. The borrower I suspect was lulled into the concept by assurance from the Broker that this was all OK, no problem, we do it all of the time, yadayada.....however, the parties investigating are not always very understanding of that. It so depends on the depth and type of misrep, how hard they want to pursue it, to what degree it compelled the decision, so many factors. Also depends on how many cases were identified as having confirmed misrep from the same Brokerage....that often is a real driving factor as to how it is handled by the authorities.

The borrower is in a difficult place, they can and will call this loan, that is what they are apparently planning on doing. Sometimes they stop there, sometimes they go the extra mile, it is case by case. These days they are calling them, they were not as aggressive a year ago or better, now they are very aggressive and very focused in that goal.

FF is very serious on this situation and make no bones about it, they mean business. The borrower if they can not refinance needs to find a very, very tough, experienced and hard nosed attorney to represent them. Even then...it again depends on what is in this file, I am not looking at it.

With the 621 FICO FHA should be achievable, very achievable as long as the loan limits for the area are in line, the DTI is in line and the property meets FHA standards. I would think that would be the fastest, easiest, least painful and least brain damaging way to solve this situation for all involved.

Meanwhile go find the stinkin' Broker and boil him in figurative oil or some similar and appropriate method of getting the point across. This really rolls into the Brokers court in my mind, they do have complete control over the submission packages for the borrower. They were way out of line and frankly I hope the Broker gets what is coming to them and that the borrower is left alone and gets a refinance and life moves forward. She has enough stress with the situation with her son and then this....rotten, unpleasant, and very unnecessary for her to have to face.

[Quartermoon]

My sentiments exactly.

My quest is to get my cards paid down asap and refi.
With my husband's income half of what we once had after the broker
'helped' us.

You trust an 'officer' or 'agent' to help you with this process. They had a fudiciary responsibility and let you down.


I was told by another loan expert:

2 years ago loans were either stated income or bank statement income or full documentation income loans. If yours was a bank statement income-they have the statements, if yours was a full doc loan-they have W-2's & Paystubs. I am 99.99% certain that yours was a stated income loan. For you and your husband to combine your income and state that as his income was a normal thing. About 2 years ago the lenders started requiring the brokers/and their own underwriting staff to go to websites like(website removed) to make sure that it was possible for someone in a certain job postion in a certain area to make that kind of money.

You did not do anything wrong, and your Loan officer was forced to follow the rules of the lender, or the lender would not have granted the loan. This is just a case of places like First Franklin (who I think was sold) to try to get out of the responsibility for the loans that they sold. . First Franklin is concerned that your loan may have to be re-purchased by them. If the broker is still in business, and First Franklin does indeed have to purchase the loan back, they will try to get the broker to buy the loan back.

Who do you follow?
Would it be possible for me to phone the mit/loss department of FF and
speak with them instead of the Home Loan Service woman?

[Quartermoon]

We just wanted a little more space for our kids.
We moved four blocks from our old house.
It is still near their dad so the kids would not have issues seeing both their parents whenever they wanted.


We paid every month.
We were never late. The three mortgages that were established by the same broker in the same week yet... they received nearly 20,000 in fees from us.

BTW I am positive we provided them with W-2's and pay stubs because we just had our taxes done before we applied.

Who charges an email fee?
That sort of thing.

Nothing can compare with your son going to war.
But this is right up there as an added bonus.

Does it help if I pursue a refi to admit all this happened to us to the new lender?

I do not know how to do this gently, I have no real way to do it gently, you were aware that this was being done, apparently from your first posts, if this loan was SAR'd, the Federal Authorities are now involved in this matter. You can say this and that about this, broker and that broker, and this loan expert, and that loan expert. They are really not going to care....not at all, in the slightest...I have been with them on these little forays into the field....let me say it as nicely as I can....you do not want this potential unpleasantness, refinance the loan.

They have serious egregious confirmed material misrepresentation in this loan, and it is very serious or they would not have sent that letter, very serious, it has to be to get that sort of letter. They do not send them out lightly.....I do not care what some idiot supposed expert said.....I have heard so many of these supposed lending mortgage experts in my day, I am not impressed. This letter is very serious and getting out of it will require an attorney and even they may not be able to get you out of the situation, you need to refinance and pray they do not show up on your doorstep. I can not minimize the seriousness of this letter. The fact that you were never late underlies jus how serious it is.....you do not want to get involved in this any further, refinance the loan.

They mean business.....at this point it is futile to lay blame, or the sholda, coulda, woulda position. Everyone was doing it, we all did it, well that is not making the cut in the explanation phase at this time in the world of lending. They are making cases and they are taking them to the bitter end.

Do not admit this to the other lender.....just make an application and get the refinance....

They will run like all holy heck if you tell them the gory story....believe me they will.

Without an attorney do not contact FF at this point...you can not explain yourself out of this one without legal representation, you will only serve to further erode your cause.

Now that I have been fairly blunt, please take my advice, get a new loan and an attorney, retain him so that if you need him/her you have them, hopefully with a refinance you will not need him/her.

This is and the people on this forum will testify to this the first time that I have been this fierce about a situation. They are making examples out of people today on issues of this nature. I need to impress you with the fact that this is a very serious matter and no amount of explanation from what I have read in these posts is going to provide a haven from the ultimate reality that they are going to call this loan. The broker is unable and unlikely in most cases to preform the Buy Back and they for all you know are out of business, and frankly would not buy it back if they were in business 'cause they do not have the money to do it. The loan will be called and the authorities will investigate....

Now how do I know this, cause I have done this dirty deed, I have called loans for naughty confirmed behavior and I did not back down. I SAR'd the whole thing with the Feds and went forward. I made sure that every party to the whole affair was investigated and interviewed.....not pleasant.....I have fired Underwriters for taking kick backs and debarred them from ever working again, I have fired LO's for behavior that was absolutely criminal....they too were debarred from every working on a government loan again.. some of them will never work in the business again....I called the loans and the borrowers were forced to pay them back in full within the alloted time frame or risk foreclosure on the security....no deals. This stuff is not negotiable and today they are ready, willing and able to take these measures.

I am also going to close this thread as it could become a very contentious and volatile thread in the future. The issues addressed here are very sensitive and very contentious in their nature...and as such should be contained at this point.