The borrower is strongly advised to consult his/her loan servicer for any adverse findings that may be discovered in an examination of his/her loan modification agreement.
The Home Affordable Modification Agreement that is the subject of this review was among the documents that were presented for securitization audit on July 17, 2017. This report and the accompanying Amortization Spreadsheet were prepared on November 15, 2022.
SUMMARY
1. The loan that was granted on December 20, 2006 for $500,000.00 payable in 360 months
with an adjustable interest rate starting at 6.990% p.a. for the first 36 months was modified
on January 1, 2012 for $535,508.47 payable in 309 months. A graduated rate of interest
starting at 1.000% p.a. for the first 60 months was levied on the balance of $498,412.98.
2. There was a gap of five years between the granting of the original loan and the date of
modification, yet the modified principal balance represents an increase of $35,508.47 or
7% of the original loan.
The agreement states that the amount payable under the note is $535,508.47 consisting
of the unpaid principal of $494,754.00, accrued but unpaid interest of $39,324.43 and
unpaid fees of $1,430.04.
A detailed accounting of the items that are referred to as accrued but unpaid interest and
fees was not a part of or attached to the agreement.
3. The total amount that the borrower will have to pay on the loan over the entire term of
the agreement is $999,418.09 or 187% of the modified principal balance. This includes the
amount of $218,693.68 (41%) in balloon payments, of which $181,598.19 is not
mentioned in the agreement.
4. The agreement contains a provision that signifies that this loan transaction does not
partake of the nature of a new loan or a refinancing which is believed to be the basis for
the lender for not furnishing the borrower a disclosure statement under the Truth in-
Lending Act (Regulation Z).
No explanation was found as to why a loan transaction that is not a refinance and which
only involves a reduction in annual percentage rate does not fall within the scope of the
purpose of the law which is to “promote the informed use of consumer credit by requiring
disclosures about its terms and cost.”
MAIN REPORT
Premises
The subject loan was granted on December 20, 2006 by Wilmington Finance, Inc. for $500,000.00. The term was 360 months with an adjustable interest rate starting at 6.990% p.a. for the first 36 months.
The borrower entered into a Modification Agreement with Vericrest Financial, Inc. as Attorney-in-Fact for The Bank of New York Mellon as Trustee for CIT Mortgage Loan Trust 2007-1 that took effect on January 1, 2012. The modified amount was $535,508.47 and the term was 309 months. $37,095.49 was deferred leaving a balance of $498,412.98 as the Interest-Bearing Balance.
Interest was levied on the Interest-Bearing Balance starting at 1.000% p.a. from January 1, 2012, 2.000% p.a. from January 1, 2017, 3.000% p.a. from January 1, 2018, 4.000% p.a. from January 1, 2019, 5.000% p.a. from January 1, 2020, 6.000% p.a. from January 1, 2021, 7.000% p.a. from January 1, 2022 and 8.000% p.a. from January 1, 2023 onwards.
Monthly payments for principal and interest were $1,680.58 from February 1, 2012, $1,854.86 from February 1, 2017, $2,031.36 from February 1, 2018, $2,209.83 from February 1, 2019, $2,390.13 from February 1, 2020, $2,562.19 from February 1, 2021, $2,736.01 from February 1, 2022, $2,906.65 from February 1, 2023 onwards.
A final payment of $37,095.49 was due as the last payment to be applied to the deferred principal on maturity date.
The mortgaged property is in Brooklyn NY. The copy of the agreement that is the subject of this review did not bear markings or indications that it has been recorded.
The note has not been endorsed and the Mortgage has not been assigned. This Modification Agreement effective January 1, 2012 was entered into between the borrower and Vericrest Financial, Inc. as Attorney-in-Fact for The Bank of New York Mellon as Trustee for CIT Mortgage Loan Trust 2007-1. This agreement purports that the loan is now owned by this trust.
Basic Features
The parts of the agreement that contain provisions relevant to this audit are reproduced below.
Section C of the Recitals states that the amount payable under the note is $535,508.47 consisting of the unpaid principal of $494,754.00, accrued but unpaid interest of $39,324.43 and unpaid fees of $1,430.04.
Section 3 states that the New Principal Balance is $498,412.98 ($535,508.47 less $37,095.49). $37,095.49 is the Deferred Principal. Interest at 1.000% p.a. will begin to accrue on the New Principal Balance on January 1, 2012. The first monthly payment is due on February 1, 2012. The new maturity date is October 1, 2037.
The payment schedule is as follows:
Interest was levied on the Interest-Bearing Balance starting at 1.000% p.a. from January 1, 2012, 2.000% p.a. from January 1, 2017, 3.000% p.a. from January 1, 2018, 4.000% p.a. from January 1, 2019, 5.000% p.a. from January 1, 2020, 6.000% p.a. from January 1, 2021, 7.000% p.a. from January 1, 2022 and 8.000% p.a. from January 1, 2023 onwards.
Monthly payments for principal and interest were $1,680.58 from February 1, 2012, $1,854.86 from February 1, 2017, $2,031.36 from February 1, 2018, $2,209.83 from February 1, 2019, $2,390.13 from February 1, 2020, $2,562.19 from February 1, 2021, $2,736.01 from February 1, 2022, $2,906.65 from February 1, 2023 onwards.
The last item in the above schedule is the amount of $37,095.49 which is the balloon payment that is intended for the Deferred Principal.
Examiner’s Comments
Double-Charging of Interest
There is no double charging of interest in this loan modification. The effectivity date of the agreement was January 1, 2012 and the due date of the first monthly payment was February 1, 2012.
Comparison
The features of the modified loan are herein compared with those of the original loan.
Examiner’s Comments
There was a gap of five years between the granting of the original loan and the date of modification, yet the modified principal balance represents an increase of $35,508.47 or 7% of the original loan.
The agreement states that the amount payable under the note is $535,508.47 consisting of the unpaid principal of $494,754.00, accrued but unpaid interest of $39,324.43 and unpaid fees of $1,430.04.
A detailed accounting of the items that are referred to as accrued but unpaid interest and fees was not a part of or attached to the agreement.
Payments
The total amount that the borrower will have to pay under the modification agreement is computed as follows.
Examiner’s Comments
The total amount that the borrower will have to pay on the loan over the entire term of the agreement is $999,418.09 or 187% of the modified principal balance. This includes the amount of $218,693.68 (41%) in balloon payments, of which $181,598.19 is not mentioned in the agreement.
See Amortization Spreadsheet.
Disclosure
The following provision signifies that this loan transaction does not partake of the nature of a new loan or a refinancing which is believed to be the basis for the lender for not furnishing the borrower a disclosure under the Truth-in-Lending Act.
12 CFR § 226.20 on Subsequent Disclosure Requirements states that “a refinancing occurs when an existing obligation is satisfied and is replaced by a new obligation undertaken by the same consumer. A refinancing is a new transaction requiring new disclosures to the consumer” and that “a reduction in the annual percentage rate with a corresponding change in the payment schedule” “shall not be treated as a refinancing” (abridged).
On the other hand, 12 CFR § 226.1 states that “the purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost.”
Examiner’s Comments
No explanation was found as to why a loan transaction that is not a refinance and which only involves a reduction in annual percentage rate does not fall within the purpose of the scope of the law which is “to promote the informed use of consumer credit by requiring disclosures about its terms and cost.”
Some borrowers who are more familiar with ways of institutionalized lending would not need as much effort and assistance as others would in order to be fully informed of the costs of their respective uses of credit. In other words, the need to be furnished such quality of credit information as would inform a borrower about the terms and cost of his/her credit depends on the borrower. The need to be fully informed is not dictated by the type of credit, or whether a loan transaction is a refinance or a modification.
Moreover, the lack of disclosure could have left the borrower unaware that (a) the modified principal balance represents an increase of 7% of the original loan despite the gap of five years between the granting of the original loan and the date of modification and (b) the total amount that he will have to pay on the loan is $999,418.09 or 187% of the modified principal balance. This includes the amount of $218,693.68 (41%) in balloon payments, of which $181,598.19 is not mentioned in the agreement.
AMORTIZATION SPREADSHEET
Monthly amortizations based on the agreement are shown in detail in a spreadsheet. The amounts do not include payments intended for the escrow account. Selected pages of the spreadsheet for the purpose of explanation are shown in the following pages. A complete copy is attached to the printed report.
Line 1 shows the start of monthly amortizations in equal amounts applied to the principal and interest based on diminishing balances. The interest rate and monthly instalments for the first 60 months are 1.000% p.a. and $1,680.58.
The first payment that became due on February 1, 2012 covered (a) interest for the period January 1 to 31, 2012 based on the interest-bearing balance of $498,412.98 at 1.000% p.a.; and (b) a reduction of the interest-bearing balance of $498,412.98 and the overall balance of $535,508.47 by the remainder of $1,680.58 less (a).
Page 1 shows that, assuming that monthly instalments have been paid as scheduled, after the 30th payment, of the monthly instalments totalling $50,417.40, $11,998.09 or 23.80% has been applied to interest while $38,419.31 has reduced the interest-bearing balance by 7.17%.
Page 2 shows that, assuming that monthly instalments have been paid as scheduled, after the 60th payment, of the monthly instalments totalling $100,834.80, $23,024.00 or 22.83% has been applied to interest while $77,810.80 has reduced the interest-bearing balance by 14.53%.
Line 61 shows the start of monthly amortizations from the 61st to the 72nd month. Interest rate and amount of monthly payment are 2.000% p.a. and $1,854.86.
Line 73 shows the start of monthly amortizations from the 73rd to the 84th month. Interest rate and amount of monthly payment are 3.000% p.a. and $2,031.36.
Line 85 shows the start of monthly amortizations from the 85th to the 96th month. Interest rate and amount of monthly payment are 4.000% p.a. and $2,209.83.
Page 3 also shows that, assuming that monthly instalments have been paid as scheduled, after the 90th payment, of the monthly instalments totalling $160,728.42, $51,179.08 or 31.84% has been applied to interest while $109,549.34 has reduced the interest-bearing balance by 20.46%.
Line 97 shows the start of monthly amortizations from the 97th to the 108th month. Interest rate and amount of monthly payment are 5.000% p.a. and $2,390.13.
Line 102 shows that, assuming that monthly instalments have been paid as scheduled, the loan had an interest-bearing balance of $378,528.83 after applying the installment due for July 1, 2020. As of this date, interest has been paid up to June 30, 2020.
Line 109 shows the start of monthly amortizations from the 109th to the 120th month. Interest rate and amount of monthly payment are 6.000% p.a. and $2,562.19.
Page 4 shows that, assuming that monthly instalments have been paid or will be as scheduled, after the 120th payment, of the monthly instalments totalling $233,415.24, $100,039.23 or 42.86% has been or will be applied to interest while $133,376.01 will reduce the interest-bearing balance by 24.91%.
Line 121 shows the start of monthly amortizations from the 121ST to the 132ND month. Interest rate and amount of monthly payment are 7.000% p.a. and $2,736.01.
Line 133 shows the start of monthly amortizations from the 133RD month onwards. Interest rate and amount of monthly payment are 8.000% p.a. and $2,906.65.
Page 5 also shows that, assuming that monthly instalments have been or will be paid as scheduled, after the 150th payment, of the monthly instalments totalling $318,567.06, $167,702.87 or 52.64% has been or will be applied to interest while $150,864.19 will reduce the interest-bearing balance by 28.17%.
Page 10 shows that, assuming that monthly instalments have been or will be paid as scheduled, after the 300th payment, of the monthly instalments totalling $754,564.56, $452,517.12 or 59.97% has been or will be applied to interest while $302,047.44 will reduce the interest-bearing balance by 56.40%.
Page 11 shows that, assuming that monthly installments have been or will be paid as scheduled, after the last payment on October 1, 2037, the maturity date, of the monthly installments and balloon payment (as required in the agreement) totaling $817,819.90 (or $780,724.41 excluding the balloon payment of $37,095.49 stated in the agreement), $463,909.62 or 56.73% has been or will be applied to interest while $353,910.28 will reduce the interest-bearing balance by 66.09%.
The schedule shows that the scheduled monthly payments and the balloon payment stated in the agreement will not be sufficient to fully pay the loan which will still retain the balance of $181,598.19. This balance is not stated in the agreement but is assumed to be subject to balloon payment.
End of article.
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