The majority of home buyers will need some form of financing for the transaction. This most commonly takes the form of a home loan, which is issued by a bank or other such lending institution. Mortgages are the most common form of home loan arrangement, with many different types of mortgages as well as different payment plans and interest rates. Mortgages are what allow the purchaser to make monthly payments on the property, and eventually become the legal owner of the property.
Home loans can also be used to cover other aspects of residential property, such as a home improvement loan. Home improvement loans are taken out for the purpose of repairing or upgrading a person’s home, or making additions to the property, such as placing a storage structure in the backyard. However, the majority of home loans issued are mortgages.
What Is Loan Origination? What Is Loan Servicing?
Loan origination refers to the process in which a person applies for a loan, generally in reference to a home loan. The term most frequently refers to the beginning stages of the home loan securing process, as opposed to the later stages that take place after approval.
Loan origination can involve such actions and steps as:
- Shopping for different loan options and packages;
- Filing all required documents and forms;
- Passing background checks;
- Negotiating terms; and
- The finalization and approval of the loan application.
Actions that are performed after the approval fall under the category of loan servicing. Loan servicing refers to all of the administrative aspects of a loan, from the time the loan is approved until it is finally paid off in full. It includes a wide range of different actions, as well as legal and/or financial matters. As such, loan servicing can last for a considerable amount of time because the process will last for as long as it takes for the loan to be fully paid off.
Loan servicing frequently includes:
- Sending monthly statements for client payments;
- Collecting monthly payment amounts;
- Maintaining payment records;
- Checking payment balances and debt amounts;
- Addressing related issues, such as taxes and insurance;
- Managing escrow funds;
- Remitting excess funds to the payer; and
- Pursuing and collecting delinquent payments.
All of the aspects of a loan transaction prior to loan servicing are referred to as loan origination. To reiterate, loan origination includes:
- Conducting background checks on the borrower;
- Calculating the risk or potential of default on the loan; and
- Negotiating loan terms.
In some cases, the company that provided the loan is also the same entity that handles loan servicing. Loan origination and loan servicing are often performed by the same entity; an example of when this would happen would be with larger mortgage loan companies. However, in some instances, the rights to perform loan servicing are contracted out to a secondary company that specializes strictly in loan servicing. This outsourcing is usually done for a fee.
If the company that issued the loan begins the process by performing loan servicing, and then transfers the loan servicing activities to a different company, you are legally entitled to receive notice of this transfer. This notice should come from both the original loan servicer as well as the new one. Loan servicing violations frequently result in private civil lawsuits, especially if the violations cause economic damages to the borrower.
What Are Some Common Disputes Associated With Loan Origination?
There are many steps and details that are involved in the loan origination process. Additionally, there may also be multiple parties involved in the process. As such, it is not uncommon for disputes to arise in connection with loan origination.
Some of the most common examples of loan origination disputes include:
- Issues associated with the applicant’s background check, especially in terms of credit ratings;
- Fraud, which can either be by the borrower or the lender, and will be further discussed below;
- Disputes associated with loan amounts and terms;
- Advertising or marketing disputes, such as lenders engaging in deceptive marketing practices; and
- Disputes associated with licensing and certification.
Fraud is one of the most common loan origination issues. An example of this would be how a borrower might attempt to deceive a lender by falsifying information regarding their credit scores. Another example would be how a lender might engage in fraud in terms of the actual interest rates for a loan. There are still other examples of when loan origination fraud can involve both the borrower and lender, such as when they attempt to deceive others for tax purposes.
As with any type of loan activity, loan origination can be a target for fraud and other fraud-based activities. Fraudulent loan origination specifically involves actions that result in a person qualifying for a loan that they legally should not be qualified for. This can happen as a result of:
- Fraud by the borrower, such as submitting false information on an application;
- Fraud by the lender, such as knowingly approving a loan that does not qualify which may also involve falsifying some information; and/or
- Fraud by both the lender and the borrower, such as collusion or conspiracy.
One of the most common examples of fraudulent loan origination involves a lender helping a borrower get approved for certain types of federal loans, housing, and/or benefits. This is considered to be illegal, and as such can result in legal penalties for both parties.
Consequences for the liable party or parties can include criminal fines, jail or prison time, and civil fines for damages that were caused by the fraud.
What Should I Know About Loan Fraud?
To reiterate, fraud can happen in any situation that involves a loan. Some of the most common transactions in which loan fraud can occur involve:
- Boats or other recreational vehicles;
- Home improvement contracts;
- Credit card or bank applications; and
- General personal loans.
While loan fraud most commonly involves the borrower or the bank, other intervening parties that are involved in the transaction could also engage in fraud. Examples include brokers, or the real estate agencies that are involved in the sale of the property. Because of this, there are many different stages of the home buying process in which fraud could exist, even after someone owns the property and requests to modify their loan terms.
Loan fraud is generally considered to be a white collar offense with similar criminal consequences, especially if a large sum of money is involved in the fraud. Some examples of common, possible consequences include:
- Prison time;
- Affected citizenship status;
- Loss of future job prospects;
- A damaged business reputation; and
- Loss of future business opportunities.
Victims of loan fraud can press criminal charges. Additionally, they may have a civil case in order to receive a monetary damages award. A likely cause of action would be breach of contract, and/or misrepresentation. However, the victim will need sufficient evidence to support their claim. Such evidence could include:
- The loan agreement document;
- Emails, and other records of communication between all parties involved;
- Payment receipts; and
- Other relevant transaction documents.
Do I Need An Attorney For Loan Origination Disputes?
If you are experiencing disputes associated with loan origination, you should contact an experienced and local mortgage lawyer.
An attorney can help you better understand your legal rights and options according to your state’s specific laws. An attorney will also be able to represent you in court, as needed.