Juan here, from the AllClear ID Investigation Team.  One thing I’ve noticed that causes multiple, hard inquiries into people’s credit reports is mortgage audits. That’s a review of mortgage-related documents signed by the borrower on the day of closing. The audit focuses on disclosure violations of federal law, commission violations and calculation errors. Essentially, it’s a random, mandated review of a homeowner’s paperwork to make sure the lender followed the laws and behaved ethically in drafting and calculating the loan. A mortgage audit is not required by law; however, the laws are written in a way to allow the consumer to request one for their mortgage contract.

Some lenders require mortgage audits to ensure quality, while others are done at the request of the consumer or an outside agency.  If mortgage audits are required by a lender, they can be randomized. That means neither clients nor lenders know when they’ll be audited, and we’re uncertain as to how they are selected.

Many mortgage audits are done at the request of the consumer, usually those who are close to foreclosure.  But, as this Bankrate story points out, they often are more trouble than they’re worth, and they often don’t help a distressed homeowner hold onto his house.

Also keep in mind that mortgage audits do have a large effect on credit ratings because they are typically “hard pulls,” meaning they are credit inquiries initiated by the consumer. A hard pull typically lowers your credit score by a few points for six months or so. Furthermore, the lender is rarely used as the puller of the files.  Audits are usually done by a third-party company at the request of an outside agency, so if a consumer sees an unfamiliar corporate name on his credit report requesting his credit history, it may be that he is the focus of a mortgage audit.

Consumers can hire an accredited firm to do a forensic audit and search for errors and  predatory or illegal practices. But beware of who you hire. As I mentioned in a recent post, consumers who are at risk of losing their homes are being targeted and victimized by foreclosure “rescue” services, who steal their money, and even their homes. If you are interested in doing a mortgage audit , or need other help related to home foreclosure, the Federal Trade Commission recommends contacting HOPE NOW, an alliance of mortgage industry members and government-certified counseling agencies.