Since the start of the Making Home Affordable Modification Program, or HAMP, problems have plagued the program. These have ranged from misunderstanding and misapplication of HAMP, such as granting of trial modifications to applicants, who did not qualify, to outright fraud and intentional misapplication of HAMP guidelines for profit. Unsurprisingly, lawsuits resulted from these problems.
Not surprisingly, one set of lawsuits involve fraud, whistleblower, and breach of contract claims arising out of intentional misapplication of HAMP guidelines for profit. Under HAMP, investors are generally compensated for half of the reduced interest rate of the HAMP modification. The exact guidelines state:
13.3.1 Payment Reduction Cost Share
Investors are entitled to payment reduction cost share compensation equal to one-half of the dollar difference between the borrower’s monthly payment (principal and interest only) under the modification calculated at 31 percent of the borrower’s monthly gross income and the lesser of:
What the borrower’s monthly payment (principal and interest only) would be at a 38 percent monthly mortgage payment ratio; or
The borrower’s pre-modification monthly payment (principal and interest only).
Making Home Affordable Handbook for Servicers of Non-GSE Mortgages Version 3.0 (emphasis added)
Many times it is more profitable for investors to lose, ignore, misapply, and destroy applications for HAMP modifications. This allows them to instead foreclose or to continue charging full amounts of interest rather than be compensated for only half of their costs for modifications. In addition, servicers who typically are given the job of handling modifications on behalf of investors often find themselves in a conflict of interest between servicer compensation for HAMP trial modifications and HAMP remedies and enhanced and often illegally marked up fees for default related services for mortgages in foreclosure. Settlements for lawsuits involving intentional misapplication of HAMP guidelines for profit are currently twenty five billion dollars. Auditor fully expects to see Investor lawsuits relating to HAMP modifications as well in the future.
It is this environment that many desperate and now foreclosed homeowners are currently embroiled in. After receiving run-arounds, outright lies, and deception, homeowners began lawsuits against their servicers and lenders regarding HAMP problems. These starting lawsuits asked courts to consider that borrowers should be treated as “beneficiaries” of HAMP legislation. These were generally rejected, with the general idea that HAMP was ultimately designed to stabilize our housing and nation, and the benefit of any individual borrower is incidental.
Over time, these lawsuits have evolved to examining the actual trial and modification contracts and behavior in relation to state law into claims of breach of contract, fraud, and various state law claims, if allowable. Hamilton summarizes the evolution from HAMP based claims to contract and state based claims:
We have identified more than 80 other federal cases in which mortgagors brought HAMP-related claims. The legal theories relied on by these plaintiffs fit into three groups. First, some homeowners tried to assert rights arising under HAMP itself. Courts have uniformly rejected these claims because HAMP does not create a private federal right of action for borrowers against servicers…
In the second group, plaintiffs claimed to be third-party beneficiaries of their loan servicers’ SPAs with the United States. Most but not all courts dismissed these challenges as well, holding that borrowers were not intended third-party beneficiaries of the SPAs…
Wigod is in the third group, basing claims directly on the TPP Agreements themselves. These plaintiffs avoid Astra because they claim rights not as third-party beneficiaries but as parties in direct privity with their lenders or loan servicers. In these third-generation cases, district courts have split. Including first- and second-generation cases, about 50 of the courts granted motions to dismiss in full. See, e.g., Nadan v. Homesales, Inc., No. CV F 11-1181 LJO SKO, 2011 WL 3584213 (E.D. Cal. Aug. 12, 2011); Vida v. OneWest Bank, F.S.B., No. 10-987-AC, 2010 WL 5148473 (D. Or. Dec. 13, 2010). In 30 or so cases, courts denied the motions in full or in part, allowing claims based on contract, tort, and/or state consumer fraud statutes to go forward.
Wigod v. Wells Fargo Bank, N.A. Appeal No. 11-1423 (7th Cir. Mar. 7, 2012)(emphasis added)
This emphasizes the point we have been trying to make all along. You can’t understand a transaction by looking at the surface. You actually have to delve into the actual story, representations, agreements, papers, and contracts in order to understand what happened on an individual level. In the third group of cases that may go forward, review of the actual Trial Period Plan Agreements was necessary.
This shows how Securitization Audits that tell you who the owner of the Note is does not tell a complete picture. TILA and RESPA audits which tell you about federal consumer protection statute violations do not tell a complete picture. You have to delve in and review the entire transaction and actual paperwork, to understand what happened, why it happened, and what should have happened instead. It often takes several days to review hundreds of pages of documents, stories, and account history to weave together a cohesive understanding.
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Stephen Ching, Owner, Rateswire.com