Written by Biloxi
I had posted this story a couple of days ago. But, it is worth posting. There has been so many lawsuits with banks by homeowners that applied for the Making Home Affordable Program and qualified for the three month plan but only to get rejected for a permanent modification after making the trial plan and then get threatend with foreclosure. Let’s review the case of Anthony and April Soper. From USA Today:
Bank of America, their mortgage servicer, put them on a HAMP trial payment plan in December that cut their monthly payment by more than half from almost $4,000 to about $1,826.
They say they made their reduced monthly payments early and did everything else that was asked of them. But they didn’t get a permanent modification, and they say they don’t know why.
Instead, according to a lawsuit they’ve brought against Bank of America, they are now more than $8,000 behind on a mortgage that had been current 12 months ago. Each of their credit scores has dropped by nearly 100 points. And, they allege, Bank of America has threatened them with foreclosure.
Now, Bank of America says that the Sopers don’t have a case because the trial plans are notcontracts:
Most of the lawsuits allege that the three- or four-month trial payment plans are contracts, and that Bank of America and other servicers broke them by not giving permanent modifications to homeowners who made their trial payments on time and provided the necessary documentation.
Servicers have asked courts to dismiss some of the cases, saying the trial plans are not contracts.
Bank of America, which says it plans to seek dismissal of the Soper case, argues in a court filing in a similar case that it must consider borrowers for a HAMP modification, but that it has discretion in granting permanent modifications.
The bank also argues that homeowners have no case because courts have dismissed earlier HAMP-related lawsuits against mortgage servicers. Those cases claimed that in denying some homeowners modifications, the servicers had breached the contracts they made with the Treasury Department when they agreed to participate in HAMP. Courts said homeowners could not sue on those grounds because they weren’t parties to the contracts between the government and the servicers.
Lawyers for homeowners say they are now making a different legal argument: that Bank of America and others broke contracts made directly with homeowners.
“Borrowers have said we should be able to enforce the contract between Treasury and mortgage servicers, and many courts have rejected that. Our cases are the first filed that touch on a contract between servicers and borrowers,” says Kevin Costello, a lawyer with Roddy Klein & Ryan in Boston, which represents homeowners in cases against Bank of America, JPMorgan Chase and Wells Fargo.
One has to question from the Making Home Affordable Program: Is there a contractual agreement with servicer, homeowner, and government? Well, the answer is.. sort of. I looked at the Making Home Affordable Program guidelines. And it says:
Trial loan modifications consistent with these Guidelines may be offered to homeowners beginning on this date, March 4, 2009, and may be considered for acceptance into the Home Affordable Modification Program upon completion of the trial period and other conditions. These Guidelines, however, do not constitute a contract offer binding on the Department of the Treasury.
Now from this verbiage, it sounds like the guidelines don’t constitute a contract offer binding regarding the trial loan modification on the Treasury Dept. In addition, at the time, banks were encouraged to participate. It was an option. However, all servicers for loans owned or guaranteed by Fannie Mae and Freddie Mac are required to participate in theMaking Home Affordable Program. So, if the Sopers’ loan was owned by Fannie Mae and Freddie Mac, then Bank of America has a problem. And here is more of the guidelines on the Servicer Incentive Payments and Pay for Success Fees:
Servicers will receive an up-front Servicer Incentive Payment of $1,000 for each eligible modification meeting guidelines established under this initiative. Servicers will also receive Pay for Success payments –as long as the borrower stays in the program – of up to $1,000 each year for up to three years.
Similar incentives will be paid for Hope for Homeowner refinances
So, the servicers received an up-front Servicer Incentive Payment for each eligible homeowner’s meeting guidelines and a Pay for Success payments for each homeowner that stays in the program. Does this sound like a contractual agreement? I believe so. And this guideline of Program payment conditions:
No payments under the program to the lender/investor, servicer, or borrower will be made until the servicer has entered into the program agreement with the Treasury’s financial agent.
And the deadline for servicer to enter program agreement was December 31, 2009. By the way, the CEO of Bank of America at that time was Ken Lewis and not Brian Moynihan who is now the current CEO. The Sopers applied for the program in October 2009 which was under Ken Lewis’ leadership.
And here is the list of all of the servicers participating into Making Home Affordable Program. Click here.
Bank of America as well as all bank servicers who are participating in this program unfortunately are legally binded to this contract. Yes, according to the guidelines, the trial plan isn’t a contract. However, if Bank of America and other servicers took the Servicer Incentive Payments of each homeowners that met those modification guidelines and later denied those homeowners a modification, then the servicers would be a serious trouble. But, in the case of the Sopers and other similar cases, this is a contract because the guidelines including incentives for the homeowners who stayed on the program. This case will be interesting as Bank of America and other banks such as Wells Fargo, JP Morgan Chase, Citigroup, and so on try to toss out lawsuits by the homeowners claiming that the banks broke contracts. These are the same banks that took bailout money in the financial crisis. Yet, these same banks are participants and received incentives from the Making Home Affordable Program. All I can say is that the banks need to worry about the Fruit of the poisonous tree doctrine which is a legal metaphor used to describe evidence that is obtained illegally. What will bite the banks who participated in the Making Home Affordable Program with the U.S. Treasury since there was money exchange with the bank servicers and U.S. Treasury such as incentives, it is a contract regardless if it is verbal or written and the upfront fees given to the bank servicers.
The banks thought they can take the upfront fee incentives given by the U.S. Treasury and hoodwink the homeowners that applied for the program and made their three trial payment plans and later denied those homeowners a permanent modification with a reason. Unfortunately, the banks don’t realize that once they took the upfront fees that they are bind in a contract with the U.S. Treasury.