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Loan Modification and HAMP Litigation Against Lenders and Loan Servicers

Defending Individual and Class Action Modification Litigation and Navigating Evolving Regulatory Obligations

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TUESDAY, SEPTEMBER 11, 2012

Presenting a live 90-minute webinar with interactive Q&A

Thomas M. Schehr, Member, Dykema Gossett, Detroit Michael S. Waldron, Partner, Ballard Spahr, Washington, D.C.

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Michael S. Waldron

waldronm@ballardspahr.com 202.661.2234

Loan Modification and HAMP Litigation Against Lenders and Loan Servicers

6

Navigating the Landscape

• To navigate litigation risk, you need to understand the

regulatory and enforcement landscape

• Transformation of Default Servicing and Loss Mitigation

– from the back room to the forefront

• Understanding the Impact of the “robo-signing” Consent

Orders, the National Mortgage Settlement and the CFPB’s Proposed Servicing Rules

7

No Coordinated Regulatory Framework

• Fair Debt Collection Practices Act.
• Fair Credit Reporting Act.
• Federal Trade Commission Act.
• Real Estate Settlement Procedures Act/Regulation X.
• Truth in Lending Act/Regulation Z.
• Omnibus Appropriations Act, 2009.
• Dodd-Frank.
• RESPA/TILA amendments related to servicing.
• General power to CFPB regarding unfair, deceptive and abusive acts or

practices.

8

FTC Rulemaking

• Omnibus Appropriations Act, 2009:
• Act directed FTC to initiate rulemaking under Federal Trade

Commission Act with regard to mortgage loans.

• Clarified by Credit Card Accountability, Responsibility and Disclosure

Act of 2009. Rulemaking to relate to unfair or deceptive acts or practices regarding mortgage loans. Rulemaking power does not extend beyond entities FTC may regulate.

• FTC issued ANPR in June 2009 on mortgage advertising, marketing,

appraisals, origination and servicing. (FTC also issued separate ANPR

• n mortgage assistance relief services.)
• FTC finalized rules regarding mortgage assistance relief services and

advertising, but did not reach proposed rule stage on mortgage servicing

• r other matters practices before authority under Omnibus

Appropriations Act was transferred to the CFPB.

9

FTC Observations

• In the ANPR on mortgage servicing and other mortgage-related

functions the FTC the observed that:

• The scope of current federal regulation of servicing is “limited.”
• “The relationship between mortgage servicers and consumers is

vulnerable to abuse.”

• “[S]ervicers have financial incentives to impose fees on consumers.”
• “[T]he process of acquiring, securitizing, and transferring large volumes of

loans on the secondary market has raised concerns about the integrity of consumers’ loan information and the mistakes that can occur due to mishandling or lack of documentation.”

• “For example, courts have dismissed foreclosure cases against

borrowers because the companies failed to show proof of ownership.”

• “The FTC’s experience in this area suggests that there is a need for

comprehensive rules with respect to mortgage servicing.”

10

FTC Settlements

• In the ANPR the FTC also addressed the settlement with

Fairbanks Capital (and its CEO) in 2003 (which was modified in 2007) and the settlement with EMC Mortgage in 2008.

• In the settlements, the FTC addressed various matters,

including:

• Compliance with FDCPA, FCRA, RESPA, TILA and the FTC Act.
• Fee practices.
• Data integrity and record keeping.
• Review of records before commencing foreclosure.
• The FTC requested comments on whether it should incorporate

any prohibitions or restrictions of the settlements into a proposed rule.

11

Why We All Need to Focus

"Know that this is neither the beginning nor the end of our work to hold banks and other institutions accountable for the destruction they've caused our families, communities and country. Today's settlement should serve as a warning for financial institutions: there are consequences for engaging in practices that jeopardize the stability of our communities and

• ur economy."

Illinois Attorney General Lisa Madigan February 9, 2012 Press Conference Announcing Settlement at The Department of Justice

12

Why We All Need to Focus

“...on July 21st, the Bureau will receive transferred authority from existing regulators to administer federal consumer financial protection

• laws. And on that day, mortgage servicing will be one of the CFPB’s

priorities.” “The two key consequences of this flawed regulatory structure have been the lack of comprehensive federal standards for mortgage servicers, and the lack of any direct federal oversight on non-depository servicers….Congress vested [the CFPB] with sufficient jurisdiction and powers to protect consumers in all mortgage servicing activity – regardless of the servicer’s charter or locale.”

Raj Date July 7, 2011 Testimony Before the Subcommittee on Financial Institutions and Consumer Credit and the Subcommittee on Oversight and Investigations

13

NMS Financial Elements

• Cited as a $25 billion settlement, but actual number is higher.
• $1.5 billion to persons foreclosed on after January 1, 2008 and before December 31,

2011.

• Approximately $2,000 per consumer.
• Approximately $2.6 billion to the states.
• Approximately $766 million imposed by Fed in civil money penalties.
• Paid to government to the extent not used for borrower assistance or other permitted

purposes.

• OCC separately imposed $394 million in civil money penalties against four banks.
• Commitment of $3 billion to refinance underwater borrowers who are current on

mortgage payments.

• Commitment of $17 billion minimum to foreclosure relief efforts, including

principal reductions.

• Various loss mitigation efforts will be credited toward commitment at less than 100 cents
• n the dollar.
• Actual benefits estimated to be approximately $32 billion.

14

NMS Comparison with OCC/Fed Orders

• April 2011 federal banking agencies (OCC, OTS, Fed) issue

consent orders against 14 banks.

• Includes the 5 banks that are part of the national mortgage settlement

and 9 additional banks and affiliates (27 total entities).

• Aurora Bank, Everbank, HSBC, MetLife Bank, One West Bank, PNC

Bank, Sovereign Bank, SunTrust Bank and US Bank

• OTS consent orders moved over to OCC.
• OCC and Fed are not parties to the settlement agreements

under the national mortgage settlement.

• Between February 9 and 13, 2012 Fed issued civil money penalty
• rders against the 5 bank parties for $766.5 million in conjunction

with April 2011 consent orders.

15

NMS Comparison with OCC/Fed Orders

• OCC (OTS)/Fed consent orders cover certain deficiencies and

unsafe and unsound practices in residential mortgage servicing and the initiation and handling of foreclosure proceedings for loans with foreclosure actions or proceedings pending at any time from January 1, 2009 to December 31, 2010.

• Covers residential mortgage loans serviced, whether or not owned by

the bank.

• For past actions, orders provide for:
• Foreclosure look-back review of portfolio samples by independent

consultants.

• Consumer complaint process—consumers can obtain reviews of loan

files by independent consultants.

• Remediation for servicing or foreclosure errors that directly caused

financial harm.

16

NMS Comparison with OCC/Fed Orders

• Going forward, OCC (OTS)/Fed orders require a compliance

program regarding servicing and foreclosure operations.

• Orders specify matters that compliance program must address, but do

not set forth specific obligations in the manner of the servicing standards that are part of the national mortgage settlement agreements.

• It is anticipated that the information on errors, including types

and frequency, gathered during the look-back review and complaint processes, and the servicing standards that are part

• f the national mortgage settlement, will continue to be

considered in the development of detailed legislative/regulatory servicing requirements.

17

NMS Servicing Standards—Basics

• Apply to loans secured by owner-occupied property that is the

primary residence of the borrower (unless otherwise provided).

• Whether owned by bank or serviced by bank for another.
• In effect for three and one-half years from date Consent

Judgment is entered (with a six-month review period).

• Phased-in based on importance of servicing standard to the

borrower and the difficulty of implementing the standard.

• Servicer and Monitor agree on timeframe, with three implementation

period buckets of 60 days, 90 days and 180 days.

• Forty-two pages of standards, single spaced.

18

NMS Servicing Standards—Concepts

• Staffing and systems.
• Adequate staff and systems; qualifications, training and supervision
• f staff; and assessment of staff and systems.
• Day-to-day servicing.
• Borrower communication, accepting payments, imposition of fees,

force-placed insurance, third party servicer provider oversight.

• Default servicing.
• Loss mitigation, loss mitigation and loss mitigation.
• Accuracy of documents, information and records, and protections for

servicemembers.

• Other.
• Deterrence of community blight and tenants’ rights.

19

NMS Servicing Standards—Assessment

• Servicer must designate an internal quality control group to

perform quarterly reviews of compliance with servicing standards.

• Compliance with servicing standards will be assessed based
• n metrics that are included in the settlement agreement:
• Outcome creates significant negative customer impact.
• Integrity of critical sworn documents.
• Pre-foreclosure initiation.
• Accuracy and timeliness of payment application and

appropriateness of fees.

• Policy/process implementation.
• Customer experiences.

20

NMS Servicing Standards—Main Elements

• Relationship to loans documents, laws and other

requirements.

• Loss mitigation.
• Foreclosure and bankruptcy information and documentation.
• Bankruptcy.
• Third-party provider oversight.
• Restrictions on servicing fees.
• Protections for military personnel.
• Force-placed insurance.
• General servicer duties and prohibitions.

21

Loss Mitigation

• Largest element of servicing standards—about 12 of 42 pages.
• Requirements apply to both government-sponsored and

proprietary loss mitigation programs, and to subservicers performing loss mitigation services on behalf of the banks.

• Notify potentially eligible borrowers of currently available loss

mitigation options before foreclosure referral.

• Dual tracking is restricted—focus on providing borrowers with

loan modification and loss mitigation opportunities.

• Single point of contact (SPOC) for potentially eligible first lien

borrowers.

• No employee compensation arrangement that encourages

foreclosure over loss mitigation alternatives.

22

Loss Mitigation

• Implement online portal linked to bank’s servicing system

that allows borrowers to check on status of first lien loan modifications without cost to the borrower.

• Timelines for loan modifications.
• Initial denial of eligible borrower’s first lien loan

modification request must be reviewed by an independent entity or employee not involved with the particular modification.

• If denial confirmed, denial notice and appeal process.
• Maintenance of adequate staffing, caseload limits and

systems.

• Design and promotion of proprietary loan modifications.

23

Loss Mitigation

• Develop cooperative short sale process, and short sale

timeframes.

• With transfers of servicing to another:
• Must inform transferee servicer whether a loan modification is

pending.

• Must require transferee to accept and continue processing pending

loan modification requests.

• Must require transferee to honor existing trial and permanent

modifications.

• With transfers of servicing to bank:
• Bank must ensure that it will accept and continue to process pending

loan modification requests, and honor existing trial and permanent modifications.

24

Foreclosure and Bankruptcy Info and Docs

• Second largest element of servicing standards—about 11 of 42

pages.

• Standards apply to foreclosures and bankruptcies in all

jurisdictions, whether a judicial, non-judicial or quasi-judicial foreclosure process.

• Accuracy of factual assertions in affidavits, sworn statements,

proof of claims and pleadings.

• Training and supervision of staff.
• No volume-based or other incentives to employees or third

parties that encourage undue haste or lack of due diligence over quality.

• Procedures to ensure accurate and timely updating of borrower’s

account information, including payment posting.

25

Foreclosure and Bankruptcy Info and Docs

• Enhanced billing dispute procedures, including fee disputes.
• Except for fixed rate loans when borrower is provided with

coupon book, monthly mortgage statement containing specified information.

• Similar to, but not the same as, Dodd-Frank section 1420 monthly

mortgage statement requirement.

• Provide borrower with statement supporting right to foreclose

no later than 14 days before foreclosure referral.

• Acceptance and application of payment requirements.
• Conduct reviews at least quarterly of a statistically valid sample
• f affidavits, sworn statements, declarations, notices of default,

notices of sale and similar notices.

26

Bankruptcy

• General statement of intent to be consistent with applicable

federal, state and local laws, rules and regulations.

• Training of employees involved with loans in bankruptcy that

specifically addresses bankruptcy issues.

• Timeframes and procedures for Chapter 13 bankruptcy cases.

27

Third Party Provider Oversight

• Policies and procedures to oversee and manage foreclosure

firms, law firms, foreclosure trustees, subservicers, other agents, independent contractors, and others retained to provide foreclosure, bankruptcy or mortgage servicing activities.

• Appropriate due diligence of provider’s abilities, require

compliance with bank policies and procedures by contract, ensure that counsel and trustees have appropriate access to information, and conduct reviews of third party providers.

• Certification and recertification of counsel as to experience and

competence to perform foreclosure and bankruptcy services.

• Appropriate bank contact for counsel and trustees to assist in

legal proceedings and to facilitate loss mitigation questions on behalf of a borrower.

28

Fee Restrictions

• All default, foreclosure and bankruptcy-related service fees,

including third party fees, collected from borrower by bank must be bona fide, reasonable in amount, and disclosed in detail to the borrower as provided in the servicing standards.

• Bank must maintain a current schedule of common non-state

specific fees or ranges of fees on website and provide to borrower on request.

• Must identify each fee, provide a plain language explanation of the fee

and state the maximum amount of the fee or how the fee is calculated and determined.

29

Fee Restrictions

• To collect a default-related fee, the fee must be for reasonable

and appropriate services actually rendered, and one of the following conditions must be met:

• The fee is expressly or generally authorized by loan documents, and not

prohibited by law or the Settlement Agreement.

• The fee is permitted by law and not prohibited by loan documents or the

Settlement Agreement.

• The fee is not prohibited by loan documents, law or the Settlement

Agreement, is a reasonable fee for a specific service requested by the borrower, and is collected only after a clear and conspicuous disclosure

• f the fee is made available to the borrower.
• Attorney fees must be only for work actually performed and not

exceed reasonable and customary fees for the work.

30

Fee Restrictions

• Restrictions on late fees, including that fees may not be

collected from the escrow account or escrow surplus without the borrower’s approval.

• No late fee may be imposed for periods during which:
• A complete loan modification application is under consideration.
• The borrower is making timely trial modification payments.
• A short sale offer is being evaluated by the bank.
• Prohibition on imposing unnecessary or duplicative property

inspection, property preservation, or valuation fees on the borrower, with specific restrictions.

31

Protections for Military Personnel

• Requirement to engage independent consultant to review:
• All foreclosures in which an SCRA-eligible servicemember is known to

have been an obligor or mortgagor.

• A sample of foreclosure actions from January 1, 2009 to December 31,

2010 to determine SCRA compliance (and the sample is subject to increase if material exceptions are found).

• Bank must remediate all monetary damages in compliance with the OCC

(OTS)/Fed consent orders.

• If borrower is entitled to SCRA protections or certain expanded

protections under servicing standards:

• If not eligible for a SPOC, must be routed to employees specially trained

about SCRA protections to respond to borrower questions.

• If eligible for a SPOC, designate a SPOC who has been specially trained

about SCRA protections.

32

Protections for Military Personnel

• In addition to any other reviews to assess SCRA eligibility, bank

must determine whether secured property is owned by a servicemember:

• Before referring loan to foreclosure;
• Within seven days before a foreclosure sale;
• The later of (1) promptly after a foreclosure sale and (2) within three

days before the regularly scheduled end of any redemption period.

• When servicemember requests interest rate relief but does not

provide SCRA-required documentation, bank must accept specified alternate documentation.

• Must notify customers who are 45 days delinquent that if they

are a servicemember they may be entitled to certain SCRA protections and counseling for servicemembers.

33

Protections for Military Personnel

• Regardless of when servicemember entered into the loan, and

subject to applicable requirements, if bank determines that servicemember is eligible for Hostile Fire/Imminent Danger Pay and is outside of US or more than 750 miles from secured property, bank may not sell, foreclose or seize the property during, or within nine months after, the period in which servicemember is so eligible.

• Exception if obtain a court order or SCRA-specified agreement.
• Bank may not require servicemember to be delinquent to qualify

for a short sale, loan modification or other loss mitigation relief if the servicemeber is suffering financial hardship and is

• therwise eligible for such loss mitigation.

34

State Overlay

• Existing State Laws
• Duty to pursue loss mitigation
• Dual-tracking limitations
• Pre-foreclosure notices
• Mediation /referral to counseling
• Late notice obligations
• Permissible fees
• Court Orders
• Attorney General Enforcement Statements

35

Litigation Implications: Government

• Statements by federal and state government officials make it

clear that this is only the first wave of servicing-related cases.

• It seems likely that state and federal regulators will begin

similar investigations or claims against more servicers – especially non-bank servicers.

• Natural for the regulators to see this settlement as the template

for other settlements, and to present it as a fait accompli to

• ther servicers.
• Real question is whether those servicers will resist and/or

litigate the issues or accept the framework of this settlement (with perhaps monetary terms changing)

36

Litigation Implications: Private

• For the servicers covered by the settlement and consent
• rders, we may see a short-term increase in litigation, as

borrowers use the settlement as a standard of care applicable to in-process or completed foreclosures.

• But for those banks, the long-term effect may be to reduce

litigation, because the servicing standards address the most commonly-raised issues by borrowers.

• For servicers not a party to the litigation, the settlement

will be used as “authority” for issues like chain of title, foreclosure-related fees, and “dual tracking.”

• Legal vs. practical effect on private litigation

• Results. Value. Dykema.

www.dykema.com

California | Illinois | Michigan | North Carolina | Texas | Washington, D.C.

HAMP: The Latest Trends in Litigation

By Thomas M. Schehr

313-568-6659 tschehr@dykema.com

• Results. Value. Dykema.

38

Introduction to HAMP

HAMP

(Home Affordable Modification Program)

• Results. Value. Dykema.

39

Background on the HAMP

• The HAMP is an administrative program created by the Treasury

pursuant to legislative authority granted by Congress in the Emergency Economic Stabilization Act of 2008 (the “Act”). 12 U.S.C. § 5201 et seq.

• To accomplish these goals, the HAMP provides financial incentives -

government funds - to participating mortgage servicers to modify the loans of “eligible” borrowers.

• In April 2009, the Treasury issued uniform guidance for loan

modifications across the mortgage industry with Supplemental Directive 09-01. The Treasury has updated its guidance by issuing several other supplemental directives since SD 09-01. Guidance for servicers can be found at www.hmpadmin.com.

• Results. Value. Dykema.

40

How Does the HAMP Work?

• Servicers execute a Servicer Participation Agreement (“SPA”)

with the Federal National Mortgage Association (“Fannie Mae”) in its capacity as financial agent for the United States. The standard SPA can be found at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/ servicerparticipationagreement.pdf.

• Pursuant to the SPA, servicers are required to consider all eligible

mortgage loans for a loan modification unless a loan modification is prohibited by other servicing agreements.

• The Supplemental Directives are incorporated into the SPA, and

describe the procedures that participating servicers must follow in determining borrower eligibility for a loan modification.

• Results. Value. Dykema.

41

Enforcement of the HAMP

• Supplemental Directive 09-01 states: “Treasury has selected

Freddie Mac to serve as its compliance agent for the HAMP. In its role as compliance agent, Freddie Mac will utilize Freddie Mac employees and contractors to conduct independent compliance assessments.” Assessments can be on-site or remote, and will evaluate servicer performance with respect to: – Evaluation of Borrower and Property Eligibility – Compliance with Underwriting Guidelines – Execution of NPV/Waterfall Processes – Completion of Borrower Incentive Payments – Investor Subsidiary Calculations – Data Integrity

• After compliance reviews, Freddie Mac may issue a servicer

assessment report.

• Results. Value. Dykema.

42

Enforcement of the HAMP (con’t)

• The SPA, like other contracts, defines certain instances that can

cause a “default” of the contract to occur. These include, among

• ther things, a participating servicer’s failure to comply with the

terms of the Supplemental Directives or a Freddie Mac finding that the servicer’s compliance with the program is “materially insufficient.” SPA, ¶ 6.

• The SPA outlines certain rights and remedies that Fannie Mae

can exercise if a participating servicer fails to adhere to the program, such as additional oversight, the clawing back of government funds, or termination of the SPA.

• Note that the SPA DOES NOT permit Fannie Mae to force a

servicer to modify a loan. This underscores a common misconception among borrowers and their attorneys – that the HAMP entitles borrowers to a loan modification.

• Results. Value. Dykema.

43

Is The HAMP A Law?

• No. The HAMP is not a federal statute or regulation, and the program is not

codified in any public law.

• A review of the provisions of the Supplemental Directives and the SPA reveal

that the HAMP was structured as an incentive-based program to encourage servicers to modify loans where it is in their economic self-interest to do so.

• There is no language in the Act or the Supplemental Directives indicating that

Congress or the Treasury intended to impose liability, civil or otherwise, for non-

• compliance. The enforcement mechanism is Freddie Mac oversight and the

remedies specified in the SPA. Failure to comply risks loss of government money, not financial liability for damages.

• The Act and the HAMP stand in stark contrast to other federal statutes clearly

providing liability for failure to comply (e.g., the Fair Credit Reporting Act, 15 U.S.C. § 1681n, expressly providing for civil liability for willful noncompliance).

• Results. Value. Dykema.

44

Theories of Liability under HAMP

• Results. Value. Dykema.

45

Theories of Liability

Results: Most courts reject borrowers’ claims 5 Major Theories: 1.) The “Direct Liability” Theory 2.) The “Third-Party Beneficiary” Theory 3.) Tort-Based Theories 4.) Equal Credit Opportunity Act Claims 5.) Constitutional Challenges

• Results. Value. Dykema.

46

The “Direct Liability” Theory

• One of the earliest arguments plaintiffs made was that servicers could be held

directly liable for violating the terms of the Supplemental Directives; a necessary corollary to this argument is that the borrowers themselves have standing to enforce the Supplemental Directives and other guidelines under the HAMP.

• Courts have soundly rejected the “direct liability” theory, finding that the HAMP

does not confer a private right of action, express or implied, in favor of

• borrowers. Valtierra v. Wells Fargo Bank, N.A, No. 10-0849, 2011 WL 590596, at

*4 (E.D. Cal. February 10, 2011) (“there is no private cause of action under HAMP”); Ording v. BAC Home Loans Servicing, LP, No. 10-10670, 2011 WL 99016, at *7 (D. Mass. Jan 10, 2011); Zeller v. Aurora Loan Servs., LLC, No. 10- cv-00044, 2010 WL 3219134, at *1 (W.D. Va. Aug. 10, 2010); Marks v. Bank of Am., N.A., No. 10-cv-08039, 2010 WL 2572988, at *6-7; Aleem v. Bank of Am.,

• No. 09-01812, 2010 WL 532330, at *4 (C.D. Cal. Feb. 9, 2010); Ramirez v. Litton

Loan Serv., LP, No. 09-0319, 2009 WL 1750617, at *1 (D. Ariz. June 22, 2009); Ung v. GMAC Mortg., No. 09-893, 2009 WL 2902434, at *4 (C.D. Cal. Sept. 4, 2009) (no private right of action under the Troubled Asset Relief Program); Hoffman v. Bank of Am., N.A., No. 10-2171, 2010 WL 2635773, at *5 (N.D. Cal. June 30, 2010).

• Results. Value. Dykema.

47

Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012).

• Borrower entered into a four month trial loan modification pursuant to a TPP

with the mortgage loan servicer

• Servicer agreed to permanently modify the loan if borrower qualified under

HAMP

• Borrower made payments under the TPP and was qualified, but Servicer

refused to grant her a permanent modification Issue 1: Whether the borrower stated viable claims under Illinois common law and the ICFA? Issue 2: Whether the state-law claims were preempted by HAMP? Holding 1: The borrower had valid claims for breach of contract, promissory estoppel, fraudulent misrepresentation, and ICFA Holding 2: HAMP did not preempt or displace the state law claims, even though offer to modify was made under HAMP, which provides no private right of action.

• Results. Value. Dykema.

48

Miller v. Chase Home Finance, LLC, 677 F.3d 1113 (11th Cir. 2012)

• Facts: “Chase agreed to temporarily modify the terms of [Borrower’s] loan

agreement, but in August 2010, Chase notified [Borrower] that it would not extend a permanent loan modification to him.”

• Held: Borrower’s claims of breach of contract, breach of implied obligation of

good faith and fair dealing, and promissory estoppel dismissed. – “[I]t is clear that no implied right of action exists.” – “[T]here is no discernible legislative intent to create a private right of action.” – “[P]roviding a private right of action against mortgage servicers contravenes the purpose of HAMP – to encourage servicers to modify loans – because it would likely chill servicer participation based on fear of exposure to litigation.” Id. at 1116.

• Results. Value. Dykema.

49

The “Third-Party Beneficiary” Theory

• A second theory plaintiffs assert is that they are third-party beneficiaries to the

SPA between Fannie Mae and individual servicers.

• The vast majority of courts have rejected borrowers’ claims that they are third-

party beneficiaries of the SPA and have standing to assert a breach of the SPA. See e.g. Hoffman v. Bank of Am., N.A., No. C-10-2171-SI, 2010 W.L. 2635773 (N.D. Cal., June 30, 2010). However, in at least one early California case, the court held that a borrower was a third-party beneficiary to the SPA. Marques v. Wells Fargo Home Mortgage, Inc., No. 09-cv-1985, 2010 W.L. 3212131 (S.D.

• Cal. Aug. 12, 2010).
• Note that some courts recently have entertained a different “contract-based”

theory that a borrower may sue a servicer for failure to adhere to the terms of a trial period plan. See e.g., Durmic v. J.P. Morgan Chase Bank, N.A., 2010 W.L. 4825632, at *4 (D. Mass., Nov. 24, 2010) (plaintiff stated a plausible breach of contract claim based upon defendant's alleged breach of the Home Affordable Modification Trial Period Plan).

• Results. Value. Dykema.

50

Tort-Based State Law Claims

• Some plaintiffs have asserted tort-based theories of liability against servicers relating to the

HAMP, such as negligence and fraud.

• Courts have held that this is nothing more than attempt to circumvent the clear directive

that HAMP does not create a cause of action. Parks v. BAC Home Loan Servicing, LP, ---

• F. Supp. 2d ----, 2011 WL 5239240, at *2 (E.D. Va. Nov. 1, 2011) (“Specifically, the plaintiff

argues that BAC's failure to comply with HAMP requirements constitutes ‘negligence per se,’ entitling her to relief. This claim is, in a different shade of clothing, nothing more than the rebuffed theory that HAMP creates a cause of action.”) (citations omitted). Stolba v. Wells Fargo & Co., No. 10–cv–6014, 2011 WL 3444078, at *5 (D. N.J. Aug. 8, 2011) (dismissing claim of negligent processing of application under the HAMP).

• However, in Speleos v. BAC Home Loans, Docket No. 10-11503-NMG, 2010 W.L.

5174510 (D. Mass., Dec. 14, 2010), the Court held that plaintiffs were not third-party beneficiaries to the SPA, but had nevertheless stated a claim against defendants for

• negligence. See also, Spears v. Litton Loan Servicing LP, Slip Op. No. C10-4873 BZ,

2011 W.L. 441197 (N.D. Cal., Feb. 3, 2011) (permitting claim of fraud in connection with servicer’s alleged misrepresentations relating to the HAMP modification process to survive motion to dismiss).

• Results. Value. Dykema.

51

Equal Credit Opportunity Act Claims

• Some plaintiffs have also argued that servicers discriminated against them in

violation of the Equal Credit Opportunity Act (“ECOA”) by treating their applications for a HAMP loan modification less favorably compared to other

• applicants. These claims require the particular borrower to show they are a

member of a protected class.

• Courts have dismissed ECOA claims. Adams v. U.S. Bank, Slip Op. No. 10-

10567, 2010 W.L. 2670702 (E.D. Mich., July 1, 2010); Mbaba v. Indymac Federal Bank F.S.B., Slip Op. No. 09-CV-01452, 2010 W.L. 424363 (E.D. Cal., January 27, 2010); Willis v. Countrywide Home Loans Servicing, L.P., No. 09- 1455, 2009 WL 5206475 (D. Md. Dec. 23, 2009).

• Results. Value. Dykema.

52

Constitutional Challenges

• Borrowers have also raised their challenges to a servicer’s compliance with the

HAMP to constitutional levels, but courts have rejected the claims.

• In William v. Geithner, No. 09-1959, 2009 WL 3757380, at *5-7 (D. Minn. Nov 9,

2009), the Court rejected the claim of a borrower against the United States Secretary of the Treasury and other parties that the HAMP gave the borrowers a protected property interest for the purposes of the due process clause. The Court “conclude[d] the regulations at issue here did not intend to create a property interest in loan modifications for mortgages in default.” Id. at *6.

• See also Neal v. E-Trade Bank, No. 11–0954, 2011 WL 3813158, at *3 (E.D.
• Cal. Aug. 26, 2011) (holding that plaintiffs’ due process claims relating to the

HAMP failed to allege sufficient state action); Ozogu v. CitiMortgage, Inc., No. 10–9687, 2011 WL 2940391, at *6 (C.D. Cal. July 19, 2011) (holding that the HAMP did not provide borrowers with a protected property interest in a loan modification).

• Results. Value. Dykema.

53

Upshot Regarding HAMP Litigation

• HAMP is a program, not a law.
• HAMP was designed to encourage loan modifications, but

not to create a cause of action.

• Plaintiffs’ lawyers are creative, but courts have largely

rejected various permutations of claims based upon HAMP.

54

CFPB’s Proposed Servicing Rules

• Issued August 10, 2012
• Final rules and implementation schedule expected in January 2013
• Over 400 pages, single spaced
• Follows the script of CFPB’s Exam Guidelines, April 2012 Fact

Sheet and high profile servicing-related enforcement actions

• Covers 9 major topic areas but focuses on loss mitigation –

transparency, accountability, data integrity and responsiveness

• Early intervention with delinquent borrowers and continuity of

contact