• 24
  • September
    2010

We previously discussed the Home Affordable Modification Program (HAMP) and the allegedly damaging effect it is having on participating homeowners, many of whom are facing foreclosure as a result. This has been reflected in a series of lawsuits by homeowners against mortgage providers.

Homeowners that have banded together in class-action lawsuits against banks have statistics on their side: permanent modifications have been granted to only one third of the program's 1.3 million participants since its launch in April 2009. In addition, over 600,000 trial modifications have been cancelled in that period.

However, courts have dismissed previous HAMP-related lawsuits in favor of the mortgage providers, finding that homeowners could not sue on the grounds that providers had breached contracts with the Treasury Department, made when providers agreed to participate in HAMP. Courts said that homeowners were not a party to those contracts, and therefore had no standing to bring the lawsuits.

Yet homeowners such as Anthony and April Soper are planning a different strategy for a new round of lawsuits. After applying to Bank of America, their mortgage provider, for a HAMP modification, their monthly payments were reduced from $4,000 to $3,130. Although they made all payments and complied with all terms, they were denied for a permanent modification, and are now behind on their mortgage by $8,000. Further, their credit scores have dropped by 100 points, and Bank of America has threatened them with foreclosure.

In their lawsuit, the Sopers allege that HAMP trial modifications are a contract between a homeowner and Bank of America, and that a bank violates the contract by not giving permanent modifications to homeowners who make their trial payments on time.

In a similar action by a homeowner against Wells Fargo, the bank responded that the plaintiffs had not adequately shown that their trial modifications were contracts to enter into permanent modifications. Additionally, it said that homeowners benefited from being able to make reduced monthly payments while staying in their homes.

However, this alleged benefit ends when the trial period ends, and then homeowners are much worse off, according to attorney Kevin Costello, who represents homeowners in cases against Bank of America, JPMorgan Chase and Wells Fargo. "People have been relying on a promise all along, and then they get a denial," he said. "Then they find themselves in that much worse of a hole."

Source: USA Today, "Home mortgage modification snags spark lawsuits", Stephanie Armour, 13 September 2010