• 13
  • September

A Washington state couple's financial problems were only starting to begin last October when they applied for a mortgage modification through the Obama administration's Home Affordable Modification Program. Their mortgage servicer, Bank of America, put them on a HAMP trial payment plan in December that cut their monthly payment by more than half.

After they paid their monthly payment early and abided by everything else that was asked of them, the couple did not get a permanent modification. They do not know why. Instead, they are now more than $8,000 behind on a mortgage that was current 12 months ago. To boot, each of their credit scores has dropped by almost 100 points, and Bank of America has threatened them with foreclosure.

Whether the Washington couple keeps their home depends on the outcome of a legal strategy that joins them with struggling homeowners with similar experiences from the HAMP program in a class action lawsuit against Bank of America, the nation's largest bank. On September 30th in Nashville, a federal court is scheduled to consider consolidating the couple's case with dozens of others against Bank of America.

Similar lawsuits that seek class action status are currently pending against other major servicers including JP Morgan Chase and Wells Fargo. The case demonstrates a growing public frustration with mortgage servicers' treatment of HAMP borrowers and HAMP's limited results. Permanent modifications, which lower mortgage payments to 31% of a borrower's pretax monthly income for five years, have been given to only about a third of the 1.3 million borrowers in trial plans since the launch of the program in April 2009.

A vast majority of the lawsuits allege that the three or four month trial payment plans are contracts, and that 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, arguing the trial plans are not contracts. Bank of America argues in a court filing involving a similar case that it must consider borrowers for a HAMP modification but retains discretion in granting permanent modifications. Many homeowners could be affected. According to an August 20 Treasury report, almost 620,000 trial modifications since spring 2009 have been canceled.

Source: USA Today, "Home Mortgage Modification Snags Spark Lawsuits", Stephanie Armour, 9/9/10