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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 Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. 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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  • Loan Modification and HAMP Litigation

    Against Lenders and Loan Servicers Defending Individual and Class Action Modification Litigation

    and Navigating Evolving Regulatory Obligations

    Todays faculty features:

    1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

    The audio portion of the conference may be accessed via the telephone or by using your computer's

    speakers. Please refer to the instructions emailed to registrants for additional information. If you

    have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.


    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 [email protected]


    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 CFPBs 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.


    - 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 on mortgage assistance relief services.)

    - FTC finalized rules regarding mortgage assistance relief services and advertising, but did not reach proposed rule stage on mortgage servicing or 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 FTCs 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

    our 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 CFPBs


    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 servicers 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 on 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 orders 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 processconsumers 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 of the national mortgage settlement, will continue to be considered in the development of detailed legislative/regulatory servicing requirements.

  • 17

    NMS Servicing StandardsBasics

    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 StandardsConcepts

    Staffing and systems.

    - Adequate staff and systems; qualifications, training and supervision of 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.


    - Deterrence of community blight and tenants rights.

  • 19

    NMS Servicing StandardsAssessment

    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 on 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 StandardsMain Elements

    Relationship to loans documents, laws and other requirements.

    Loss mitigation.

    Foreclosure and bankruptcy information and documentation.


    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 standardsabout 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 restrictedfocus 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 banks 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 borrowers 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 standardsabout 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 borrowers 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 of affidavits, sworn statements, declarations, notices of default, notices of sale and similar notices.

  • 26


    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 providers 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 of 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 borrowers 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 otherwise 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 other 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 orders, 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.


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

    HAMP: The Latest Trends in Litigation

    By Thomas M. Schehr 313-568-6659

    [email protected]

  • Results. Value. Dykema. 38

    Introduction to 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 (cont)

    The SPA, like other contracts, defines certain instances that can cause a default of the contract to occur. These include, among other things, a participating servicers failure to comply with the terms of the Supplemental Directives or a Freddie Mac finding that the servicers 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


    - 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 [Borrowers] loan

    agreement, but in August 2010, Chase notified [Borrower] that it would not

    extend a permanent loan modification to him.

    Held: Borrowers 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. 10cv6014, 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 servicers 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 servicers 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. 110954, 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.

    109687, 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


  • 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


  • 54

    CFPBs 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 CFPBs 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