North Carolina Law Review

University of North Carolina School of Law

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Airing Out HAMP's Dirty Laundry: Resolving Corvello, Wigod, and the Inherent Problems of the Home Affordable Modification Program's Trial Period Plans

March 26, 2015

93 N.C. L. Rev. Addendum 39 (2014)

 

The Home Affordable Modification Program ("HAMP") "seems to have created more litigation than it has happy homeowners," or so the Ninth Circuit recently acknowledged in Corvello v. Wells Fargo Bank, N.A. HAMP was created as an administrative program in late 2008 in response to the nationwide housing collapse and recession. The initial goal of HAMP was to aid "3 to 4 million at-risk homeowners-both those who are in default and those who are at imminent risk of default-by reducing monthly payments to sustainable levels." Despite its lofty goals, in its first five years the program has only managed to help 1.2 million out of the 3 or 4 million homeowners it was intended to help' and has generated a blitz of litigation aimed at mortgage servicers. The basis of this litigation arises out of mortgage servicing companies' apparent lack of cooperation in completing mortgage modifications or, worse, their intentional subversion of the program itself.

 

Whereas companies that service mortgages owned by government-sponsored entities ("GSEs") Fannie Mae and Freddie Mac are required to participate in HAMP, non-GSE mortgage servicers-such as Wells Fargo-are provided with an economic incentive to complete permanent modifications. Much of the legal controversy surrounding HAMP is directed at these participating non-GSE mortgage servicers. The most common and successful lawsuits against these participating servicers are breach of contract claims arising out of banks' refusals to modify homeowners' mortgages after the homeowners have satisfied the terms of an often- ambiguous agreement known as a Trial Period Plan ("TPP"). Under a typical TPP, the homeowner agrees to provide documentation on his income and make three or four monthly payments that are presumably below his original mortgage payment. If the homeowner has provided correct documentation, is eligible for HAMP, and has made the payments in full and on time, the mortgage servicer is then expected to offer a mortgage modification based on Treasury Guidelines.

 

Disputes arise when mortgage servicers refuse to make this modification offer, prompting homeowners to file a wide array of claims ranging from violations of HAMP guidelines to unfair and deceptive trade practices. Although in most cases homeowners fail to get beyond the pleading stage, the plaintiffs' bar has persisted in crafting new arguments based on state contract law. These arguments have gained some traction with the Seventh Circuit's ruling in Wigod v. Wells Fargo Bank, N.A. and the more recent Ninth Circuit ruling in Corvello v. Wells Fargo Bank, N.A. Although Wigod makes a compelling case for some homeowners, Corvello fails to articulate the basis for its conclusions; it instead attempts to piggy-back its conclusions onto Wigod under slightly, yet materially different circumstances. The subtle distinctions in the facts of these cases highlight the inherent problems with the HAMP program-chiefly, the difficulty of enforcing HAMP guidelines against mortgage servicers-and also provide a basis for improving such an ambitious program.

 

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