Have you gotten your HAMP modification yet? As with any government program, there's some kinks to work out, kinks ranging from companies not bothering to comply with federal law to, apparently, the government's programs to help you violating your constitutional rights.
In Williams v. Geithner, a case pending in the U.S. District Court for Minnesota, the Housing Preservation Project has filed a class action complaint naming the U.S. Government, Fannie Mae, Freddie Mac, and some big servicers (Ocwen and GMAC), alleging that because HAMP does not give specific reasons for denials of benefits, and no right to appeal is allowed, HAMP violates constitutional due process protections. The complaint alleges that Ocwen and GMAC, in administering the HAMP program for the government, violated the named plaintiffs' rights.
One plaintiff, the complaint alleges, sought modification of his first mortgage under HAMP and his second mortgage under the servicer's (Ocwen) programs. The complaint alleges this plaintiff met all the criteria for a HAMP modification, but that he was denied without any reason -- the letter denying modification gave (allegedly) only "theoretical" reasons.
The other plaintiff, the complaint says, was given several "temporary" loan modifications, "only to have a permanent modification denied for dubious, if not factually wrong reasons," after which she would be offered another temporary modification -- but not through HAMP. The complaint says that this borrower specifically asked for HAMP modifications numerous times but was "effectively denied" that because no offer was made through the HAMP program.
Both borrowers had "80/20" loans, a popular set-up over the last few years; in an 80/20 loan, the borrowers get a first mortgage for 80% of the value of the residence, and a second mortgage for 20% of the value -- effectively getting 100% financing, but avoiding the private mortgage insurance most lenders require when the loan equals more than 80% of the home's value. In some cases, the 80/20 loan is fraudulent: there are cases when the first lender doesn't know that the second loan will be made, and I know of at least one case where the second loan -- the 20% -- closed the day before the first loan, and the proceeds of the second loan were then represented to be the down payment on the first loan.
The nature of the loans isn't played up much in the Complaint, and I haven't read the rest of the pleadings (but I will). The class action is still in the early going, but already appears to be an uphill battle: The Court denied a preliminary injunction, finding that the odds of success were not great. And the defendants have filed motions to dismiss the case, motions that so far as I know have yet to be heard.
Even if the lenders don't have to provide due process guarantees under HAMP -- constitutional due process isn't my area of law, so I'm not giving an opinion on that -- these borrowers have other possibilities, though. As I've pointed out before, not abiding by HAMP can allow a defendant to move to dismiss, and can let a defendant sue for breach of contract or breach of the good faith duty.
Plus, in Wisconsin, foreclosures are equitable actions, so a court could simply deny foreclosure if it found that a failure to follow HAMP is an inequitable stance on the part of the lender or servicer.
There's still a lot of litigation to go, in Williams v. Geithner and in foreclosure cases all over, but one thing is clear: Borrowers are forcing lenders, more and more, to prove their case and treat them fairly.
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