InfoBytes Blog

Federal District Court Denies Class Certification in Loan Modification MDL

On September 4, the U.S. District Court for the District of Massachusetts denied class certification of individual borrowers in a consolidated action against a national bank for allegedly mismanaging requests for HAMP modifications. In re Bank of Am. HAMP Contract Litig., No. 10-2193, 2013 WL 4759649 (D. Mass. Sept. 4, 2013). The named plaintiffs, who alleged breach of contract against the bank for issuing HAMP Trial Period Plans but then failing to provide a permanent modification or a timely written denial of eligibility, sought to certify 26 different classes, one from each state they represent. The court held that the plaintiffs failed to meet the predominance and superiority requirements of Rule 23(b) because their claims rely on numerous individual factual questions and “cannot sensibly be adjudicated on a classwide basis.” The court explained that individual questions predominate because borrowers’ claims require inquiry into each class members’ performance under the trial plans. Further, the court reasoned that class treatment would ignore those individual questions and deny the borrowers a fair trial on the merits of their claims, and determined that separate actions would more fairly and efficiently resolve the liability issues.

Class Action Mortgage Modification HAMP

Ninth Circuit Reinstates HAMP Class Action

On August 8, the U.S. Court of Appeals for the Ninth Circuit held that HAMP Trial Period Plans (TPPs) create a contractual obligation that the servicer offer a permanent modification to borrowers who complete the TPP. Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242, 2013 WL 4017279 (9th Cir. Aug. 8, 2013). Borrowers seeking to represent putative classes in consolidated actions appealed a district court’s dismissal of their claims that a mortgage servicer breached its contracts when it failed to offer, without prior notice, permanent loan modifications to borrowers who complied with the terms of TPPs offered under HAMP. Citing the Seventh Circuit’s holding in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), the Ninth Circuit held that once the servicer determined that a borrower had complied with the TPP and the borrower’s representations remained accurate, then the servicer was required to offer a permanent modification. The Ninth Circuit, like the Seventh Circuit in Wigod, rejected the servicer’s argument that the TPP does not create a contractual obligation because under the TPP there can be no contract unless the servicer sends the borrower a signed modification agreement. The court did not address the merits of the borrowers’ claims, i.e., whether the borrowers actually complied with the terms of their TPPs, and the bank still can offer such a defense on remand. The court reversed the district court’s dismissal and remanded for further proceedings.

Class Action HAMP

California Federal District Court Grants Class Certification in HAMP Litigation

On August 5, the U.S. District Court for the Northern District of California certified a class of borrowers who allege that a mortgage servicer wrongly rejected mortgage modification applications and improperly initiated foreclosure proceedings. Gaudin v. Saxon Mortg. Svcs., Inc., No. 11-1663, 2013 WL 4029043 (N.D. Cal. Aug. 5, 2013). The named plaintiff contends that a trial modification plan provided by her servicer constituted a binding contract that required the servicer to evaluate the borrower under the Home Affordable Modification Program and, if all conditions of the trial plan were satisfied, offer the borrower a permanent modification. According to the borrower, the servicer later, without cause, refused to offer a permanent modification and breached the contract, thereby violating California’s Rosenthal Act and Unfair Competition Law. On the borrower’s motion for class certification, the court held that the case presents significant common questions of law and fact concerning the nature and scope of the trial plan, and that the borrower’s alleged injury is similar to, if not precisely the same as, the potential class because the servicer’s issuance and countersigning of the trial plans constitute a single course of conduct. The court rejected the servicer’s argument that the borrower’s claims are subject to unique defenses because the servicer will argue that the borrower misrepresented her income, explaining that a defendant cannot defeat typicality if it intends to raise similar arguments in response to all class members.

Foreclosure Mortgage Servicing Class Action HAMP

Fannie Mae, Freddie Mac Alter Servicing Incentives

This week, Fannie Mae (SVC-2013-15) and Freddie Mac (Bulletin 2013-14) announced that they are altering certain servicing incentives. Effective for all collection periods with a start date on or after August 1, 2013, the two entities are eliminating the complete Borrower Response Package and Delinquency improvement performance standard and the related incentive and compensatory fee structure. Servicers still must collect the package when required to do so by the enterprises’ respective guides. In addition, for mortgages with HAMP modification effective dates on or after April 1, 2014, the entities are increasing the servicer incentive by $500 if the modification is completed in accordance with the Guide.

Freddie Mac Fannie Mae Mortgage Servicing HAMP

Federal Reserve Approves Final Regulatory Capital Rules

On July 2, the Federal Reserve Board approved a final rule to implement the risk-based and leverage capital requirements in the Basel III framework and relevant provisions mandated by the Dodd-Frank Act.  The rule will require all banks to hold increased levels of higher quality capital.  Specifically, the rule (i) increases the minimum common equity tier 1 capital requirement  from 2% to 4.5% of risk-weighted assets; (ii) increases the minimum tier 1capital requirement from 4% to 6% of risk-weighted assets; and (iii) adds a new capital conservation buffer of 2.5% of risk-weighted assets.  These minimum capital requirements remain unchanged from the agencies proposal issued last June.  The rules also establish a minimum leverage ratio of 4% for all banking organizations.

The Federal Reserve Board received more than 2,600 comments on its proposed capital rules, most of which came from community banks.  In response to concerns raised by smaller and community banking organizations, the Federal Reserve Board walked away from more onerous capital requirements that would have substantially increased the risk-weightings for residential mortgages.  Instead, the final rule retains the risk-weights under current regulations for residential mortgage loans, provided they are not restructured or modified.  Consistent with the proposal, residential mortgage exposures that are modified pursuant to the U.S. Treasury’s Home Affordable Mortgage Program (HAMP) will receive more favorable risk-weightings than other modified or restructured mortgage loans. In addition, the final rule would allow banking organizations that are not subject to the advanced approaches rule to make a one-time election to opt out of the requirement to include unrealized gains and losses in their regulatory capital.  Moreover, the final rule permits banks with less than $15 billion in assets to grandfather certain existing trust preferred securities in their capital accounting.  The final rule does not change the more stringent limits on the inclusion of mortgage servicing assets and deferred tax assets in regulatory capital calculations.

The final rule also extends the phase-in period for community banks.  Internationally active banks must begin to implement the new capital rules in January 2014, while all other banking organizations will have until January 2015 to begin to phase in the new capital requirements.

Federal Reserve Basel HAMP