A federal lawsuit in New York City is the latest legal pushback from homeowners, who are saying enough is enough.
Three New York City homeowners represented by the Urban Justice Center charge JPMorgan Chase and two of its divisions, Chase Home Finance and Washington Mutual, of violating agreements with borrowers and with Fannie Mae, which administers HAMP.
Do they have a case?
- Shanaz Begum of Queens Village, N.Y. was told her income was too low -- even though it hadn't changed since the trial period. Chase allegedly just changed its mind about whether to count her taxi-driver husband's cash income.
- The bank ultimately told Alex Lam of Fresh Meadows, N.Y. that Chase had decided it would be better off foreclosing than offering a modification -- after Washington Mutual (which subsequently became part of Chase) allegedly told him to stop making mortgage payments in order to become eligible for HAMP.
- And Tamara Williams of Jamaica, N.Y. got no answer at all on her request for a permanent modification.
All three borrowers made all of their payments during their trial-modification periods.
The Urban Justice Center, a nonprofit advocacy group, is seeking a stop to foreclosure proceedings, loan modifications for the clients, and financial damages. The group alleges that Queens, the New York City borough that is home to all three litigants and one of the most diverse places in the country, is being unfairly targeted.
The suit shows many facets of how loan servicers like Chase are throwing roadblocks in the way of loan modifications--from lost paperwork to arbitrary decisions. According to the latest Treasury report on HAMP, out of 1.16 million trials, just 231,000 have moved to permanent modifications.
But no piece of the HAMP puzzle is more frustrating for borrowers than the "net present value" (NPV) calculation, which lets lenders decide -- based on calculations they make themselves and do not have to disclose -- whether a loan modification should proceed.
The U.S. Department of the Treasury has told lenders participating in the loan modification program that they are obligated to modify mortgages only when that gets the bank better financial results than it would if it foreclosed on the home. If foreclosure will reap the lender more money than modification, then it is simply required to suggest alternative foreclosure prevention measures.
In plain English, that means "good luck."
"It's certainly a big issue for many of the clients that we deal with," says Ted De Barbieri, an attorney with the Urban Justice Center. He frequently represents homeowners as they meet with lenders at settlement conferences that New York State requires prior to foreclosure filings.
A lender, for example, might be using a "broker price opinion," or BPO, to determine a home's value, even though that's often less reliable than an appraisal. At the settlement conference, De Barbieri can request the appraisal.
"But in many cases, we don't even know what the input is," he notes. In calculating NPV, the lender might be looking at anything from real estate taxes and homeowner association fees to the next reset date on the borrower's adjustable-rate mortgage.
What we do know is that the NPV test penalizes homeowners who have built up a lot of equity in their houses already, and favors those who have borrowed to the hilt.
After all, the lender gets to count all that equity as money it will gain if the property goes into foreclosure. It also means that borrowers who took out most or all of a home's value are the ones most likely to get government help to hold onto their homes.
That's right, it's not fair. NPV exposes the truth: Loan modifications ultimately help banks more than they help most homeowners.