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* Homeowners claim bank misled them about modifications
* Excess fees, unnecessary foreclosures alleged
* Judge dubs some fee justifications "gibberish"
By Jonathan Stempel
NEW YORK, July 30 (Reuters) - A federal judge rejected JPMorgan Chase & Co's bid to dismiss a lawsuit accusing it of misleading thousands of cash-strapped homeowners nationwide about modifying their mortgages.
U.S. District Judge Richard Stearns in Boston on Friday let homeowners pursue claims that the largest U.S. bank systematically failed to keep its end of the bargain after signing up borrowers hoping to modify their mortgages under the federal Home Affordable Modification Program, or HAMP.
Stearns also let stand claims that Morgan's Chase unit drove homeowners deeper into debt by prolonging the modification process through "gross ineptitude," sometimes adding fees to loans already in default and starting foreclosures while modifications were being negotiated.
"(Some plaintiffs) allege that they would have fared better economically had their homes been foreclosed by Chase at the outset instead of at the end of a drawn-out and ultimately futile modification process that Chase had no real intention of honoring," Stearns wrote. "These are, of course, allegations -- but for present purposes, the court must credit them."
JPMorgan Chase spokeswoman Amy Bonitatibus said the bank does not discuss pending litigation and strives to comply with HAMP guidelines. Lynn Sarko, a lawyer for the plaintiffs, said he is pleased with the decision and expects to pursue the case "swiftly."
The lawsuit combines 16 complaints that had been filed across the country. Bank of America Corp and Citigroup Inc face similar multidistrict litigation over HAMP, court records show.
Chase and those banks are among mortgage servicers that joined a $25 billion foreclosure abuse settlement announced by federal and state officials in February.
The government set up HAMP in 2009 to help struggling homeowners by encouraging servicers to ease loan terms in exchange for incentives.
HAMP was intended to help 3 million to 4 million homeowners, but the number awarded permanent modifications totaled just 1.03 million in May, Treasury Department data show.
Critics have also called the program confusing. Stearns cited examples from the complaint in which Chase justified some fees with "gibberish" such as "G Speedpay Fee, Corp., Advance Adjustment, Late Charge, Misc. F/C and B/R Expenses, Misc. Corporate Disbursement, and Property Preservation."
JPMorgan shares closed down 75 cents, or 2 percent, at $36.14 in Monday trading. The KBW Bank Index fell 0.8 percent.
The case is In re: JPMorgan Chase Mortgage Modification Litigation, U.S. District Court, District of Massachusetts, No. 11-md-02290.