* 9th Circuit reverses two lower court rulings
* Borrowers said were qualified for HAMP modifications
By Jonathan Stempel
Aug 8 Wells Fargo & Co must face
lawsuits by homeowners who claim the largest U.S. mortgage
lender refused to offer them permanent mortgage modifications
for which they had qualified, a federal appeals court ruled on
The 9th U.S. Circuit Court of Appeals said Wells Fargo was
required under the federal Home Affordable Modification Program
to offer loan modifications to borrowers who demonstrated their
eligibility during a trial period.
Reversing the dismissals by a San Francisco federal judge of
two lawsuits seeking class-action status, the appeals court
rejected the argument that Wells Fargo became bound only upon
sending borrowers signed modification agreements.
The court said this would create "unfettered discretion" for
the San Francisco-based bank to reject modifications "for any
reason whatsoever - interest rates went up, the economy soured,
(or) it just didn't like the borrower."
While a federal appeals court in Chicago reached a similar
conclusion last year, the 9th Circuit decision applies in
several western U.S. states - among them California, Arizona and
Nevada - that have been particularly hard-hit by foreclosures.
Wells Fargo said it had $352 million of loans under HAMP in
a trial modification period as of June 30.
"The 9th Circuit did not rule on the merits of the
underlying cases, and found only that the district court should
consider the arguments put forth by the plaintiffs," the bank
said in a statement. "Wells Fargo has strong defenses to those
arguments, and is prepared to present its case."
"HEADS I WIN, TAILS YOU LOSE"
Unveiled by the Obama administration in 2009, HAMP pays
mortgage lenders and servicers to rewrite loan terms for
borrowers who cannot afford their payments.
While steps have been taken to broaden HAMP's reach, fewer
loans than expected have been modified, and both Democrats and
Republicans have complained that many borrowers who get help
default on their modified mortgages.
The program has also spawned other litigation, and the 9th
Circuit said it "seems to have created more litigation than it
has happy homeowners."
In a separate lawsuit in Massachusetts, homeowners accused
Bank of America Corp of offering employees financial
incentives to stall HAMP applications because foreclosures or
in-house loan modifications could be more profitable.
A judge is considering whether to make that case a class
One of the Wells Fargo cases was brought by Phillip
Corvello, who claimed he complied with a written trial period
plan for a HAMP modification, and the other by Jeffrey and Karen
Lucia, who claimed to comply with an oral plan.
The Lucias' home was sold at foreclosure in August 2010, but
they kept possession of the property, Wells Fargo said.
Both the unsigned majority opinion and a concurring opinion
by Circuit Judge John T. Noonan faulted Wells Fargo's drafting
of the trial period plan, saying that to rule in the bank's
favor would render the benefits for borrowers illusory.
"No purpose was served by the document Wells Fargo prepared
except the fraudulent purpose of inducing Corvello to make the
payments while the bank retained the option of modifying the
loan or stiffing him," Noonan wrote. "'Heads I win, tails you
lose' is a fraudulent coin toss. Wells Fargo did no better."
The case is Corvello v. Wells Fargo Bank NA et al, 9th U.S.
Circuit Court of Appeals, No. 11-16234.