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Mortgage Modification Investor Lawsuit

posted by Adam Levitin

The District Court ruling in Greenwich Financial Services v. Countrywide, addressing the servicer safe harbor provision for doing loan modifications, is linked here.  See here for the NYTimes story.  See here for the complaint. 

Quick version:  the ruling went against Countrywide, but it was a procedurally based ruling about whether the case belongs in Federal District Court or state court at this point, not on the merits.  (As an aside, I think the reason this case wasn't removed to the Federal District Court on diversity jurisdiction grounds is because Countrywide is a "citizen" of New York, so under the Class Action Fairness Act removal isn't possible.  28 U.S.C. 1441(b).)

What I find most fascinating about this case is that it is the only investor lawsuit related to modifications about which I know.  (But please post in the comments if I'm wrong on this.)  For a while the story we heard from servicers was one of avoiding loan mods due to the fear of litigation (of course, there could just have easily been litigation for not doing mods).  Interesting how that litigation never materialized. 


The litigation probably never materialized because the loan servicers aren't doing ANYTHING. Something like 90% of the people who walk into my door to file a bankruptcy have been trying to do modifications for MONTHS with absolutely no results. The investors have nothing to complain about if no real action is being taken.

Thanks for the information

I am reading this a bit late as I have been too busy processing requests for loan modifications through our state-run, free service. Yes, there is a tremendous backlog within the servicers' Loss Mitigation arena. Yes, I have some poeple who have waited more than 6 months for an answer. Yes, its disgusting. Two things: more press must spend more time and space on explaining the specifics of HAMP; i.e. it is ultimately up to the investor/PSA to determine the terms and conditions of a loan mod, or even its possibility. In fact, some PSA's state that only 5% of the pool can be modified. The public and the public's advocates, need to know that not everyone's mortgage debt, therefore, will be reduced to 31% under HAMP, as it is stricltly a suggestion to servicers and investors. The only real benefit is that those who participate agree to hold up forecloure while the loan is under review. And only about 25 firms agree to that. And when does "loan review" get a trigger date? When the request arrives and then floats around in the black hole for 2-3 months or when it actually HITS loss mit? ANd how many folks submit financials, etc. only to learn the firm "never rec'd" them. I swear this is the case for 50% of my "portfolio". I predict the next crisis is going to be when those assets UNDER review are SOLD as distressed assets to a new servicer (big business now. I believe it was Rockefeller who said the best time to buy is when blood is running in the streets). Who dictates which PSA applies? Even MBS market thinks its a joke; re: cost of funds. Along with a concerted effort by all of us re: disclosure of what HAMP REALLY does, I wish BK attorneys would advise their clients that filing BK prior to a mod being granted is suicidal and filing post-mod often negates the terms of the mod and triggers foreclosure. Of course, you are right: waiting for a mod also triggers foreclosure. The system outlined is absolutely ridicuolous and completely unmanageable. I predict that now that the prime borrowers have exhausted their 401-k's, parents' equity and are out of work, there will be some political ramifications to the silly provisions of HAMP. Just as in the Great Depression, nothing really got done until the upper class was hit, either because the more compromised one is financially the less opportunity there is to promote one's case or organize to promote the case of others. Furthermore, the federal model using Home Ownership Centers is just a dumping ground for the borrower. Read "Regulating the Poor" by Francis Piven. This modification mess should be a new chapter in a revised edition.

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