“It is still crazy to me that the lender who gives money to a defaulting borrower is the bad guy here. PHH gave a borrower $280,000 that he never repaid. Then PHH offered to voluntarily modify the loan terms. And because the modification is not processed correctly or to the borrowers liking, the lender owes this defaulting borrower $16 million?? What happened to contract law?”

Note Sent to Me from former Top Mortgage Industry Executive re. Blog Statement 301 (July 30, 2014):

Mike,

Agree completely with your points.  When driving through Sacramento last week I was listening to a radio show on KFBK which was an infomercial for United Law Center.  They had just won a $16 million verdict against PHH Mortgage for a borrower in Yuba City.  See Sac Bee Article http://www.sacbee.com/2014/07/18/6566661/yuba-jury-awards-16-million-in.html

The gist of the case is that a salesman bought a home for $280,000 in 2006.  He lost his job or income declined, so he could not make the payments and he filed BK in 2009.  PHH as servicer offered a loan mod in 2011, which would reduce his monthly payment from $2,100 to $1,500.  PHH apparently messed up the modification, and later offered a payment of $2,300.  A lawsuit was filed and the borrower was awarded $500,000 in compensatory damages and $15.5 million in punitive damages by a jury.

The infomercial was aggravating as it implied that PHH and all banks and mortgage lenders intentionally originated loans that they knew would end in foreclosure.  And only by applying punitive damages will these practices be ended.

This is probably a fairly typical case in which the lender could have simply foreclosed on the home under the terms of the note.  But instead was forced or encouraged to offer a loan mod that it was not equipped to process efficiently or accurately.  And for offering this loan mod, the servicer is now penalized at 50 times the original loan amount that was given to the borrower.  The original purpose of the loan mod was to limit the loss to the lender and investors, not to provide windfalls to defaulting borrowers!!

One other note, I checked the United Law Center website, and it is located in Roseville.  They have an introductory checklist for clients to try to identify litigation claims.  The first question on the checklist is “Was your income overstated on your loan application?”  This is apparently used to blame the lender/broker for the loan provided.  However, any borrower that answers yes to this question is admitting that they committed a crime!!

It is still crazy to me that the lender who gives money to a defaulting borrower is the bad guy here.  PHH gave a borrower $280,000 that he never repaid.  Then PHH offered to voluntarily modify the loan terms.  And because the modification is not processed correctly or to the borrowers liking, the lender owes this defaulting borrower $16 million??

What happened to contract law?

Posted on July 31, 2014, in Postings. Bookmark the permalink. Leave a comment.

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