* Homeowners say were deprived of modifications, eye appeal
* Judge sees "vast frustration" over HAMP mismanagement
* Bank says to continue improving work under federal HAMP
By Jonathan Stempel
Sept 5 A lawsuit accusing Bank of America Corp
of reneging on promises to help distressed homeowners
modify their mortgage loans, and instead driving them into
foreclosure, cannot proceed as a class action, a federal judge
While expressing sympathy for borrowers facing a "Kafkaesque
bureaucracy" and saying their claims "may well be meritorious,"
U.S. District Judge Rya Zobel in Boston said the claims were too
different to justify allowing a single, nationwide lawsuit.
Wednesday's decision is a blow for homeowners accusing the
second-largest U.S. bank of failing to comply with the Home
Affordable Modification Program (HAMP), a 2009 federal program
that gives incentives to mortgage servicers to encourage loan
modifications and help people keep their homes.
It also marks the latest fallout from a 2011 U.S. Supreme
Court ruling involving Wal-Mart Stores Inc that has made
it harder to sue companies as a group. Class actions can lead to
larger recoveries and more far-reaching remedies at lower cost.
"It's a sad outcome for many thousands of homeowners trying
to obtain loan modifications," said Gary Klein, a partner at
Klein Kavanagh Costello, representing the plaintiffs. "Very,
very few of them will be able to pursue these issues on their
own. Their one hope for justice was through the class
Forty-three individuals and couples from 26 U.S. states
accused Bank of America in the three-year-old lawsuit of failing
to help them obtain loan modifications to which they were
entitled. They had sought to certify 26 classes, one per state.
'VAST FRUSTRATION' OF HOMEOWNERS
The case gained notoriety in June when several former
employees, in sworn statements the bank called "demonstrably
false," accused the bank of offering $500 bonuses and gift cards
to Target Corp and Bed Bath & Beyond Inc to lie
and to stall HAMP applications, because foreclosures or in-house
loan modifications were more profitable.
One former employee also said the bank would twice a month
conduct a "blitz" to clear out hundreds of files from its HAMP
backlog solely because the documents were more than 60 days old,
even if all required documents were submitted. Bank of America
said "blitzes" were used to find documentation for applications.
"This case demonstrates the vast frustration that many
Americans have felt over the mismanagement of the HAMP
modification process," Zobel wrote. "Plaintiffs have plausibly
alleged that Bank of America utterly failed to administer its
HAMP modifications in a timely and efficient way; that in many
cases it lost documents, or pretended it had not received them,
or arbitrarily denied permanent modifications."
Still, Zobel said class certification was improper because
of a "nearly endless series of individual questions" affecting
the various borrowers, amid a "Kafkaesque bureaucracy that
decided which documents were required of which borrowers."
She said these questions included whether borrowers provided
accurate documentation to verify their incomes, lived in their
homes as their principal residences, obtained credit counseling,
made trial payments on time, "and so on, and so on, and so on."
Steve Berman, a partner at Hagens Berman Sobol Shapiro also
representing the plaintiffs, said an appeal is planned.
"We think the court got it wrong," he said.
Bank of America spokesman Rick Simon said: "We respect the
court's decision. We have successfully completed more HAMP
modifications than any other servicer and will continue to
improve delivery of this and other programs to support our
customers in need of assistance."
The bank has under HAMP completed 227,000 permanent loan
modifications through July, Simon added.
DAMAGES TO ANSWER FOR
Danielle Kelley, a Tallahassee, Florida, lawyer representing
mortgage borrowers, said other judges might still prove
receptive to claims by individual borrowers.
"Borrowers have been told they would get a modification if
they did certain things, mailed and faxed documents, made trial
payments," she said. "So there are damages that the banks will
have to answer for."
Many of Charlotte, North Carolina-based Bank of America's
mortgage problems stem from its 2008 purchase of Countrywide
Financial Corp, once the largest U.S. mortgage lender.
That purchase cost just $2.5 billion, but has saddled Bank
of America with tens of billions of dollars of costs for
litigation, loan buybacks and other mortgage expenses.
HAMP was part of the Obama administration effort to address
the nation's housing crisis.
Through June, just over 1.2 million borrowers had received
permanent loan modifications, according to the Treasury
Department, below the original goal of 3 million to 4 million.
Bank of America was among five companies in 2012 to reach a
$25 billion settlement with regulators to address foreclosure
abuses. Attorneys general of New York and Florida have since
accused Bank of America of violating terms of that settlement.
The case is In re: Bank of America Home Affordable
Modification Program (HAMP) Contract Litigation, U.S. District
Court, District of Massachusetts, No. 10-md-02193.