Queens homeowner Alex Lam was up-to-date on his mortgage payments until recently, when he tried to apply for a loan modification under HAMP, the federal Home Affordable Modification Program.
When Lam contacted his loan servicer, Washington Mutual, to ask how to take advantage of the federal program, he was told that he’d only be eligible for a loan modification if he temporarily stopped making his payments.
So that’s what he did. But he was not offered the permanent modification he’d been hoping for. Instead, his home was foreclosed on, though the lender said that wouldn’t occur, said Ted De Barbieri, a staff attorney at the non-profit Urban Justice Center, which is filing a lawsuit today against the lender on behalf of Lam and two other Queens homeowners.
“Listening to the advice of his lender, he stopped making payments and went into default,” De Barbieri said. “In addition to the deceit around telling him to stop making payments, they told him the home would not be foreclosed on.”
The Manhattan-based Urban Justice Center filed the lawsuit in Eastern District Federal Court against JPMorgan Chase (which recently acquired Washington Mutual) for “illegally delaying and denying” the loan modifications of the three homeowners, the group said.
The organization is holding a press conference today at noon to announce the suit.
“We think that these homeowners have been systematically denied home loan modifications under the HAMP program,” De Barbieri said.
HAMP has been widely criticized for failing to effectively stem the tide of foreclosures.
Under HAMP rules, homeowners who make three months of trial payments should automatically be granted a permanent modification.
Lam and the two other homeowners named in the suit, Shanaz Begum and Tamara Williams, made their trial payments but were not granted new mortgage terms, according to the Urban Justice Center, which has been working with Chase since last year to modify the three homeowners’ loans, De Barbieri said.
Lam, Begum and Williams were not available for comment by press time, but will be present at the news conference, the Urban Justice Center said.
“The fact is that the individuals we’ve been working with have not been receiving the type of upfront negotiations with the lender that they’re supposed to,” De Barbieri said. “No one is enforcing this.”
The problem is not limited to these three homeowners, added Carmella Huang, a staff attorney at the Urban Justice Center. Like Lam, other homeowners have been told to stop making their payments, which often leads to bad credit and foreclosure, but rarely the loan modifications they hope for.
“We’ve heard from others that the same advice is being doled out around the country,” Huang said.
Because interest rates automatically spike once a borrower is in default, loan servicers “have an incentive to delay the process,” she said, adding: “The few people who have gotten permanent loan modifications are like rare diamonds.”
JP Morgan Chase declined to comment.
In the first quarter of 2010, the company reported that it had offered 750,000 loans modifications since the beginning of 2009. The company services some 10.3 million mortgages.