HAMP and the Trial Period Plan
In that case, Corvello v. Wells Fargo (and its companion case Lucia v. Wells Fargo), the homeowners applied for mortgage modifications under the federal Home Affordable Modification Program (more commonly known as HAMP). Although lender participation in the HAMP program is voluntary (lenders get monetary incentives to join in), if a lender does choose to offer HAMP modifications, it must comply with program rules. (To learn more about HAMP, see the articles in Nolo’s Federal Making Home Affordable Programs topic page.)
In accordance with HAMP rules, Wells provided the homeowners with a trial period plan (TPP). Under the TPP, the homeowners were to submit required documentation so that Wells could determine HAMP eligibility. The homeowners also had to make trial payments to Wells. The TPP also lays out Well’s obligations.
- If Wells determined that the homeowners did not qualify for modifications, Wells was required to notify them of this fact and immediately end the period of trial payments.
- If Wells determined that the homeowners did qualify and the homeowners made all trial payments, Wells was required to offer the homeowners permanent mortgage modifications.
Mr. Corvello kept his end of the bargain – he submitted all required documentation and made the trial payments. Wells Fargo didn’t keep its end of the bargain. It accepted and kept all of Mr. Corvello’s trail payments, yet:
- it never notified Mr. Corvello that he did not qualify for HAMP
- nor did it offer him a permanent modification.
The facts in the Lucias’ case were similar, except that Wells actually foreclosed on their home.
The Ninth Circuit Says: Wells Fargo Is Not King
When taken to court, Wells argued that it was not “contractually obligated” to offer Mr. Corvello or the Lucias a permanent loan modification.
The Ninth Circuit, in its majority opinion, was less than thrilled by Wells’ position which it characterized, more or less, as this:
“Hey homeowner, thanks for the trial payments and for living up to your end of the bargain. So sorry we never got back to you about your eligibility, but actually we don’t feel like offering you a permanent modification after all.”
The concurring judge (he agreed with the final result but for different reasons), was more blunt in his assessment of Wells Fargo’s business practices. He pointed out that Wells Fargo drafted the TPP agreement itself and worded it in such a way as to engage in “flim-flam or, in plain words, to work a fraud.”
The bottom line: If the lender signs a TPP with the homeowner, the homeowner complies with the terms of the TPP, and the lender does not notify the homeowner of ineligibility, the lender is contractually obligated to provide the homeowner with a permanent modification under HAMP.
Will Mortgage Lenders Change Their Behavior?
The Ninth Circuit pointed out that the Seventh Circuit and some other courts have come to the same conclusion – that if a lender chooses to participate in HAMP and the homeowner complies with all terms of the TPP, the lender must offer a permanent mortgage modification if it does not inform the homeowner of ineligibility. Hopefully, lenders will start to get the picture – they cannot always have their cake and eat it too. Although if history teaches us anything, it will take even more litigation to drive the point home.