A class action lawsuit has been filed in Federal Court in New York against Saxon Mortgage Services Inc., the Morgan Stanley mortgage servicer division, for failing to fulfill its obligations under the federally-sponsored Home Affordable Modification Program (HAMP) to homeowners in financial distress. The lawsuit is brought on behalf of plaintiffs Ranujoy and Deborah Pandit and a nationwide class of homeowners who sought loan modifications. It asserts claims for breach of contract, and deceptive business practices under New York law , and seeks monetary damages and injunctive relief.
The Pandits, who live in Long Island, N.Y., sought a loan modification in October 2008. After giving them a runaround for several months through ill-informed and ill-trained representatives, Saxon Mortgage Services Inc. offered them a trial period with reduced payments. Under the HAMP program, this trial period was to be for three months, at the end of which the loan had to be modified. On numerous occasions, when the plaintiffs inquired about the status of their application, Saxon’s representatives demanded re-submission of essentially the same information and documentation. The Pandits responded to every one of these demands; they sent and re-sent documentation, and completed the same financial package, at least three times. After about a year, Saxon denied their application, but advised them to apply again.
The Pandits point out that servicers have significant incentives to avoid modifying the loan under HAMP. Servicer fees depend on the unpaid principal balance; therefore, any reduction in loan amounts in turn reduce the servicer’s fees. The servicers of the loan also retain all late fees, inspection fees and other related delinquency charges.
In April of this year in the Northern District of California Federal Court, Marie Gaudin filed a suit against Saxon Mortgage Services, Gaudin v. Saxon Mortgage Services Inc., claiming that the company uses HAMP to lure customers into making “trial” payments on loans it has no intention of ever permanently modifying.
HAMP has been widely viewed as a failure primarily due to the banks and mortgage servicer’s failure to cooperate. As of June 30, 2011, for example, Saxon had used less than 20 percent of these funds from the Troubled Asset Relief Program (TARP), approximately $12.25 million, to subsidize homeowners, the primary intended beneficiaries of HAMP.