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Class-action request denied in Bank of America mortgage suit

A federal judge has rejected a class-action request for a lawsuit that claims borrowers were wrongly denied mortgage modifications by Bank of America.

The borrowers’ accusations “may well be meritorious,” the Massachusetts judge, Rya Zobel, wrote in her decision this week. But there are too many “individual factual questions” in the case to justify class-action status, she wrote.

The lawsuit, which centers on the federal Home Affordable Modification Program, dates to 2010. Those suing said they sought modifications under HAMP, designed after the collapse of the housing market to lower mortgage payments for struggling borrowers. Mortgage servicers, such as banks, are eligible for incentives if they permanently modify a mortgage.

In court records, homeowners say the Charlotte-based bank “serially strung out, delayed and otherwise hindered the modification processes.” As a result, the borrowers never received permanent loan modifications, even though they were eligible for them and met the HAMP requirements, according to court records.

The case garnered renewed attention in June when former Bank of America employees, including at least one who worked in Charlotte, filed statements claiming the bank awarded cash and gift cards to them if they denied HAMP modifications. The Charlotte worker, William Wilson, described Bank of America employees being made to participate in a “blitz.” During one of those, the bank would order case managers and underwriters to “clean out” a backlog of HAMP requests by rejecting those whose financial documents were more than 60 days old, he said.

After denying a HAMP modification, the bank then would offer borrowers an in-house modification, charging a 5 percent interest rate, higher than the 2 percent under HAMP, Wilson said in his statement.

The bank has called such claims “wild misrepresentations” and said most of the former workers had “only minimal involvement” with HAMP.

“We respect the court’s decision,” the bank said in a statement Friday. “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.”

Hagens Berman Sobol Shapiro, a law firm representing the borrowers, was disappointed with Zobel’s decision.

“We think the court got it wrong,” the firm said, adding that it planned to appeal.

Although Zobel denied the class-action request, she was sympathetic to the borrowers.

“This case demonstrates the vast frustration that many Americans have felt over the mismanagement of the HAMP modification process,” she wrote in her decision. “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.”

RICO case pending

Her decision is good news for the second-largest U.S. bank by assets, which has been embroiled in costly lawsuits since the financial crisis. But it’s still fighting a separate HAMP-related case in Colorado that cites the statements the bank’s former employees filed in the Massachusetts case.

The Colorado case claims violations of the federal Racketeer Influenced and Corrupt Organizations Act, also known as RICO. The suit in federal court names as a co-defendant Urban Lending Solutions, a Broomfield, Colo., contractor to whom the bank sent HAMP work.

“BOA created a widespread RICO enterprise to defraud homeowners who sought modifications and then acted as the kingpin of that enterprise,” the lawsuit says. “BOA and Urban have worked in concert, under BOA’s direction and for many years, to frustrate the HAMP process and to prevent as many homeowners as possible from obtaining permanent loan modifications that complied with HAMP while allowing BOA to maintain the appearance to regulators and the public of trying to comply with its HAMP obligations.”

Hagens Berman filed the suit in federal court in July. Bank of America has not yet filed its reply.

Roberts: 704-358-5248; Twitter: @DeonERoberts
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