The Home Affordable Modification Program (“HAMP”) is a federal program enacted to help eligible applicants with loan modifications on home mortgage debt. It was developed as a result of the subprime mortgage crisis, which began to devastate the financial market in 2008.
HAMP is a foreclosure prevention program, providing loan modifications to struggling homeowners. Although participation in the program is voluntary, loan investors do require their mortgage servicers to participate in their respective HAMP programs. As a result, most mortgage companies have been affected by HAMP in some way. Since its inception, HAMP has been riddled with compliance issues and allegations of mortgage fraud. In fact, HAMP-related False Claims Act litigation and government enforcement actions have drastically increased over the last year.
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What is the Government HAMP Program?
HAMP is part of the Making Home Affordable Program, which came out of the Financial Stability Act of 2009. HAMP was developed through the collaboration of mortgage lenders, securities, investors, mortgage servicers and other federal agencies in an effort to create standard loan modification guidelines. Once written, lenders were to take these guidelines into consideration as they evaluated at-risk borrowers for a potential mortgage loan modification.
When enacted, the goal for HAMP was to work directly with mortgage lenders and lower monthly mortgage payments for struggling families. HAMP’s stated aim was to avoid foreclosure of approximately three to four million homeowners. Instead, only 1.2 million homeowners have benefited from a HAMP mortgage loan modification as of early 2013, resulting in an average monthly savings of $546 a month. Despite the fact that HAMP was set to end in 2012, the program has been extended through the end of 2015.
HAMP Mortgage Fraud Allegations
The risk of HAMP-related mortgage fraud among participants is significant. Even though the program has only been up and running for a short three years, the Department of Justice (DOJ) has already announced settlements in several False Claims Act cases where servicers failed to properly modify the mortgage loans under HAMP.
In addition, the DOJ has settled claims that servicers deliberately delayed borrowers HAMP mortgage loan modifications in order to increase profits via high-interest modifications of home foreclosures.
For example, Bank of America, the second-biggest lender in the United States, is now facing a mortgage fraud investigation as a result of HAMP violations. According to official court documentation, the lender is currently being sued by homeowners who did not receive permanent HAMP loan modifications after making payments under “trial programs.”
In addition, former Bank of America employees turned mortgage fraud whistleblowers allege they were directed to postpone HAMP loan modification applications as a means to increase fees and ultimately send customers into foreclosure status. Often, for mortgage servicers who do not own the loans they are servicing, it can be more profitable to see the borrower end up in foreclosure.
HAMP and False Claims Act Litigation
HAMP, which is a federal program, exposes mortgage servicers to liability under both the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
Specifically, participating mortgage servicers are required to file annual certifications indicating they have been truthful and accurate in all data and/or reports submitted to the government in relation to HAMP. The certifications require that each mortgage servicer acknowledge that the provision of false or fraudulent HAMP information may violate the federal False Claims Act.
Two of the first groundbreaking HAMP False Claims Act lawsuits against large financial institutions were settled in 2012 as part of the multi-state mortgage servicer settlement. In fact, the first suit announced was said to be the largest-ever mortgage fraud-related False Claims Act settlement.
In each case, the fraud was exposed after whistleblowers consulted with qui tam attorneys and chose to file False Claims Act lawsuits. Both qui tam actions claimed the financial institutions failed to follow proper HAMP procedures, denying borrowers access to HAMP services while continuing to submit fraudulent certifications and accept financial incentives for HAMP participation.
While these settlements are the first False Claims Act litigations for HAMP-related violations, it simply continues the recent expansion of the Act into mortgage servicing. Because False Claims Act complaints remain under seal while the government investigates qui tam allegations, other HAMP-related cases may already be pending.