Note – Fighting Foreclosure: Using Contract Law to Enforce the Home Affordable Modification Program (HAMP)
Volume 64, Issue 3, 905-931
In 2009, the Secretary of the Treasury and the Obama Administration unveiled the Making Home Affordable Program (“MHA”) to slow the foreclosure crisis and stabilize the economy. A key component of the MHA is the Home Affordable Modification Program (“HAMP”), a seventy-five billion dollar program designed to incentivize loan servicers to modify loans for certain qualified borrowers. The Treasury estimated that HAMP would permanently modify three to four million mortgages by the end of 2012; however, HAMP has failed to meet its objective.
Under HAMP, if a borrower meets certain criteria, she will be placed on a three-month trial period plan (“TPP”) where she will pay a lowered mortgage payment equal to 31% of her gross monthly income. If the borrower makes this lowered payment for three months and meets other requirements, the servicer should extend a permanent modification with a reduced monthly payment. As written, however, the provision allows servicers to deny permanent modifications even if borrowers successfully meet their reduced mortgage payments.
Recently, borrowers began to bring common law breach of contract claims to enforce the TPP, arguing that the TPP is a binding contract that requires servicers to grant permanent loan modifications. Currently, there is controversy over the validity of the TPP-based breach of contract theory and a split amongst the federal courts. This Note provides an overview of the HAMP application process, examines the controversy and split amongst the federal courts, argues in favor of upholding the theory, and provides recommendations for national legislation.