Borrowers May Not Benefit from the Mortgage Settlement Agreement of 2012 without a True Private Right of Action

I. INTRODUCTIONThe United States government, along with forty-nine states, announced on February 8, 2012 that they had reached a settlement (Settlement Agreement) with five of the largest mortgage servicers in the country for $25 billion, marking the largest consumer protection settlement in history.1 The government declared that the purpose of the Settlement Agreement was to remedy the injustices that borrowers faced when they qualified for modifications on their underwater homes but were foreclosed on without being given the opportunity for these modifications.2 While proponents of this Settlement Agreement claim that it will alleviate the rampant foreclosing practice that servicers have promoted by obligating them to change their servicing standards, consumer advocates are skeptical that it will work.3 These advocates' skepticism arises from the fact that previous programs have failed to help many people that faced foreclosure due, in large part, to a lack of a strong enforcement mechanism.4 Despite the government's announcement that the Settlement Agreement will not prevent actions brought by individual borrowers, the language of the Settlement Agreement, coupled with courts' treatment of similar programs, seemingly limits enforcement to only the parties named in the Settlement Agreement.5This Recent Development will argue that like in previous agreements between the government and servicers, borrowers will not be able to access courts for violations of the Settlement Agreement because it does not provide borrowers a private right of action (PRA).6 Part II discusses one of the first government programs to address foreclosure practices, the Home Affordable Modification Program (HAMP),7 the interpretive case law regarding its lack of a PRA, and the Settlement Agreement's key provisions on enforcement.8 Part III analyzes the reasoning in HAMP cases and deduces that courts will find that borrowers will not have a PRA in the Settlement Agreement.9 Part IV discusses the ramifications of denying borrowers a PRA, highlights inefficiencies within the current enforcement plan designed to assess penalties to servicers, and provides suggestions on how to remedy issues of accountability.10 Part V concludes that the government is, and has been, hesitant to grant a PRA to borrowers, and as such, the Settlement Agreement risks meeting the same fate as its predecessors.11II. BACKGROUNDA. The Home Affordable Modification ProgramEstablished under the Temporary Asset Relief Program in 2008, HAMP gives the government the authority to use incentive payments to encourage servicers to modify eligible mortgages so that struggling borrowers' monthly payments are reduced to affordable and sustainable levels.12 Home mortgage lenders use servicers to collect monthly payments, approve or deny borrowers' requests to modify any portion of their loan agreement, and begin a foreclosure action on behalf of the lender.13 The government began to promote programs like HAMP after the home mortgage crisis ensued because servicers were unwilling to modify loans, and instead foreclosed.14 Under HAMP, the government can enter into either a Mortgage Selling and Servicing Contract (MSSC) or a Servicer Participation Agreement (SPA) with participating servicers, which lay out guidelines that banks are required to follow when considering a modification.15 Because servicers have not engaged in as many modifications as the government expected and because neither the government nor borrowers can properly enforce HAMP's guidelines in court, HAMP is largely seen as a failure.16B. HAMP and Its Enacting Agreements Do Not Provide a Private Right of Action for BorrowersThe majority of courts have vehemently stated that the government did not confer a PRA to borrowers under HAMP because it merely suggests, but does not mandate, that servicers participate.17 Reluctant borrowers have tried to sue servicers for violations of HAMP under the theory that they are intended beneficiaries of either the MSSC or the SPA. …