Opinion ID: 624826
Heading Depth: 2
Heading Rank: 1

Heading: The Home Affordable Mortgage Program

Text: In response to rapidly deteriorating financial market conditions in the late summer and early fall of 2008, Congress enacted the Emergency Economic Stabilization Act, P.L. 110-343, 122 Stat. 3765. The centerpiece of the Act was the Troubled Asset Relief Program (TARP), which required the Secretary of the Treasury, among many other duties and powers, to implement a plan that seeks to maximize assistance for homeowners and ... encourage the servicers of the underlying mortgages ... to take advantage of ... available programs to minimize foreclosures. 12 U.S.C. § 5219(a). Congress also granted the Secretary the authority to use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures. Id. Pursuant to this authority, in February 2009 the Secretary set aside up to $50 billion of TARP funds to induce lenders to refinance mortgages with more favorable interest rates and thereby allow homeowners to avoid foreclosure. The Secretary negotiated Servicer Participation Agreements (SPAs) with dozens of home loan servicers, including Wells Fargo. Under the terms of the SPAs, servicers agreed to identify homeowners who were in default or would likely soon be in default on their mortgage payments, and to modify the loans of those eligible under the program. In exchange, servicers would receive a $1,000 payment for each permanent modification, along with other incentives. The SPAs stated that servicers shall perform the loan modification... described in ... the Program guidelines and procedures issued by the Treasury... and ... any supplemental documentation, instructions, bulletins, letters, directives, or other communications ... issued by the Treasury. In such supplemental guidelines, Treasury directed servicers to determine each borrower's eligibility for a modification by following what amounted to a three-step process: First, the borrower had to meet certain threshold requirements, including that the loan originated on or before January 1, 2009; it was secured by the borrower's primary residence; the mortgage payments were more than 31 percent of the borrower's monthly income; and, for a one-unit home, the current unpaid principal balance was no greater than $729,750. Second, the servicer calculated a modification using a waterfall method, applying enumerated changes in a specified order until the borrower's monthly mortgage payment ratio dropped as close as possible to 31 percent. [1] Third, the servicer applied a Net Present Value (NPV) test to assess whether the modified mortgage's value to the servicer would be greater than the return on the mortgage if unmodified. The NPV test is essentially an accounting calculation to determine whether it is more profitable to modify the loan or allow the loan to go into foreclosure. Williams v. Geithner, No. 09-1959 ADM/JJG, 2009 WL 3757380, at  n. 3 (D.Minn. Nov. 9, 2009). If the NPV result was negativethat is, the value of the modified mortgage would be lower than the servicer's expected return after foreclosurethe servicer was not obliged to offer a modification. If the NPV was positive, however, the Treasury directives said that the servicer MUST offer the modification. Supplemental Directive 09-01.