Alert April 05, 2011

U.S. District Court Holds That Servicer Not Required to Provide ECOA Adverse Action Notice to Borrower Denied Permanent HAMP Modification

A U.S. District Court judge recently concluded that a mortgage loan servicer did not violate the Equal Credit Opportunity Act when it denied a borrower’s request for a permanent loan modification under the Home Affordable Modification Program without providing a written adverse action notice. The borrower was current on her mortgage payments prior to applying for a modification under HAMP, and made each of her trial period payments in full and on time. After being verbally notified that her request for a modification had been denied, the borrower brought suit against the servicer, alleging that the servicer had failed to provide the written notice of adverse action required by ECOA. The court granted the servicer’s motion to dismiss. The court observed that ECOA’s notice requirements “do not apply where the consumer requesting credit is delinquent or in default on an existing credit arrangement with the creditor,” and that a consumer’s default status is determined at the time the creditor takes action with respect to the consumer, rather than the time the consumer applies for credit. Although the plaintiff was not delinquent when she applied for HAMP, and timely made each of her HAMP trial payments, the HAMP Trial Period Plan explicitly provided that it was “not a modification of the Loan Documents.” The court therefore concluded that because the plaintiff had made only reduced trial payments during the trial period – rather than the full monthly payments due under her original note – she was not current on her payments at the time her modification request was denied. Accordingly, no written notice of the reasons for the denial was required under ECOA. Click here for Davis v. Citimortgage, No. 10-12136 (E.D. Mich. March 11, 2011).