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Huxtable v. Geithner

September 2, 2010


The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge


Defendant Timothy F. Geithner, as United States Secretary of the Treasury ("Defendant"), has filed a motion to dismiss or, in the alternative, for summary judgment [Doc. 55]. Plaintiffs have not filed an opposition.*fn1 For the following reasons, the Court GRANTS the motion.


1. Plaintiffs' Home Mortgage

Plaintiffs' Complaint arises out of non-judicial foreclosure proceedings related to their home in Ramona, California. Plaintiffs defaulted on their home mortgage in November 2007. (Compl. ¶ 26.) In February 2008, a notice of default was recorded and served. (Compl. ¶ 27.) And in December 2008, a notice of sale was recorded and served, setting a date for the public auction of Plaintiffs' home. (Compl. ¶ 29.) Pursuant to a joint motion, the Court has enjoined the sale of Plaintiffs' home during the pendency of this action. (September 29, 2009 Order, Doc. 25.)

Plaintiffs allege that they are eligible for a loan modification under the Home Affordable Modification Program ("HAMP"). (Compl. ¶ 95.) HAMP is a federal program that allows eligible mortgagors to refinance their mortgages and reduce their monthly payments. (Compl. ¶ 66.) Despite their alleged eligibility for HAMP, the loan servicer, Defendant National City Mortgage Company,*fn2 twice denied their application for a loan modification. (Compl. ¶¶ 90, 93.) Plaintiffs say they did not receive a reason for the denial or an opportunity to appeal. (Compl. ¶ 100.)

2. The HAMP Program

In February 2009, President Obama and Defendant Geithner, as Secretary of the Treasury, announced the Making Home Affordable Program. (Geithner's Statement of Material Facts ("SMF") ¶ 1.) As a component of that program, HAMP gives incentives to servicers, investors, and homeowners to enter into sustainable home-mortgage modifications. HAMP is a complex, national program, and the Treasury Department does not administer it on its own. Id. To help administer the program, the Treasury Department entered into a Financial Agency Agreement with the Federal National Mortgage Association ("Fannie Mae"), which made Fannie Mae its "financial agent" for implementing HAMP. Id. ¶ 3. Fannie Mae in turn entered into Servicer Participation Agreements with mortgage-loan servicers, which required the servicers to comply with HAMP guidelines. Id. ¶ 3.

But the servicers' participation in HAMP is not without exceptions. If there are future material changes to the HAMP program or guidelines, servicers have the unilateral right to opt out of HAMP. (Compl., Ex. A, ¶ 10C.) And although servicers have to make reasonable efforts to get investors' consent to loan modifications, servicers are not required to modify loans if the pooling and servicing contracts prohibit them from doing so. (Compl., Ex. A, ¶ 2B.) Further, even if a servicer has not opted out of the program and its servicing agreements allow it to modify a particular loan, the servicer only has to modify the loan if the borrower qualifies for a modification.

The Treasury Department has issued guidelines for deciding whether a borrower should qualify for a loan modification. In order to qualify under the Treasury guidelines, a servicer must determine whether the net present value ("NPV") of the cash flows from the modified loan would be greater than the unmodified loan; only if the NPV of the modified loan is greater must the servicer modify loan. (Maggiano Decl. ¶¶ 5, 9.) Although the Treasury Department has issued its own model for calculating NPV, servicers with at least a $40 billion servicing book "may choose to build and implement proprietary NPV models for use in the HAMP or to implement the base model on their own systems." ( Lodgment, Ex. L, at 31.) Some servicers therefore have flexibility in creating the model which decides who is eligible for a modification and who is not.

For those borrowers whose modifications have been denied or who have questions about loan modifications, HAMP Supplemental Directive 09-01 requires servicers to "have procedures and systems in place to be able to respond to inquiries and complaints about the HAMP [and] should ensure that such inquiries and complaints are provided fair consideration, and timely and appropriate responses and solutions." (Lodgment, Ex. F, 13.) SD 09-01 also requires servicers to notify denied borrowers of their ineligibility and explore other foreclosure-prevention options before foreclosing. Id. at 18. Treasury has a system for monitoring and ensuring compliance with HAMP by auditing denied applications and, if they were denied incorrectly, telling the servicer that it must meet HAMP's requirements. (Maggiano Decl. ¶¶ 34--35.) Treasury has also created a website to give information to borrowers seeking a loan modification. In addition, it administers a toll-free HOPE hotline which allows borrowers to get more information about HAMP and to raise concerns about a denied loan-modification application. Id. at ¶¶ 30, 40.

3. Plaintiffs' Suit

Plaintiffs' Complaint contains two counts. Both are for violation of due process under the Fifth Amendment for failing to create rules implementing HAMP that comport with due process. (Compl. ¶¶ 114--27.) In September 2009 the National City and PNC Defendants moved to dismiss the Complaint because they are private actors and Plaintiffs' constitutional claims cannot be asserted against them. The Court disagreed and denied the motion, finding that, depending on the facts, those Defendants could be state actors. The magistrate judge then held conferences with the parties and ordered Plaintiffs to submit loan-modification paperwork to PNC, which had agreed to consider Plaintiffs' loan-modification application. It is unclear from the record whether Plaintiffs complied or, if they did, why PNC denied their application. In any case, on May 14, 2010 the magistrate judge issued an order noting that the parties had been unable to settle and ordering them to lodge a discovery plan with the Court, which they are now presumably following.

Defendant Timothy F. Geithner, as United States Secretary of the Treasury, has now filed a motion to dismiss or, in the ...

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