Mr. Cooper servicing unit accused of deceit in COVID loss mitigation

A pair of borrowers are suing Mr. Cooper for denying them a pandemic-related loss mitigation plan, accusing the firm’s servicing unit of steering borrowers toward options which instead would benefit the company. 

James Groves and Judith Bartell-Groves say the business violated the Fair Debt Collection Practices Act in the suit filed earlier this month in the U.S. District Court for the Northern District of Ohio. The Cuyahoga County, Ohio-based plaintiffs with an FHA-insured loan name Nationstar Mortgage and its RightPath Servicing arm as defendants, while the suit does not refer to the Mr. Cooper brand. Nationstar rebranded as Mr. Cooper in 2017 but still operates under the former name in some circumstances and RightPath is Mr. Cooper’s unit formed after its March purchase of Bayview Asset Management assets.

The Groves, who are actively defending a foreclosure on their property in a Cuyahoga County court, requested from RightPath in July a COVID-19 recovery loss mitigation option as described in FHA guidelines, the complaint said. Instead, the servicer misread and misapplied the guidelines and denied their request, counsel for the Groves said. 

“The delays occasioned by Nationstar’s conduct have forced borrowers into modifications with higher rates of interest and caused severe emotional distress to our clients,” said Marc Dann of Cleveland, Ohio-based DannLaw in an email Tuesday. “Nationstar reps are guiding borrowers to apply for underwritten modifications which have an incentive built in for the servicer when they would be better served by a post-COVID option that does not require application.”

The servicer benefits in numerous ways when the loan remains in default, Dann continued. 

“They collect late fees, they mark up inspections and appraisals, they force people seeking a short sale to use their Xome platform, they make money on incentives for underwritten modification and they save money by not hiring people smart enough to read the FHA handbook,” he said. 

The company declined to comment on the pending lawsuit Tuesday and has not yet responded to the complaint in federal court. In a statement, the company said it reviews all available options for customers seeking a modification as part of pandemic relief, and has provided mitigation solutions for over 250,000 customers. 

“While we always hope to offer a solution that meets the needs of our customers while complying with all state and federal laws and regulations, in some scenarios, we may be unable to provide a modification given those laws, regulations and eligibility requirements,” a spokesperson wrote.

James Groves secured a $108,005 mortgage on the property in 2005 from Allied Home Mortgage Capital Corp., and subsequently defaulted, with foreclosure proceedings beginning in December 2019, the suit said. RightPath obtained the servicing rights to Groves’ loan in May, and the plaintiffs sought a Covid-19 Recovery Loss Mitigation Option in July. 

The Groves sought a 360-month loan modification that targets a reduction in the principal and interest of a borrower’s monthly mortgage payment. Even if the target reduction isn’t achieved, the FHA handbook dictates the servicer must offer the borrower the lowest monthly P&I payment if the borrower affirms they can make the payment, according to the complaint. 

RightPath informed the Groves in August of its denial of a recovery modification, citing a P&I payment calculation greater than the Groves’ current P&I therefore, according to the servicer, not meeting the requirements of the program. In a September denial of the Groves’ appeal, RightPath said the modified payment would jump from $486.97 per month to $556.27 per month at a 5.25% interest rate.

“Nationstar’s denial of Plaintiffs and each class member for eligibility for a recovery modification was improper as each such denial was based upon an eligibility requirement that does not exist,” the suit said. 

Further, the denial and delay in modification approval cost the Groves a competitive rate as interest rates continue to increase, counsel wrote. 

The complaint cites at least 40 class action members and seeks unspecified damages, as well as a ruling that Nationstar violated the Ohio Residential Mortgage Lending Act in engaging in dishonest dealings. RightPath is Mr. Cooper’s unit formed after its March purchase of Bayview Asset Management assets.

FHA-insured loans in COVID-19 loss mitigation programs had a 15% redefault rate in September, according to a report by the Federal Reserve Bank of Philadelphia. That rate matched the figure for Department of Veterans Affairs loans and also exceeded the 5% rate of redefaults among mortgages guaranteed by the government-sponsored entities.