I have noticed a new trend in the conflict between banks and consumers. Customers are suing their banks for a variety of reasons and these lawsuits are starting to become problematic for banks. It seems that consumers are tired of the predatory treatment and they are taking their grievances to court. And, the courts appear to be sympathetic to consumers, especially in cases where the bank’s activities defy any reasonable sense of fairness.
Normally, I’m not a big fan of civil suits. These types of lawsuits are often baseless and unwarranted. They amount to obvious extortion, by the crass and the irresponsible. But, there are instances where justice and regulation have failed. And, the only recourse available is to sue for damages. The civil case against O. J. Simpson is an example which comes to mind. Judgments have also been effective in cases against polluters, wrongful deaths and perpetrators of harassment and discrimination. So, civil suits can offer some consolation, as a choice of last resort.
Lawsuits for Loan Modifications
Photo by Frog Miller
A study conducted by the Federal Reserve of Boston found that payment-reducing modifications were received on only about 3 percent of seriously delinquent loans.
There are a suspiciously high number of lost applications, resubmission requests and denials based on questionable criteria. It is obvious to anyone who has gone through the loan modification process that banks are simply stonewalling the requests and Congress has no effective way to force their compliance. But, after some frustrating years without progress, that is quickly starting to change.
The federal government’s Home Affordable Modification Program (HAMP) has been passed in order to increase modification compliance and to stem the foreclosure that are undermining our economy. This seems to have increased the number of trial modifications. But, the 2009 HAMP numbers show only 31 thousand of the 3.1 million loans have been permanently modified.
The individual lawsuits, which haven’t gotten much attention, are now seeking class-action status, in an effort to bring relief to more homeowners. The Attorney General from many states are adding pressure to banks, which are finally starting to talk about ”principal forgiveness” for some customers. Unless banks take the loan modification process seriously, I expect the lawsuits to increase and the judgments to become larger.
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