HAMP Does Not Provide A Protected Property Interest Requiring Constitutional Due Process Protections

Having been denied loan modifications, the Plaintiffs in Williams v. Timothy F. Geithner, et al. 00-1959 ADM/JJG (Nov. 9, 2009 D. Minn.)) sued their mortgage loan servicers, among others, contending that they had a constitutional right to have their mortgages modified under HAMP. Specifically, Plaintiffs contended that the servicer’s failure to provide written notification of an adverse decision and an opportunity for appeal deprives them of due process of law. The court disagreed. To prevail on a due process claim, the Plaintiffs were required to show a deprivation of a protected liberty or property interest. Plaintiffs argued that the rules or understandings underlying HAMP provide two benefits that constitute property interests: (1) the temporary suspension of foreclosure pending a determination on the homeowner’s loan modification application and, (2) the right to receive a loan modification. If these benefits are protected property interests, the protections of due process apply. For a number of reasons, the Court concluded that the regulations did not intend to create a property interest in loan modifications for mortgages in default. First, the statute did not create an absolute duty on the part of the Secretary to consent to loan modifications. Notably, the statute provides that loans may be modified where appropriate-a phrase that limits the Secretary’s obligation and evinces a Congressional intent to afford discretion in the decision whether to modify loans in certain circumstances. Next, Congress dictated that requests for loan modifications necessarily consider the net present value (NPV) to the taxpayer. Thus loan modifications are not an entitlement, but are linked to decisions that result in profits to taxpayers. Third, the regulations promulgated by Treasury for administering HAMP clearly demonstrate that the Secretary is allowed the exercise of some discretion, including calculation of the NPV, to the servicers. Finally, if the Secretary prescribed the exact criteria all servicers must use to determine whether a loan has positive NPV then servicers may choose to forego participating in the HAMP program so that they are not forced to modify loans that do not make financial sense. Thus, HAMP does not provide Plaintiffs with a protected property interest, the denial of which must comport with due process protections.

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