The opinion of the court was delivered by: Judge Blanche M. Manning
In the midst of an unprecedented financial crisis, the U.S. government made nearly $700 billion in funds available to the country's largest financial institutions to stop the crisis from worsening. A key feature of the $700 billion bank bailout was the Home Affordable Modification Program, under which banks, including defendant Wells Fargo, received incentive payments from the government to provide mortgage loan modifications to homeowners, including plaintiff Lori Wigod.
At first, Wigod received a four-month modification, but has now filed suit against Wells Fargo alleging that it denied her a permanent modification in violation of its contractual obligations. Wigod contends that she is also a victim of Wells Fargo's alleged misrepresentations, its "immoral, unscrupulous, unfair, and oppressive" business practices, and its failure to properly hire and supervise its employees. She seeks damages and an order from the court directing Wells Fargo to permanently modify her mortgage loan.
Before the court is Wells Fargo's motion to dismiss Wigod's complaint in its entirety. For the reasons given below, the motion to dismiss is granted.
For purposes of the motion to dismiss, the court deems the following facts to be true, which are taken from Wigod's first amended complaint, or the various documents attached or referred to in the complaint and central to her claims. See Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000).
In September 2007, Wigod obtained mortgage financing from Wells Fargo's predecessor in the amount of $728,500 for a condominium in Chicago. Wigod made payments as due for about the first two years of the mortgage. Although she had not missed a payment, on April 3, 2009, Wigod reached out to Wells Fargo's loss mitigation department and made a written request for a loan modification under the Home Affordable Modification Program, or HAMP.
The HAMP program had been announced on February 18, 2009, and was intended to stave off a tidal wave of foreclosures by restructuring or refinancing the mortgage loans of homeowners already in default, or who were in imminent risk of default, by reducing monthly payments to a sustainable level of not more than 31% of their gross monthly income. All servicers of loans owned, securitized, or guaranteed by Fannie Mae or Freddie Mac were required to participate in HAMP as to those loans. Participation by servicers was voluntary as to loans not owned, securitized, or guaranteed by Fannie Mae or Freddie Mac, such as Wigod's loan.
Wells Fargo's participation in the HAMP program was governed by the Servicer Participation Agreement that it entered into with the Federal National Mortgage Association, or Fannie Mae, in its role as a financial agent of the United States. Under the Servicer Participation Agreement, Wells Fargo was required to evaluate all mortgage loans that had been delinquent for 60 days or more to determine whether they were eligible for modification under HAMP, and were also required to evaluate the mortgage loans of any of their borrowers who contacted them about a HAMP modification.
Under the terms of HAMP, a borrower is eligible for modification only if: (1) the mortgage involves the borrower's primary residence, (2) the amount owed does not exceed $729,750, (3) the borrower has a financial hardship, (4) the mortgage was originated before 2009, and (5) the monthly mortgage payments exceed 31% of the borrower's monthly income. See Supplemental Directive 09-01*fn1 (attached as Exhibit A to the Declaration of Steven Lezell) at 2-3. In addition, servicers are required to perform various evaluations of borrowers in order to determine whether the borrower is eligible for a permanent modification. Among the tests servicers perform is Net Present Value test, which evaluates a borrower's financial position to determine whether a modification would be profitable. Servicers also use a "waterfall" process to determine whether any combination of capitalizing unpaid interest and escrow fees, waiving late fees, reducing the interest rate to as low as 2%, and/or extending the term of the loan would reduce the borrower's monthly payment to no more than 31% of her monthly income. See Response [42-1] at 4 (citing various portions of Supplemental Directive 09-01).
A HAMP modification is carried out in two stages. First, an eligible borrower who has represented to her lender that she cannot afford the payments required under her mortgage loan receives a Trial Period Plan, or TPP, from her lender. The TPP requires the borrower to make reduced monthly mortgage payments during the trial period (Wigod's trial period was 4 months), while the lender suspends any scheduled foreclosure sale. The borrower also agrees to document her inability to pay under the terms of the mortgage loan if she has not already done so, and to obtain credit counseling if required by the lender.
The second stage consists of the borrower and lender entering into a Modification Agreement, under which the terms of the original mortgage loan are permanently modified. However, no permanent modification will occur if the borrower fails to make a required payment during the trial period, or if the lender determines that the borrower's representations about her financial condition are no longer true.
The parties dispute whether HAMP requires a lender to permanently modify a mortgage if the borrower makes all required payments and their financial representations remain true. Wigod alleges that because she satisfied both of those conditions, Wells Fargo was required to permanently modify her loan, citing in support the following language from the Trial Period Plan:
If I am in compliance with this Loan Trial Period and my representations in Section 1 continue to be true in all material respects, then the Lender will provide me with a Loan Modification Agreement, as set forth in Section 3, that would amend and supplement (1) the Mortgage on the Property, and (2) the Note secured by the Mortgage.
TPP (Exhibit A to the First Amended Complaint [23-1]) at 1. But Wells Fargo contends that it was not required to permanently modify a mortgage loan if it determined during the trial period that the borrower did not meet the requirements under HAMP for a modification, citing in support the following language from the Trial Period Plan:
I understand that the Plan is not a modification of the Loan Documents and that the Loan Documents will not be modified unless and until (I) I meet all of the conditions required for modification, (ii) I receive a fully executed copy of a Modification Agreement, and (iii) the Modification Effective Date has passed. I further understand and agree that the Lender will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any one of the requirements under this Plan.
After receiving Wigod's request for a loan modification under HAMP and financial disclosures she had also forwarded, Wells Fargo notified Wigod in mid-May 2009 that she qualified for a temporary loan modification. On May 28, 2009, Wigod received a Trial Period Plan from Wells Fargo, which she signed and returned "along with any final documents Defendant deemed were necessary to determine her eligibility." Am. Compl. [23-1] ¶ 33.
Beginning in July 2009, Wigod made each of the payments required during the four-month period covered by the Trial Period Plan. Wigod alleges that she also fully complied with all of the other terms of the Trial Period Plan, "such as keeping her information accurate and submitting all necessary paperwork." However, in a letter dated November 13, 2009, Wells Fargo notified Wigod that she was not eligible for a permanent modification of her mortgage loan:
Unfortunately, after carefully reviewing the information you've provided, we are unable to adjust the terms of your mortgage. You have not been approved for a mortgage loan modification because we were unable to get you to a modified payment amount ...