Ohio Attorney General Richard Cordray and American Home Mortgage Servicing Inc. (AHMSI) have filed lawsuits against each other.
Cordray's suit against the Coppell, Texas-headquartered servicer alleges numerous violations of the Ohio Consumer Sales Practices Act, including ‘incompetent and inadequate’ customer service, failure to respond to requests for assistance, and unfair and deceptive loan modification terms, among other violations.
AHMSI's suit disputes those claims.
‘The acts of some mortgage servicers have gone beyond the point of being negligent – they have become predatory financial practices, and in Ohio, they won't be tolerated," says Cordray, who filed the suit in the Cuyahoga County Common Pleas Court.
According to Cordray, AHMSI required loan modification agreements that forced consumers to pay excessive fees and waive their rights in order to get help. The suit also alleges that the terms of loan modifications were unconscionably one-sided in favor of AHMSI.
The lawsuit seeks a permanent injunction from the continuation of unfair and deceptive loan modification practices, consumer restitution, civil penalties and damages. It also requests that the court order AHMSI to implement processes designed to provide efficient, competent and adequate customer service to all of its Ohio mortgage customers.
This is the second time Cordray has sued a servicer in recent months. In July, he sued Carrington Mortgage Services LLC, similarly claiming unfair and deceptive loan modifications. That case is currently in litigation in the Franklin County Court of Common Pleas. As of Sept. 30, Carrington implemented a voluntary 60-day moratorium on home foreclosures.
AHMSI received a letter from Cordray last week alerting the company of the attorney general's intention to sue AHMSI for unfair servicing practices. According to the company's executive vice president and chief legal office, Jordan Dorchuck, AHSMI offered to meet with representatives from Cordray's office in an attempt to resolve the alleged violations, but Cordray's office refused to discuss its allegations prior to filing suit.
"Although we respect the attorney general's commitment to serve the people of Ohio, we are convinced that these allegations are entirely without merit, and intend to defend ourselves vigorously against them," Dorchuck says.
Dorchuck says AHSMI was dismayed to receive Cordray's letter, citing positive feedback from Ohio borrowers and nonprofit agencies regarding the company's homeownership preservation efforts.
"Rather than wait to be named as a defendant in a suit that AHMSI considers to be rash and without merit, we elected to petition an Ohio state court for a declaration that AHMSI's servicing practices are fully compliant with Ohio law," Dorchuck adds.
AHSMI, which was founded in April 2008, services some 500,000 Alt-A and nonprime loans. The company did not originate any of the loans.
In a statement, the company also pointed to the loss mitigation actions it has taken on Ohio loans in recent months. Since October 2008, more than 2,200 AHMSI borrowers have entered into modifications that fall outside the federal Home Affordable Modification Program (HAMP). An additional 173 customers are currently proceeding under HAMP trial modifications.
AHMSI's non-HAMP modifications for the year ended Sept. 30 show that 74.8% of AHMSI borrowers with modified loans are performing after six months, compared with an industry average of 60%.
Cordray has also warned consumers to watch for certain red flags when entering into loan modifications, including agreements that include such words as "borrower has no right of set-off or counterclaim" or "no defense related to the loan or the property."