In a precedential opinion issued on March 9, 2017, the Third Circuit U.S. Court of Appeals affirmed the District Court of New Jersey's decision to allow a class action complaint to proceed on the basis that JP Morgan Chase violated the Homeowner's Protection Act in connection with a residential mortgage loan modification. Fried v. J.P. Morgan Chase & Co., Case No. 16-3069 (3d Cir., March 9, 2017).
At the crux of the case was whether the lender was permitted to use a current valuation of the home in determining to extend the borrower's obligation to pay mortgage insurance for a term that exceeded the original mortgage. The plaintiff purchased her home in 2007 for a contract price of $553,330. The appraised value was $570,000. The plaintiff borrowed $497,950 at a fixed interest rate to make her purchase and mortgaged the home as collateral. Because the loan-to-purchase-price ratio ($497,950 / $553,330) was more than 80%, the loan servicing company JP Morgan Chase Bank (that is, the entity that performs the day-to-day tasks for the loan, including collecting payments), required her to obtain private mortgage insurance. Fried was required to pay monthly premiums for that insurance until the loan to value ratio reached 78%; in other words, the principal of the mortgage loan needed to reduce to $431,597, which was projected to happen just before March 2016.
When the housing market crashed in 2008 the value of plaintiff's home decreased and she had trouble making her mortgage payments. Chase agreed to modify plaintiff's mortgage under the federal HAMP program by reducing the principal balance to $463,737. However, Chase extended Fried's mortgage insurance premiums for ten more years 2026. Her original mortgage provided for mortgage insurance premiums to cease just before March 2016.
Was Chase permitted under the Homeowners Protection Act to rely on an updated property value (post the 2008 market crash) to recalculate the length of a homeowner's mortgage insurance obligation following a modification, or must the ending of that obligation remain tied to the initial purchase price of the home?
The Third Circuit concluded that the mortgage insurance obligation remains tied to the initial purchase price. Read the full opinion.