Weekend Economists Thanksgiving Leftovers November 29-30, 2014

[Demeter]

13. U.S.-Backed Mortgages Put to Test in an Innovative Lawsuit By Peter Eavis

http://dealbook.nytimes.com/2014/11/27/u-s-backed-mortgages-put-to-test-in-a-lawsuit/

When Hayward Ferrell of Huber Heights, Ohio, fell behind on his mortgage payments several years ago, his bank did not meet with him to try to work out a plan to make the loan easier to pay, he says.

“They never sat me down and said, ‘It looks like you are going to lose this, so why don’t you do this?’ ” he said. “They never did that.” The lender, U.S. Bank, foreclosed on the house in 2009.

Not engaging with borrowers who have missed payments may not seem like the strongest grounds for litigation against a bank. Yet that is the basis for an innovative lawsuit against U.S. Bank, a division of U.S. Bancorp, one of the largest banks in the country. The legal action could mean fresh legal problems for other big mortgage banks, as well. It is the latest threat to emerge from a barrage of cases that have forced big banks to pay tens of billions of dollars in recent months.

The lawsuit focuses on a popular type of government-guaranteed mortgage that in fact requires that banks take distinct steps — like trying to arrange a meeting — when borrowers stop paying...

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