Ginnine Fried v. JP Morgan Chase & Co

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 16-3069
________________
GINNINE FRIED
v.
JP MORGAN CHASE & CO;
JP MORGAN CHASE BANK NA, d/b/a/ Chase,
Appellants
________________
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 2-15-cv-02512)
District Judge: Honorable Madeline C. Arleo
________________
Argued January 18, 2017
Before: AMBRO, VANASKIE, and SCIRICA, Circuit Judges
(Opinion filed: March 9, 2017)
Leonard A. Gail, Esquire
Paul Berks, Esquire
Massey & Gail
50 East Washington Street, Suite 400
Chicago, IL 60602
Jonathan S. Massey, Esquire (Argued)
Massey & Gail
1325 G Street, N.W., Suite 500
Washington, DC 20005
Counsel for Appellants
Robert M. Brochin, Esquire
Morgan Lewis & Bockius
200 South Biscayne Boulevard
5300 Southeast Financial Center
Miami, FL 33131
Allyson N. Ho, Esquire
Morgan Lewis & Bockius
1717 Main Street, Suite 3200
Dallas, TX 75201
Judd E. Stone, Esquire
Morgan Lewis & Bockius
2020 K Street, N.W.
Washington, DC 20006
Counsel for Amicus Appellants:
American Bankers Association;
Consumer Mortgage Coalition;
Housing Policy Council;
Independent Community Bankers of America;
Mortgage Bankers Association
2
James E. Cecchi, Esquire
Lindsey H. Taylor, Esquire
Carella Byrne Cecchi Olstein Brody & Agnello
5 Becker Farm Road
Roseland, NJ 07068
Antonio Vozzolo, Esquire (Argued)
345 Route 17 South
Upper Saddle River, NJ 07458
Counsel for Appellee
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OPINION
_______________
AMBRO, Circuit Judge
Ginnine Fried bought a home in 2007 for $553,330. It
was near high tide in the real estate market, but she had to
believe she was getting a bargain, as an appraisal estimated
the home’s value to be $570,000. Fried 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%, JPMorgan Chase
Bank, N.A. (“Chase”), the servicer for Fried’s mortgage (that
is, the entity who performs the day-to-day tasks for the loan,
including collecting payments), required her to obtain private
mortgage insurance. Fried had to pay monthly premiums for
that insurance until the 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.
3
We now know that the housing market crashed in
2008, and the value of homes dropped dramatically. Fried,
like many homeowners, had trouble making mortgage
payments. Help came when Chase modified Fried’s mortgage
under a federal aid program by reducing the principal balance
to $463,737. The rub was that Chase extended Fried’s
mortgage insurance premiums an extra decade to 2026.
Whether it could do this depends on how we interpret the
Homeowners Protection Act (“Protection Act”), 12 U.S.C.
§ 4901 et seq. Does it permit a servicer to rely on an updated
property value, estimated by a broker, 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? We
conclude the Protection Act requires the latter.
I. BACKGROUND
Mortgage insurance protects the owner or guarantor of
mortgage debt—typically the Federal National Mortgage
Association (“Fannie Mae”) or Federal Home Loan Mortgage
Corporation (“Freddie Mac”)—from a borrower’s risk of
default. Traditional underwriting standards require
homebuyers to pay at least 20% of a home’s purchase price in
cash—that is, they require the homebuyer to obtain 20%
equity in the home at the time of purchase and finance 80% of
the home’s purchase price. If homebuyers cannot pay at least
20%, then they must purchase mortgage insurance. Once the
balance due on a home loan falls below 80% of the home’s
purchase price, mortgage insurance is no longer necessary
because “excessive [mortgage insurance] coverage does not
benefit the homeowner . . . and provides little extra protection
to a lender.” S. Rep. No. 105-129, at 3 (1997).
Before Congress took action by passing the Protection
Act in 1997, many lenders would continue to collect
4
mortgage insurance payments after a homeowner had gone
below the 80% loan-to-value mark. H.R. Rep. No. 105-55, at
6 (1997). In the Act Congress set national standards for
mortgage insurance termination. It requires mortgage
servicers to (1) provide periodic notices to a
borrower/mortgagor1 regarding mortgage insurance
obligations, (2) automatically terminate mortgage insurance
on a statutorily defined schedule, and (3) grant a borrower’s
request to cancel her mortgage insurance once certain
conditions are met. 12 U.S.C. §§ 4901-03.
Under the Protection Act, mortgage servicers must
automatically terminate mortgage insurance for a fixed-rate
loan like Fried’s on “the date on which the principal balance
of the mortgage . . . is first scheduled to reach 78 percent of
the original value of the property securing the loan.” 12
U.S.C. § 4901(18)(A). The “original value” of a home is “the
lesser of the sales price of the property securing the mortgage,
as reflected in the contract, or the appraised value at the time
at which the subject residential mortgage transaction was
consummated.” 12 U.S.C. § 4901(12). As noted, the purchase
price of Fried’s home was less than its appraised value, so her
home’s “original value” is $553,330. Seventy-eight percent of
that figure—the key value for mortgage insurance
termination—is $431,597.40. Under her loan’s amortization
schedule, Fried’s unpaid principal balance was set to reach
$431,597.40 just before March 1, 2016, and therefore her
mortgage insurance obligation would terminate on that date.
1
The Protection Act defines “mortgagor” as the
“original borrower under a residential mortgage or his or her
successors or assignees.” 12 U.S.C. 4901(11). We therefore
use “borrower,” “mortgagor,” and “homeowner”
interchangeably throughout this opinion.
5
When Fried ran into financial trouble following the
financial crisis of 2008, she and Chase agreed on January 10,
2011, to modify her mortgage under the Home Affordable
Mortgage Program (“HAMP”). The HAMP was enacted as
part of the Emergency Economic Stabilization Act of 2008 in
response to the financial and housing crisis of that time. See
Spaulding v. Wells Fargo Bank, N.A., 714 F.3d 769, 772 (4th
Cir. 2013). Under the HAMP, participating mortgage
“servicers agreed to identify homeowners who were in default
or would likely soon be in default on their mortgage
payments, and to modify the loans of those eligible under the
program. In exchange, servicers would receive a $1,000
payment for each permanent modification, along with other
incentives.” Id. at 773 (quoting Wigod v. Wells Fargo Bank,
N.A., 673 F.3d 547, 556 (7th Cir. 2012)). Per the modification
agreement she reached with Chase, the principal balance of
Fried’s loan was reduced to $463,736.98.
The Protection Act provides for the treatment of
mortgage modifications in 12 U.S.C. § 4902(d):
If a mortgagor and mortgagee (or holder of the
mortgage) agree to a modification of the terms
or conditions of a loan pursuant to a residential
mortgage transaction, the cancellation date,
termination date, or final termination shall be
recalculated to reflect the modified terms and
conditions of such loan.
Accordingly, Chase was required to update Fried’s
termination date to reflect the “modified terms and
conditions” to which the parties “agree[d.]” Pursuant to the
loan’s modified amortization schedule (modified, that is, to
account for the reduced principal), Fried’s outstanding
principal balance would reach 78% of her home’s original
value ($431,597) in July 2014. Compl. ¶¶ 47, 50.
6
After receiving the modification, Fried asked Chase
when she would be relieved of her obligation to make
monthly mortgage insurance payments. On August 31, 2012,
Chase responded that her mortgage insurance obligation
would automatically terminate on November 1, 2026. This
date was ten years later than her mortgage insurance
termination date before the modification and twelve years
later than the recalculated date based on her decreased
principal balance. Her monthly mortgage insurance premium
is approximately $252.83, so a ten-year extension of those
premiums would cost her an additional $30,339.60. See
Compl. ¶ 6.
With this in mind, Fried wrote Chase to question the
new termination date and ask how the bank reached its
conclusion. It responded on October 10, 2012, and April 9,
2013, stating that November 1, 2026, is “when the loan will
reach 78% based on the modified terms and conditions.”
Compl. ¶ 53. Seventy-eight percent of what exactly Chase did
not say, so Fried wrote again.
Chase’s response on October 4, 2013, clarified how it
arrived at the 2026 termination date. In order to participate in
the HAMP program, it was required to obtain a Broker’s
Price Opinion (“BPO”) estimating the value of Fried’s home
at the time of the modification. A BPO is a much less
rigorous estimate of a property’s market value than is an
appraisal. See In re Thomas, 344 B.R. 386, 393 (Bankr. W.D.
Pa. 2006) (“Full appraisals, not just the ‘drive by’ Broker’s
Price Opinion, are used . . . when the matter is contested.”);
see also In re Kasbee, 466 B.R. 719, 723 (Bankr. W.D. Pa.
2010) (bank “realized that the comparables utilized in the
BPO were inadequate and that as a result it was obtaining a
full appraisal to determine the true value”).
7
In any event, Chase explained that it had substituted its
BPO of $420,000 for the home’s $553,330 original value.
Because the BPO was much smaller, Fried would not pay
down her outstanding principal balance to 78% of the BPO
(78% x $420,000 = $327,600) until November 1, 2026.
It is worth pausing for a moment to understand the
math behind Chase’s purported extension of Fried’s mortgage
insurance obligation. Remember that the mortgage insurance
obligation ends when Fried has paid down the principal
balance owed on her mortgage to 78% of her home’s original
value. That is, she must pay down her mortgage balance to
78% of $ 553,330, which is $431,597.
In this way, the Protection Act’s mortgage insurance
termination date sets a finish line that homeowners go toward
by paying down their mortgage debts. Fried started with a
mortgage debt of $497,950 and would reach her finish line
once the outstanding principal debt was $431,597. Put
differently, she would cross this threshold after making
$66,353 of payments toward her mortgage’s principal
balance, which, according to her initial amortization schedule,
she would do in 2016. When her mortgage was modified,
Fried leapt forward toward her goal: the modification
decreased her outstanding principal balance to $463,737, so
she would reach the $431,597 finish line sooner, in 2014, by
making just $32,140 in principal payments. But when Chase
substituted the BPO for the original value of Fried’s home, it
moved the finish line. Seventy-eight percent of the $420,000
BPO is $327,600. According to her modified amortization
schedule, Fried would not pay down her mortgage debt to
Chase’s new $327,600 finish line—more than $136,137 in
mortgage principal payments away—until 2026.
In April 2015, Fried filed a complaint on behalf of
herself and similarly situated individuals. She asserted that by
8
relying on the BPO to calculate her mortgage insurance
termination date, rather than her home’s original value, Chase
violated the Protection Act. Chase filed a motion to dismiss,
contending that its substitution of the BPO for the original
value did not violate the Protection Act and that Fried’s
action was barred by the Act’s two-year statute of
limitations.2
The District Court denied Chase’s motion but certified
its appeal to our Court, recognizing that whether Chase
violated the Protection Act is a controlling question of law
with substantial ground for difference of opinion that is likely
to advance this case’s resolution. See 28 U.S.C. § 1292(b);
Katz v. Carte Blanche Corp., 496 F.2d 747, 754 (3d Cir.
1974) (en banc). We agreed to hear the appeal.
II. ANALYSIS
Chase contends that it was entitled to recalculate
Fried’s termination date by substituting the BPO it obtained at
the time of the modification for her home’s original value. It
equivocates on whether it could do this only because of
certain HAMP rules or whether the Protection Act would
permit the substitution more generally. In either case Chase is
2
The complaint names both Chase and its parent
company, JPMorgan Chase & Co. (“JPMC”), as defendants.
While the District Court did not address the issue in its
opinion, parent companies are not, merely by dint of
ownership, liable for the acts of their subsidiaries. Pearson v.
Component Tech. Corp., 247 F.3d 471, 484 (3d Cir. 2001). At
oral argument, Fried’s counsel acknowledged that the
complaint did not allege any wrongdoing by JPMC itself and
that the claims against JPMC should be dismissed. Oral
Argument Jan. 18, 2017, at 25:10-13.
9
wrong: the Protection Act required calculation of Fried’s
termination date on the basis of her home’s original value,
which under the Act is its purchase price.
Whether Fried knew or should have known of Chase’s
violation of the Protection Act outside of the statute-of-
limitations period is not clear on the face of her complaint,
and thus the District Court was correct not to dismiss on this
ground.
A. The Homeowners Protection Act
1. The Statute’s Text
Under the Protection Act a homeowner’s obligation to
pay mortgage insurance premiums ends on the “termination
date if, on that date, the mortgagor is current on the payments
required by the terms of the residential mortgage
transaction[.]” 12 U.S.C. § 4902(b)(1). For a fixed-rate
mortgage, like Fried’s, the termination date is
the date on which the principal balance of the
mortgage, based solely on the initial
amortization schedule for that mortgage, and
irrespective of the outstanding balance for that
mortgage on that date, is first scheduled to
reach 78 percent of the original value of the
property securing the loan[.]
12 U.S.C. § 4901(18)(A). Simply put, a homeowner’s
termination date is when she will have paid down her loan’s
principal balance to the point that it equals 78% of her home’s
10
original value.3 All agree that the original value of Fried’s
home in 2007 was its purchase price of $553,330.
When Fried and Chase agreed to modify her mortgage
in 2011, another provision of the Protection Act came into
play. Section 4902(d) provides that “[i]f a mortgagor and
mortgagee . . . agree to a modification of the terms or
conditions of a loan . . . [, the] termination date . . . shall be
recalculated to reflect the modified terms and conditions of
such loan.” The process envisioned by § 4902(d) is that we
ask which terms or conditions of Fried’s loan she and Chase
agreed to modify; then we recalculate her termination date to
reflect the modified terms and conditions.
Recall that to calculate initially the termination date
for mortgage insurance payments we must determine when
the principal balance of the mortgage is first scheduled to
reach 78% of the original value of the property securing the
loan. 12 U.S.C. § 4901(18). There is no question that Fried’s
agreement with Chase modified the outstanding principal
balance of her mortgage by reducing it to $463,737, so her
termination date needed to be recalculated to account for that
change. Reducing a homeowner’s principal balance moves
her closer to the finish line established by the termination
date—in Fried’s case, the date at which her outstanding
principal balance would reach $431,597. According to the
modified amortization schedule reflecting the reduced
principal balance, the termination date, per 12 U.S.C.
§ 4902(d), would be recalculated to occur in 2014.
3
A homeowner’s mortgage insurance obligation will
not end per § 4902(b)(1) on her termination date if she is not
“current on the payments required by the terms of the
residential mortgage transaction[,]” but that issue is not raised
in this case.
11
But Chase went one step further. It replaced the
original value of Fried’s home with its BPO estimating the
home’s value at the time of the 2011 modification. The
BPO’s estimate was substantially less than her home’s
original value. So the substitution had the effect of moving
Fried’s finish line further away: she was not scheduled to pay
down her debt to 78% of the BPO’s $420,000 value (as noted,
$327,600) until 2026.
According to Fried’s complaint, her written agreement
with Chase did not explicitly mention or change the original
value of her home as defined by § 4901(12).4 Compl. ¶ 51.
4
Indeed, it is not obvious that even an explicit
agreement could depart from § 4901(12)’s definition of
“original value.” The Protection Act sets a timeline for
terminating mortgage insurance premiums on the basis of
specific facts about the property and elements of the mortgage
transaction: the purchase price or appraised value of the home
and the loan’s amortization schedule. 12 U.S.C. § 4901(18).
Section 4902(d) updates that timeline with respect to terms
and conditions of the loan, like the amortization schedule, that
have been modified. But a home’s purchase price and
appraised value are not terms of the loan; they are facts that
do not change with the loan’s provisions.
Moreover, permitting lenders and servicers to modify
at will the mortgage insurance termination date set by the
Protection Act by redefining “original value” would arguably
undermine the Act’s purpose—to safeguard consumers from
overpaying mortgage insurance premiums by setting a
consistent and predictable termination date. If lenders and
servicers could contract around the Act’s timeline by
redefining key terms, the Act would be no more than a
12
Chase does not contend otherwise, but instead responds that
substitution of the BPO for the home’s original value was
permissible because it was a “term” or “condition” of Fried’s
modification under § 4902(d) that the HAMP rules required.
Hence we turn to those rules.
The Making Home Affordable Program Handbook for
Servicers of Non-GSE Mortgages (the “HAMP Handbook”)
states that “[s]ervicers must obtain an assessment of the
current value of the property securing the mortgage loan
being evaluated for HAMP.” HAMP Handbook, 6.8 Property
Valuation, Version 3.0, 73, available at
https://www.hmpadmin.com/portal/programs/docs/hamp_serv
icer/mhahandbook_30.pdf (December 2, 2010). It goes on to
specify that “[s]ervicers may use either an automated
valuation model (AVM), . . . a broker’s price opinion (BPO),
or an appraisal” to measure the property’s value at the time of
modification. Id. The Handbook, however, says nothing about
using the BPO to calculate the period of a homeowner’s
mortgage insurance obligation. HAMP rules told Chase to get
the BPO, but they did not require Chase to substitute that
value for the “original value” that the statute, § 4901(18),
relies on to compute the mortgage insurance termination date.
Chase responds that, even if not required by the
HAMP, use of the BPO for the termination date calculation
was a “condition” of the modification because Chase would
not have modified the loan without first getting an updated
property valuation. This argument suffers from the same
logical flaw as Chase’s argument tied more closely to the
HAMP Handbook: even if Chase’s obtaining a BPO was a
prerequisite to Fried’s mortgage modification, that cursory
calculation does not replace under the Protection Act the
contractual default rule that a few lines of boilerplate could
override. This issue, however, we need not decide.
13
original value of Fried’s property for mortgage insurance
purposes.
Should we interpret “conditions” expansively to
include any necessary precursors to the modification of
Fried’s loan? We think not, as § 4902(d) relies on changes to
the terms and conditions of the loan itself. No matter what led
to the modification, the key inquiry is which of the loan’s
terms and conditions were modified, not any conditions
precedent.
Most significantly, however, the Protection Act
updates the termination date only with respect to the loan
provisions that the parties “agree” to modify: “If a mortgagor
and mortgagee . . . agree to a modification of the terms or
conditions of a loan . . . [, the] termination date [for mortgage
insurance payments] . . . shall be recalculated to reflect the
modified terms and conditions of such loan.” 12 U.S.C.
§ 4902(d). Here we come full circle to what did Fried and
Chase actually agree.
The obvious objection is that if courts must look to
each modification agreement to determine which terms and
conditions the borrower agreed to modify in order to calculate
the mortgage insurance obligation, the inquiry will be so
individualized and factually intensive as to destabilize the
mortgage market. But calculation of an updated termination
date always requires reference to the modification agreement.
There is no other way to know which terms and conditions of
the loan have been modified. At the least, the updated
principal balance and interest rate (whether fixed or variable)
will depend on the agreement. Moreover, as Fried points out,
inquiry into the terms of modification agreements likely will
be a routine exercise, as servicers like Chase use an industry
standard form for modifications. See, e.g., Rice v. Green Tree
Servicing, LLC, No. 3:14-CV-93, 2015 WL 5443708, at *5
14
(N.D.W. Va. Sept. 15, 2015) (“Under the Servicing
Guidelines, servicers are directed to use Form 3157, a
standard form, during the loan modification process . . . .”).
Chase retorts that, regardless what its written
agreement with Fried might say, its reliance on the BPO was
justified because “all applicable or relevant laws must be read
into the agreement of the parties just as if expressly provided
by them, except where contrary intention is evident.”
Williams v. Stone, 109 F.3d 890, 896 (3d Cir. 1997) (quoting
Wright v. Commercial & Sav. Bank, 464 A.2d 1080, 1083
(Md. 1983)). According to Chase, Fried impliedly agreed to
substitute the BPO’s estimate for her home’s original value
because the HAMP Handbook provided the background law
for the modification agreement.
We disagree, for (as already discussed) nothing in the
HAMP’s requirements (even assuming they are “applicable or
relevant laws”) required substitution of the BPO for original
value. And, in any event, § 4902(d) updates a homeowner’s
termination date to reflect the terms and conditions of her
loan she agreed to modify and does not incorporate the
provisions of a handbook that guides her servicer.
What is ironic is that Chase advocates a heads-I-win,
tails-you-lose, interpretation of the HAMP. As the Seventh
Circuit observed, when “homeowners [have] tried to assert
rights arising under HAMP itself [against servicers,] [c]ourts
have uniformly rejected these claims because HAMP does not
create a private federal right of action for borrowers against
servicers.” Wigod, 673 F.3d at 559 n.4; see also Senter v.
JPMorgan Chase Bank, N.A., 810 F. Supp. 2d 1339, 1350–51
(S.D. Fla. 2011) (“Plaintiffs’ reliance on the HAMP
Guidelines[,] rather than a formula contained in their
[agreements with Chase] to provide the terms of their
permanent modifications[,] is an improper attempt to assert a
15
private right of action under the HAMP.”); Puzz v. Chase
Home Fin., L.L.C., 763 F. Supp. 2d 1116, 1123 (D. Ariz.
2011) (“Even assuming that HAMP guidelines encourage
lenders to provide [certain benefits] to their debtors, there is
no authority for the proposition that HAMP or its regulations
or guidelines create a private right of action against lenders
who begin foreclosure without doing so.”); Coulibaly v. J.P.
Morgan Chase Bank, N.A., No. CIV.A. DKC 10-3517, 2011
WL 3476994, at *15 (D. Md. Aug. 8, 2011) (“Plaintiffs may
not establish liability by relying on Chase’s alleged violations
of certain servicing guidelines promulgated by the U.S.
Department of the Treasury in connection with HAMP.”).5
The proverb “what is good for the goose is good for the
gander” applies: the HAMP’s provisions do not bind the
parties to a mortgage modification only when they benefit
Chase.
Moreover, courts have held—at least twice at Chase’s
behest—that the HAMP’s rules are not themselves the terms
of modification agreements between borrowers and servicers.
E.g., Short v. Chase Home Fin. LLC, No. CV-11-133-PHX-
DGC, 2011 WL 9160941, at *3 (D. Ariz. Aug. 22, 2011)
(“HAMP is not a contract between Plaintiffs and Chase, and
did not amend Plaintiffs’ loan documents.”); Wright v. Chase
Home Fin. LLC, No. CV-11-0095-PHX-FJM, 2011 WL
2173906, at *2 (D. Ariz. June 2, 2011) (“HAMP is not a
contract between plaintiff and defendants, did not amend
plaintiff’s loan contracts, and does not contain a private right
of action.”); see also Grona v. CitiMortgage, Inc., No. 3-12-
0039, 2012 WL 1108117, at *5 (M.D. Tenn. Apr. 2, 2012)
5
Where courts have allowed HAMP-related actions, the
substantive “claims [were] based on contract, tort, and/or
state consumer fraud statutes[,]” rather than the provisions of
the HAMP itself. Wigod, 673 F.3d at 559 n.4.
16
(“HAMP is not a contract between Plaintiff and Defendant.
HAMP did not modify Plaintiff's Loan Documents, and
HAMP does not contain a private right of action.”).
For these reasons, the Protection Act’s text does not
support replacement of the $553,330 original value of Fried’s
home with Chase’s $420,000 BPO.
2. Statutory Structure and Legislative History
Chase looks to the Protection Act’s statutory structure
and legislative history to counter the result we reach, but
these guides to the Act’s intent only strengthen our
conclusion. Congress amended in 2000 the Protection Act
with respect to loan modifications and refinancing
transactions. See Private Mortgage Insurance Technical
Corrections and Clarification Act (the “Corrections Act”),
P.L. 106-569, 114 Stat. 2944 (2000) (amending 12 U.S.C. §§
4901, 4902, 4903, 4905). The purpose of the Corrections Act
was, among other things, to eliminate “uncertainty relating to
the cancellation and termination of [mortgage insurance] for .
. . loans whose terms or rates are modified over the life of the
loan.” 146 Cong. Rec. H. 3578-02, H3579 (May 23, 2000).
With respect to mortgage refinance transactions, which
are distinct from mortgage modifications, Congress amended
the definition of “original value” such that “[i]n the case of a
residential mortgage transaction for refinancing the principal
residence of the mortgagor, [original value] means only the
appraised value relied upon by the mortgagee to approve the
refinance transaction.” 12 U.S.C. § 4901(12). Thus, when a
homeowner refinances her home mortgage loan, the “original
value” of her home will become the appraised value relied on
17
by the mortgagee.6 And, accordingly, her termination date
will reflect the new “original value.” See 12 U.S.C.
§ 4901(18).
But for mortgage modifications Congress did not make
any such provision to update a home’s original value. Instead,
with respect to modifications like Fried’s, Congress added the
language discussed above that “[i]f a mortgagor and
mortgagee . . . agree to a modification of the terms or
conditions of a loan pursuant to a residential mortgage
transaction, the . . . termination date . . . shall be recalculated
to reflect the modified terms and conditions of such loan.”
Corrections Act, PL 106–569, 114 Stat 2944 (2000); 12
U.S.C. § 4902(d). Unlike the refinance provision, the
language Congress chose for mortgage modifications does not
change the “original value” of a home when the modification
occurs. Only the “terms and conditions” of the loan modified
by the parties’ agreement are updated, and, for the reasons
detailed earlier, replacement of the original value with some
other value is not necessarily one of them.
Chase contends that “Congress used different language
and different statutory provisions with respect to loan
modifications and refinanc[ings], but it provided that updated
property valuations be used for [both modifications and
refinancing transactions].” Chase’s Reply at 14. Of course,
6
Notably, even for a refinance transaction the “original
value” is not necessarily the value of the home at the time of
refinancing. Section 4901(12) incorporates the “appraised
value relied upon by the mortgagee to approve the refinance
transaction.” Id. (emphasis added). If the mortgagee relied on
the appraisal performed at the time of the home’s initial sale,
that appraised value would remain the “original value” of the
home even after the refinancing.
18
when Congress uses different language in the same act, we
usually presume the opposite—that different language points
to a different result. INS v. Cardoza-Fonseca, 480 U.S. 421,
432 (1987) (“Where Congress includes particular language in
one section of a statute but omits it in another section of the
same Act, it is generally presumed that Congress acts
intentionally and purposely in the disparate inclusion or
exclusion” (internal brackets, quotation marks, and citation
omitted)).
Here the distinction Congress drew makes sense.
When a borrower refinances her mortgage, she pays off her
old debt with a new loan, often from a different lender. A
refinancing is a new “residential mortgage transaction.” 12
U.S.C. § 4901(15) (“a transaction . . . in which a mortgage . . .
or . . . security interest is created or retained . . . to finance the
acquisition, initial construction, or refinancing of that
dwelling”). The new lender thus should not be bound by the
property valuation relied on by the initial lender.
A modification, on the other hand, is merely “an
alteration or amendment” to the existing mortgage contract,
see Modification, Black’s Law Dictionary (10th ed. 2014),
and is not a new “residential mortgage transaction,” see 12
U.S.C. § 4901(15). While the Protection Act presumes that a
lender will rely on an appraisal before completing a
refinancing transaction, see 12 U.S.C. § 4901(18), the HAMP
Handbook makes clear an appraisal is not a prerequisite to a
mortgage modification. HAMP Handbook, at 73 (“Servicers
may use either an automated valuation model (AVM), . . . a
broker’s price opinion (BPO), or an appraisal.”).
Chase directs us to several passages of the
Congressional Record to support its contention that
§ 4902(d)—despite its text—permits substitution of an
updated property value at the time of modification for a
19
home’s original value.7 Not one of the passages it points to
actually says that, nor do they overcome § 4902(d)’s text,
structure, or amendment history.
Congress reasonably chose to treat mortgage
modifications and refinancing transactions differently. Its
explicit command to update the original value of a home
when a mortgage is refinanced is strong evidence that it
declined to permit such an update impliedly for mortgage
modifications.
3. Fannie Mae Servicing Guidelines
Chase next argues that the Fannie Mae Servicing
Guidelines support its position. Unlike the sources discussed
above, they do permit what Chase did. However, we decline
to follow the Servicing Guidelines because the Protection Act
explicitly overrides them, and Fannie Mae’s interpretation of
the Protection Act is not entitled to deference.
Taken together, Fannie Mae and Freddie Mac “own or
guarantee close to half of the home loans in the United
7
For example, both in its brief and at oral argument
Chase brought our attention to a statement of the Corrections
Act’s sponsor that the bill “clarifies that[,] in the case of . . .
loan modifications, [loan-to-value] calculations are made
based on the most recent amortization schedule, not based on
an outdated schedule.” 146 Cong. Rec. H. 3578-02, H3580
(May 23, 2000). But Fried does not dispute that an updated
amortization schedule must be used to calculate her
termination date. The amortization schedule was necessarily
altered when her principal balance was decreased as agreed in
the mortgage modification. Chase’s mistake was its reliance
as well on an updated value for her home.
20
States.” See Town of Babylon v. Fed. Hous. Fin. Agency, 699
F.3d 221, 225 (2d Cir. 2012). Even for mortgages not owned
or guaranteed by them, mortgage lenders and servicers “are
guided in their decisions by Fannie Mae and Freddie Mac
requirements.” Id. (internal quotation marks omitted). As is
typical in the secondary mortgage market, the pooling-and-
servicing agreement between Chase and the owners of Fried’s
mortgage debt incorporates the Fannie Mae Servicing
Guidelines.8
The Guidelines provide that servicers must calculate
“[mortgage insurance] termination eligibility . . . [by] us[ing]
the amortization schedule of the modified mortgage loan and
the property value at the time of the mortgage loan
modification.” Fannie Mae Servicing Guide, B-8.1-04:
Termination of Conventional Mortgage Insurance,
https://www.fanniemae.com/content/guide/servicing/b/8.1/04.
html (Jan. 18, 2017) (emphasis added). The Guidelines add
that servicers must “adhere to applicable state law related to
the type of valuation to use to determine the property value at
8
Chase does not argue that the pooling-and-servicing
agreement or the Fannie Mae Guidelines it incorporates are
directly binding on Fried. See e.g., Fellows v. CitiMortgage,
Inc., 710 F. Supp. 2d 385, 405 (S.D.N.Y. 2010) (Servicing
Guidelines are not incorporated into contracts between
borrowers and lenders). It relies on the Fannie Mae Servicing
Guidelines only as an interpretive guide to the Protection Act.
See Oral Argument Jan. 18, 2017, at 34:14-22 (“[W]e’re not
contesting that the statute obviously ranks higher than . . . the
Fannie Mae guide, but in trying to understand what 4902(d)
means, we would look to Fannie Mae’s consistent
interpretation since 2010[.]”).
21
the time of the mortgage loan modification[,]” but that
generally “[a] BPO or a new appraisal may be used[.]” Id.
According to Chase, the Servicing Guidelines provide
the definitive interpretation of the Protection Act’s
requirements. But Congress anticipated the possibility of
conflicts between the Act and pooling-and-servicing
agreements that rely on the Servicing Guidelines and
explicitly provided that the Protection Act would take
precedence:
The provisions of this chapter shall supersede
any conflicting provision contained in any
agreement relating to the servicing of a
residential mortgage loan entered into by the
Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, or
any private investor or note holder (or any
successors thereto).
12 U.S.C. § 4908(b). If the Servicing Guidelines would
produce a result that departs from the Protection Act’s text,
there is a conflict, and per § 4908(b) the statute prevails.
Chase contends that we should defer to Fannie Mae’s
interpretation of the Protection Act under the doctrine of
Skidmore v. Swift & Co., 323 U.S. 134 (1944), which offers
deference according to the “‘thoroughness evident in [the
agency’s] consideration, the validity of its reasoning, its
consistency with earlier and later pronouncements, and all
those factors which give it power to persuade, if lacking
power to control.’” Gonzales v. Oregon, 546 U.S. 243, 268
(2006) (quoting Skidmore, 323 U.S. at 140). But Fannie
Mae’s Guidelines are not entitled to deference. First, they
simply do not square with the text of the Protection Act.
22
Second, Skidmore deference is available only to
agencies interpreting the statutes they administer. See Mead
Corp., 533 U.S. at 228. Fannie Mae and Freddie Mac are not
administrative agencies. They “are federally-chartered but
privately owned corporations that issue publicly traded
securities.” Delaware Cty., Pa. v. Fed. Hous. Fin. Agency,
747 F.3d 215, 219 (3d Cir. 2014).9
Nor does it administer the Protection Act. When
Congress passed the Act it did not designate a regulator to
interpret it. 146 Cong. Rec. H. 3578-02, H3581 (May 23,
2000) (“Unfortunately, when we passed the Homeowner’s
Protection Act, we were unable to prevail on one issue, and
that was to actually have a regulator to work out some of the
details of the statute and the underlying policy.” (Rep.
Vento)). Indeed, if deference to any entity would be
appropriate under the Protection Act, we would owe it to the
several financial regulatory agencies that Congress authorized
to enforce the Act. See 12 U.S.C. § 4909(b).
Fourth, application of the Servicing Guidelines in this
context would conflict with guidance issued by the Consumer
Financial Protection Bureau (“CFPB”), one of the agencies
9
When Fannie Mae and Freddie Mac were in desperate
financial distress in 2008, “Congress created [an agency
called the Federal Housing Finance Agency] to act as
conservator for Fannie and Freddie.” Delaware Cty., 747 F.3d
at 219 (internal quotation marks and citation omitted). “A
conservatorship is like a receivership, except that a
conservator, like a trustee in a reorganization under Chapter
11 of the Bankruptcy Code, tries to return the bankrupt party
to solvency, rather than liquidating it.” Id. (internal quotation
marks and citation omitted).
23
authorized to enforce the Protection Act. A CFPB
Compliance Bulletin provides as follows:
Many mortgage loans are owned by
Government-Sponsored Enterprises, or GSEs,
such as Fannie Mae or Freddie Mac. These and
other loan investors often create their own
internal [mortgage insurance] cancellation
guidelines that may include [mortgage
insurance] cancellation provisions beyond those
that the [Protection Act] provides.
The CFPB cautions servicers to implement
investor guidelines in a way that does not lead
them to violate consumer financial law. Both
the [Protection Act] and some investor
requirements contain similar [loan-to-value]
thresholds for [mortgage insurance] cancellation
and termination, and use similar measures of the
property’s value. Servicers should nonetheless
remember that investor guidelines cannot
restrict the [mortgage insurance] cancellation
and termination rights that the [Protection Act]
provides to borrowers.
CFPB Bulletin 2015-03, Compliance Bulletin: Private
Mortgage Insurance Cancellation and Termination, at 5,
http://files.consumerfinance.gov/f/201508_cfpb_compliance-
bulletin-private-mortgage-insurance-cancellation-and-
termination.pdf (Aug. 4, 2015) (emphasis in original). Chase
relied on the Servicing Guidelines to extend Fried’s mortgage
insurance obligation and thereby limited her termination
rights, things (as the Bulletin advises) they cannot do.
24
Finally, as noted above, Fannie Mae and Freddie Mac
own or guarantee nearly half the home mortgage loans in
America. Mortgage insurance covers against loss to a loan’s
owner or guarantor from a borrower’s default, and Fannie
Mae is the beneficiary of mortgage insurance. See 12
U.S.C. § 1717(b)(2) (Fannie Mae charter provision requiring
mortgage insurance when the outstanding principal balance of
the mortgage at the time of purchase exceeds 80% of the
value of the property securing the mortgage). Consequently,
when it sets mortgage-insurance-related guidelines, Fannie
Mae is not acting as an administrative agency neutrally
interpreting laws for the marketplace; it is a market
participant interpreting laws for the benefit of its shareholders
and is not entitled to deference.
For these reasons, the Fannie Mae Servicing
Guidelines are not persuasive and do not alter our conclusion
that, taking the facts alleged in Fried’s complaint as true,
Chase violated the Protection Act.
4. Purpose and Consequences
Hoping to avoid the result dictated by the Protection
Act’s text, Chase contends that the statute’s purpose and the
consequences of the District Court’s interpretation support
reversal. We disagree.
Chase notes that the purpose of the Protection Act is to
protect consumers from continuing to pay mortgage insurance
premiums after they have accrued 20% equity in their homes,
at which point mortgage insurance is no longer necessary.
Our interpretation of the Protection Act is at odds with this
purpose, Chase contends, because Fried (whose home’s value
dropped) may stop paying mortgage insurance premiums
before she reaches 20% equity, while other consumers (whose
25
home values have risen) may continue paying after obtaining
20% equity.
When Congress enacted the Protection Act, however,
it chose to prioritize predictability of consumers’ mortgage
insurance obligations over economic precision. The Act sets a
homeowner’s mortgage insurance termination date as the day
her outstanding principal balance “is first scheduled to reach
78 percent of the original value of the property securing the
loan[.]” 12 U.S.C. § 4901(18). Because housing values can
fluctuate with national economic trends (as Fried’s example
demonstrates), the Protection Act’s timeline does no more
than approximate the economic need for mortgage insurance
in any particular case. This sacrifice of precision for
predictability allows the Act to provide both consumers and
lenders with certainty as to their respective mortgage
insurance obligations from the moment the original value is
known and the amortization schedule is set.
Chase contends that, while Fried is harmed by the
replacement of her home’s original value with an updated
value, most consumers would benefit from such a
substitution. Its rationale is that, because most home values
rise over time, we can safely assume that most borrowers
seeking mortgage modifications will see the value of their
homes increase between purchase and modification, and thus
substitution of new for old home values will lead to shorter
mortgage insurance obligations for most borrowers.
Based on recent history, the links in Chase’s logical
chain are weak. It is far from obvious that most homeowners
seeking mortgage modifications would have seen their
individual homes follow this upward trend. Indeed, if most
homeowners receiving modifications bought during the recent
housing bubble and modified after the burst, substitution of
updated housing values for original values would
26
substantially increase their premium burdens if mortgage
insurance termination dates change as Chase claims. It is
exactly this narrative that Fried’s case represents.
When it passed the Protection Act, Congress made a
tradeoff between precision and predictability that we are not
free to rebalance. Accordingly, we affirm the District Court’s
holding that Fried has adequately stated a claim that Chase
violated the Act.
B. Statute of Limitations
This case is before us because the District Court
certified interlocutory review of the controlling question of
law discussed above. However, “once leave to appeal is
granted the court of appeals is not restricted to a decision of
the question of law which in the district judge’s view was
controlling.” Katz, 496 F.2d at 754. Thus our Court may
consider the other ground for dismissal Chase asserted in the
District Court.
The Protection Act’s statute of limitations provides
that “[n]o action may be brought by a mortgagor . . . later
than 2 years after the date of the discovery of the violation
that is the subject of the action.” 12 U.S.C. § 4907(b). Chase
contends that Fried discovered its alleged violation of the
Protection Act more than two years before she filed her
complaint and that it therefore must be dismissed.
“Technically, the Federal Rules of Civil Procedure
require a defendant to plead an affirmative defense, like a
statute of limitations defense, in the answer, not in a motion
to dismiss.” Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir.
2014). “In this circuit, however, we permit a limitations
defense to be raised by a motion under Rule 12(b)(6) only if
the time alleged in the statement of a claim shows that the
27
cause of action has not been brought within the statute of
limitations.” Id. (internal quotation marks and citation
omitted). “Since the applicability of the statute of limitations
usually involves questions of fact for the jury,” Van Buskirk
v. Carey Can. Mines, Ltd., 760 F.2d 481, 498 (3d Cir. 1985),
“if the bar is not apparent on the face of the complaint, then it
may not afford the basis for a dismissal of the complaint
under Rule 12(b)(6)[,]” Schmidt, 770 F.3d at 249 (internal
quotation marks, brackets, and citation omitted).
Chase argues that the statute of limitations began to
run in August 2012 when Fried received its letter with the
2026 mortgage insurance termination date. But, after
receiving that letter, Fried wrote back to ask how Chase
arrived at the new date. It responded in October 2012 that
“November 1, 2026 . . . is the date when the loan will reach
78% based on the modified terms and conditions.” Compl. ¶
53. Even then, the denominator of the fraction (78% of
what?) remained a mystery. It was only in October 2013,
following additional inquiries, that Chase specified that it
used the BPO estimate of $420,000 obtained at the time of the
mortgage modification to calculate Fried’s termination date.
Fried filed her complaint less than two years later in April
2015.
Whether Fried knew or should have known of “the
violation that is the subject of [her] action[,]” 12 U.S.C.
§ 4907(b), when she received notice of the new termination
date or notice of the basis of its calculation is a factual
question. She asserts that she did not know, and could not
have known, of the violation until she knew why Chase had
said that her mortgage insurance obligation would
automatically terminate in 2026. Indeed, the argument
continues, until she knew the basis of Chase’s move-back of
the mortgage insurance finish line, she could not have known
28
whether it was Chase’s conduct (or some other entity’s) that
may have violated the Act.
Moreover, when she received Chase’s letters, Fried
had not yet suffered the sort of injury that ordinarily would
put one on notice of a legal violation. Her initial mortgage
insurance obligation ran through March 1, 2016 (and her
correctly modified termination date would have fallen in July
2014). Thus, when Fried received Chase’s letters in 2012 and
2013, she was still paying mortgage insurance premiums as
expected and had not yet been required to pay premiums she
did not owe.
Fried’s plausible contentions are enough to defeat
Chase’s motion to dismiss. Which of Chase’s letters would
have led Fried to discover her action is a factual question, and
the answer to it is not clear from the face of the complaint.
See Schmidt, 770 F.3d at 249. It is ripe for our remand.
* * * * *
The Protection Act sets the finish line (i.e., the
termination date) for each homeowner’s mortgage insurance
obligation on the basis of her home’s original value and
measures her progress toward it by looking to her outstanding
principal balance. Fried’s mortgage modification decreased
her principal balance, but her home’s original value under the
Act did not change. The modification thus moved her toward
the finish line per § 4902(d) of the Act, but, although her
home had dropped in value, it did not move the line itself.
Fried’s termination date is the day her mortgage’s outstanding
principal balance was scheduled to reach $431,597. If she was
current on her mortgage payments at that date, her mortgage
insurance obligation ended then.
29
In this context, we affirm the District Court’s
determination declining to dismiss Fried’s claim against
Chase and remand for further proceedings consistent with this
opinion.
30