PennyMac Class Action: Veterans Accuse Lender of "Bait-and-Switch" Mortgage Scheme

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Lawsuit Alleges Veterans Forced into Higher Interest Rates After COVID-19 Forbearance Plan, Leaving Them with Higher Costs

Lending giant PennyMac has been hit with a class action lawsuit accusing it of using a bait and switch scheme with veterans by offering them deferred mortgage payments, but then forcing them into loan modification agreements with higher interest rates plus a range of other fees.

The scheme, relating to the COVID-19 era program, “caused them economic distress and simultaneously, but unlawfully, increased the amount of money that Defendant made off each serviced loan.”

Veteran Claims PennyMac's COVID-19 Relief Was a "Bait-and-Switch" Trap

Vietnam Veteran James Cyrus filed the proposed class action lawsuit saying he had a $130,000 loan in 2021 with an interest rate of 2.65 percent. PennyMac approached him to enter the COVID-19 Forbearance Plan, but never warned him it was about to expire or that the deferred payment program he planned on entering afterwards was no longer taking applications, he alleges. 

When the Forbearance Plan did expire, “he was not offered a deferred payment option and instead was unlawfully forced to accept a burdensome loan modification agreement that increased his loan interest rate from 2.65% to 6.875%,” the lawsuit says. That totalled an extra $550 on his mortgage payments, Cyrus alleges, in addition to “the illegal late charges and closing costs.”

“Had Plaintiff known that the deferred payment program would no longer have been available, he would have ended his COVID-19 Forbearance Plan to avoid a costly loan modification agreement and would have entered into the deferred payment program.”

Lawsuit Alleges PennyMac Used False Promises to Push Veterans into Costlier Mortgages

According to the lawsuit, when PennyMac offered COVID-19 Forbearance Plans to its customers, it promised that a deferred payment program was an available option to pay off the forbore payments. This deferred payment program would have allowed the loan to be brought current without modifying the existing loan terms.  

Cyrus alleges a number of veterans, including himself, entered the program based on that option, but instead he was left only with options to enter into an infeasible repayment plan or modify his loan agreement at a significantly higher interest rate, or face foreclosure. 

The lender had used “a false and deceptive promise” that a deferred payment program would be available when their forbearance plans ended, however it stopped accepting applications for the deferred payment program without notifying the veterans, the lawsuit alleges.

“Ultimately, Defendant’s deceptive behavior and unfair dealing forced Plaintiff and the other veteran class members into damaging mortgage loan modifications with materially higher interest rates, late charges, unnecessary closing costs and fees, and much higher monthly payments.”

Mortgage Forbearance Explained: How PennyMac Allegedly Exploited the Program

A forbearance plan relating to mortgage payments is a temporary agreement between a borrower and lender that allows the borrower to pause or reduce their mortgage payments for a specified period due to financial hardship. 

During this time, the borrower is not considered in default, and it gives them a chance to regain financial stability without facing foreclosure. After the forbearance period ends, the borrower typically has to repay the missed or reduced payments through a repayment plan, loan modification, or by extending the loan term.

PennyMac Lawsuit Adds to Growing List of Legal Woes for Lenders

PennyMac is far from the only money lender facing legal challenges from its consumers, and it isn’t the only one whose misdeeds allegedly involved soldiers and their families. 

TitleMax was recently hit with a proposed class action lawsuit alleging the lender targets service members' families with loans that not only charge more than 100% annual interest rate, but also takes car as security. Under the law, United States soldiers and their families have special protections from loan sharks – to make sure they don’t suffer undue financial stress while on active duty. 

Meanwhile, in the latest scandal involving banking giant Wells Fargo, consumers are accusing the company of supporting a ponzi scheme that defrauded 1,000 mostly senior investors out of $300 million of their life savings. 

Capital One and Bank of America are facing proposed class action lawsuits, which both allege the banking giants has systematically failed to properly investigate fraud claims and wrongfully denied victims reimbursement, leaving consumers to bear the burden of unauthorized charges. 

In the PennyMac Veterans Mortgage class action lawsuit, Cyrus wants to represent veterans from across the country. He is suing for alleged violations of the Connecticut Unfair Trade Practices Act, Breach of Contract Including the Covenant of Good Faith and Fair Dealing, and Unjust Enrichment.

Case Details

  • Lawsuit: Cyrus v. PennyMac Loan Services, LLC
  • Case Number: 3:24-cv-01145
  • Court: U.S. District Court for the Western District of Connecticut

Plaintiffs' Attorneys

  • James J. Reardon, Jr. (Reardon Scanlon LLP) 
  • Joseph I. Marchese (Bursor & Fisher, P.A.)
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