A unit of mortgage giant PennyMac Financial Services Inc. baited veterans into a payment-deferral program during the Covid-19 pandemic before forcing them into modified high-interest loans without warning, a proposed class action alleges.
PennyMac Loan Services LLC offered veterans an option to pause payments on their mortgage loans during the pandemic and pay the sum of paused payments without interest when the loans matured.
But the company stopped accepting applications for the deferred-payment program without notifying borrowers, and later demanded that borrowers who weren’t accepted pay higher interest rates, late charges, and other fees once their payments resumed, according to a complaint filed Wednesday in the US District Court for the District of Connecticut.
“Defendant forced Plaintiff and class Members to accept costly loan modification agreements which caused them economic distress and simultaneously, but unlawfully, increased the amount of money that Defendant made off each serviced loan,” the complaint said.
Westlake Village, Calif.-based PennyMac services more than 450,000 mortgage loans backed by the Department of Veterans Affairs.
A 2020 Covid-19 relief package (Public Law 116-136) entitled borrowers of federally backed loans who were experiencing financial hardship due to the pandemic a 180-day payment pause on those loans.
The VA offered a related program for borrowers to resume payments after the pause at the same interest rate as before, according to the complaint. The deferred payments would be placed into a second noninterest-bearing loan to be paid back after the original loan matured or was refinanced or the underlying property was sold.
The plaintiff in the proposed class action, a Vietnam War veteran, obtained a VA-backed mortgage loan in 2021, and entered into a forbearance plan a few months later, the complaint noted.
But PennyMac didn’t warn the plaintiff that the VA’s deferred-payment program was set to expire, and that he could no longer apply once his payment pause ended, according to the complaint. The mortgage servicer forced the plaintiff to accept a loan modification agreement that more than doubled his interest rate and charged him late fees and closing costs, the complaint said.
The proposed class action claims PennyMac violated Connecticut business law, breached its contracts with proposed class members, and unlawfully enriched itself.
PennyMac didn’t immediately respond to a request for comment.
Reardon Scanlon LLP represents the plaintiff and proposed class.
The case is Cyrus v. PennyMac Loan Services, LLC, D. Conn., Docket No. 3:24-cv-01145, 7/3/24.
