A federal district court judge has dismissed a lawsuit against Mr. Cooper alleging that the mortgage lender failed to provide proper loss mitigation relief to borrowers relating to the COVID-19 pandemic.

The case involves the Homeowner Assistance Fund (HAF) authorized by the COVID-19 stimulus package passed in 2021 to support homeowners facing financial hardship when the pandemic struck. Per the suit — filed by three plaintiffs against Nationstar Mortgage (which does business under the trade name Mr. Cooper) in August last year — Mr. Cooper was the servicer on the defendants’ FHA loans when they faced financial struggles and defaulted.

Nationstar initiated foreclosure proceedings, offering the plaintiffs loss mitigation options during those proceedings. Specifically, the plaintiffs were offered loan modifications in the form of a standalone partial claim (SPC), in which all missed payments are totaled under a subordinate lien that comes due when their initial mortgage matures.

The plaintiffs alleged that Nationstar’s loan mod proposal was improper and lacking because the SPC it offered did not include money from the HAF, which would have given them more funds to reinstate their loans. They argued that the Single Family Housing Policy Handbook, published by the Department of Housing and Urban Development (HUD), mandated that mortgagees offering loss mitigation relief approve borrowers for an SPC using additional HAF funds.

But Judge John Gallagher of the Eastern District of Pennsylvania disagreed, pointing out that federal courts have recognized that HUD handbooks “do not consist of binding regulations.” And even if they did, Gallagher pointed to the handbook’s “plain language”: The handbook states that “HAF funds may be used,” not that the funds must be used, providing Mr. Cooper and other mortgagees with an option, rather than an obligation.

Notably, this is the second time Gallagher has dismissed the borrowers’ claim. He had originally tossed the suit in May, saying that the claim was “based upon two differing interpretations of the same [HUD] regulations,” adding that “a disagreement over the correct interpretation of regulations was not sufficient to establish a knowing misrepresentation” by Nationstar. The plaintiffs amended their suit and refiled, but Gallagher’s memorandum opinion noted that rather than alleging additional facts showing that Nationstar made a false promise, the borrowers claimed that “there is no ambiguity in the plain language of the … provisions and reasonable minds could not come to any differing conclusion than that [Nationstar] must offer an SPC [utilizing HAF funds].”

But “because Plaintiffs’ interpretation of the Handbook … is untenable, they cannot allege a deceptive act and fail to state a plausible … claim,” Gallagher wrote.