The case, as of Nov. 8, has been thrown out with prejudice.

Per a filing, John Gallagher, a Pennsylvania district court judge overseeing the case, ruled the nation's largest nonbank servicer did not engage in deceptive conduct by refusing to combine available partial claim funds with money from the Homeowners Assistance Fund to reinstate the plaintiffs' mortgage.

The dismissed class action, filed in August 2023 by borrowers, argued FHA's Single Family Housing Policy Handbook required servicers to offer standalone partial claims that included additional funds from the HAF to borrowers facing hardships due to COVID-19. 

Furthermore, plaintiffs argued that the Department of Housing and Urban Development's FAQ on its website stated HAF funds "must be used" in conjunction with standalone partial claims.

Mr. Cooper allegedly did not offer this option to plaintiffs. Because of this, the complaint alleged that the company violated Pennsylvania's Unfair Trade Practices and Consumer Protection Law and the Real Estate Settlement Procedures Act. 

Gallagher, however, disagreed with the plaintiffs interpretation of HUD's FAQ and handbook, ruling the latter included language that was permissive but not mandatory. The judge pointed out that the handbook states that "HAF funds may be used," opening up the door for servicers to do so if they so choose, but not mandating it.

"[Even if] the handbook could bind this court, its plain language does not support plaintiffs' interpretation. The handbook provides that "[a]s permitted by the jurisdiction's HAF program, HAF funds may be used in connection with the borrower's FHA-insured mortgage or any partial claim mortgage in a manner consistent with the respective mortgage documents and FHA requirements," wrote Judge Gallagher in his opinion memo. 

"As the defendant points out, the handbook states that 'HAF funds may be used,' not that the funds must be used.The handbook's use of permissive language thus provides mortgagees with an option instead of an obligation to use HAF funds in connection with SPCs."

Additionally, the Pennsylvania court threw out the argument that HUD's FAQ language supersedes the handbook's language, noting the department itself wasn't a party to the litigation and thus couldn't weigh in on its own interpretation.

The $9.96 billion HAF established by the American Rescue Plan Act roughly two years ago has assisted more than 549,000 households, according to the U.S. Treasury. Funds have been used to cure delinquencies, prevent foreclosures, and cover utility, home energy, and displacement costs.

The dismissal of the case comes more than one year after HUD's Office of Inspector General published a report claiming Mr.Cooper failed to provide proper retention options to more than 80% of borrowers with delinquent FHA-insured loans after their COVID-19 forbearance came to an end.

HUD's watchdog notes that for 35% of the Mr. Cooper loans sampled, the servicer did not follow HUD's guidance regarding notifying borrowers about the Homeowner Assistance Fund and loss mitigation waterfall use.

At the time, a spokeswoman for the servicer acknowledged that "some limited, technical exceptions and differences in interpretation existed within the audit report sample population," but said the company "satisfied the program's objectives and took the necessary steps to help our customers remain in their homes."

The Dallas-based servicer, which still in some cases uses the Nationstar name, incorrectly calculated loss mitigation options for some borrowers with delinquent loans, did not reinstate arrearages properly and declined loss mitigation in error between November 2021 and February 2022. The OIG report projects that this impacted close to 3,572 FHA-insured loans out of a statistical sample of 4,288 mortgages, totaling $767 million.