If you have ever applied for a loan modification on your own, then you
may have encountered some very frustrating situations. I frequently hear
about homeowners being asked to send and re-send documents. I have spoken
to people who sent in all of their documents, but were denied a loan modification
because they failed to provide documents to the bank.
It turns out that, at least for Bank of America, these problems were most
likely by design.
ProPublica is reporting that six BofA employees recently filed affidavits in a class-action lawsuit;
the affidavits describe the bank's efforts to mislead homeowners and
incentivize foreclosures. According to the affidavits, BofA employes were
told to lie to homeowners, claiming that documents in a loan modification
file hadn't yet been received. Supervisors would tell employees that
admitting the documents had been received caused problems for the bank
because HAMP guidelines require an answer within a specific timeframe.
Even more shocking is that the bank would periodically issue mass loan
denials to purge large numbers of homeowners out of the system at a rate
of 600 to 1500 files at a time. Employees would deny any file with documents
that were more than 60 days old and would often provide bogus reasons
for the denial of the loan mod.
The bank also incentivized foreclosures. In some months, employees that
referred ten or more files to foreclosure would receive a $500 bonus.
On the whole, the statements in the affidavits confirm what I had already
suspected. In addition to failing to provide adequate staffing (some loan
modficiation underwriters had 400 open files at any given time), the bank
incentivized foreclosure and encouraged employees to lie to homeowners.
It makes me wonder whether the 49 state attorneys general and the DOJ
were aware of this behavior when the National Mortgage Settlement was
negotiated. If so, then the settlement was seriously undervalued.
Once upon a time, people borrowed money from local banks. They probably
knew their banker. Over time, banks consolidated and combined. Now, we
have several megabanks and far fewer local lenders. When people banked
locally, it was easier to trust the banker because he lived down the street.
Even though we now tend to deal with faceless people in remote call centers,
many people still think that they can trust their banks.
Hopefully, stories like this one will help curb that belief.