Firm Commentary:

Pursuant to the terms of the Pooling and Servicing Agreements of Mortgage Backed Security Trusts, Loan Servicers make more money off investors in default servicing fees when they foreclose rather than allow short sale or mofification.  Bank of America routinely denied qualified borrowers a chance to modify their loans or complete short sales and then paid cash bonuses to bank staffers for pushing homeowners into foreclosure, according to affidavits filed last week in a new lawsuit.  The allegations mirror the Lawsuits filed by this office against Chase and Aurora wherein homeowners allege that the large servicers has an incentive to delay and deny loan modifications and short sales so as to increase the fees earned at the expense of borrower’s and investors alike.

 

“We were told to lie to customers,” said Simone Gordon, who worked in the bank’s loss mitigation department until February 2012. “Site leaders regularly told us that the more we delayed the HAMP [loan] modification process, the more fees Bank of America would collect.”  Gordan and 6 former employees describe systematic efforts to undermine the HAMP program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier “in-house” loans frustrating short sales and then paying bonuses to employees based on the number of new foreclosures they initiated.

 

 This shocking behavior goes a long way to explain why the government’s Home Affordable Modification Program, launched in 2008 during the depths of the housing collapse, has fallen so far short of the original targets to save millions of Americans from being tossed from their homes.  Regulators have repeatedly cited lenders for mistreating borrowers trying to modify their mortgages- but did little to stop the practice. In April 2001, five big banks—including Bank of America—settled a joint complaint with 49 states and federal regulators about their foreclosure practices. The banks agreed to provide $26 billion in relief and adhere to a sweeping series of new rules when modifying loans.  Most of the money is in the form of credits and enforcement has been lax.

 

According to Gordon, “A collector who placed 10 or more accounts into foreclosure in a given month received a $500 bonus,” she said. “Bank of America also gave employees gift cards to retail stores like Target or Bed Bath & Beyond as rewards for placing accounts into foreclosure. Bank of America collectors and other employees who did not meet their quotas by not placing a sufficient number of accounts into foreclosure each month were subject to termination. Several of my colleagues were terminated on that basis.”

 

“Based on what I observed, Bank of America was trying to prevent as many homeowners as possible from obtaining permanent HAMP loan modifications while leading the public and the government to believe that it was making efforts to comply with HAMP,” said Theresa Terrelonge, a Bank of America collector until June 2010. “It was well known among managers and many employees that the overriding goal was to extend as few HAMP loan modifications to homeowners as possible.”  The reason was fairly simple, according to William Wilson Jr., who worked as a manager in the company’s Charlotte, N.C., headquarters, where he supervised 13 mortgage representatives working on with customers seeking HAMP loan modifications.  After stonewalling qualified borrowers seeking an affordable HAMP loan, Bank of America representatives could upsell them to a more costly “in-house” loan modification, with rates 3 points higher than the 2 percent rate available under HAMP guidelines, Wilson testified.

 

Following in the footsteps of Chase and Aurora, Bank of America denied the allegations in the affidavits, which were filed in a Massachusetts lawsuit on behalf of dozens of BofA borrowers in 26 states.  The Chase and Aurora matters remain pending in California Superior Court.  If you are a homeowner or real estate profesional in need of legal assistance, contact our office.

-J. Arthur Roberts

 

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