Bank Of America Lied To Homeowners And Encouraged Foreclosures, Former Workers Allege
(Reuters) – Six former Bank of America Corp employees have alleged that the bank deliberately denied eligible home owners loan modifications and lied to them about the status of their mortgage payments and documents.
The bank allegedly used these tactics to shepherd homeowners into foreclosure, as well as in-house loan modifications. Both yielded the bank more profits than the government-sponsored Home Affordable Modification Program, according to documents recently filed as part of a lawsuit in Massachusetts federal court.
The former employees, who worked at Bank of America centers throughout the United States, said the bank rewarded customer service representatives who foreclosed on homes with cash bonuses and gift cards to retail stores such as Target Corp and Bed Bath & Beyond Inc.
For example, an employee who placed 10 or more accounts into foreclosure a month could get a $500 bonus. At the same time, the bank punished those who did not make the numbers or objected to its tactics with discipline, including firing.
About twice a month, the bank cleaned out its HAMP backlog in an operation called “blitz,” where it declined thousands of loan modification requests just because the documents were more than 60 months old, the court documents say.
The testimony from the former employees also alleges the bank falsified information it gave the government, saying it had given out HAMP loan modifications when it had not.
Rick Simon, a Bank of America Home Loans spokesman, said the bank had successfully completed more modifications than any other servicer under HAMP.
“We continue to demonstrate our commitment to assisting customers who are at risk of foreclosure and, at best, these attorneys are painting a false picture of the bank’s practices and the dedication of our employees,” Simon said in a email, adding the declarations were “rife with factual inaccuracies.”
Borrowers filed the civil case against Bank of America in 2010 and are now seeking class certification. The affidavits, dated June 7, are the latest accusations over the mishandling of mortgage modifications by some top U.S. banks.
Mortgage problems have dogged Bank of America since its disastrous purchase of Countrywide Financial in 2008. The bank paid $42 billion to settle credit crisis and mortgage-related litigation between 2010 and 2012, according to SNL Financial.
Bank of America and four other banks reached a $25 billion landmark settlement with regulators in 2012, following a scandal in late 2010 when it was revealed employees “robo signed” documents without verifying them as is required by law.
But problems have persisted. Since 2012, more than 18,000 homeowners have filed complaints about Bank of America with the Consumer Financial Protection Bureau, a new agency created to help protect consumers. Recently, the attorney generals of New York and Florida accused Bank of America of violating the terms of last year’s settlement.
The government created HAMP in 2009 in response to the foreclosure epidemic and to encourage banks to give homeowners loan modifications, allowing some borrowers to stay in their homes.
The court documents paint a picture of customer service operations where managers roamed the floor with headsets, able to listen into any call without warning. Service representatives were told to lie to homeowners, telling them their paperwork and payments had not been received, when in reality they had.
“This is exactly what’s been happening to homeowners for years,” said Danielle Kelley, a foreclosure defense lawyer in Florida. “No matter how many times they send in their paperwork, or how often they make their payments, they simply can’t get loan modifications. They wind up in foreclosure instead.”
The former employees said they were told to falsify electronic records and string homeowners along in foreclosure as long as possible. The problem was exacerbated because the bank did not have enough employees handling modifications, adding to the backlog of cases purged during the “blitz” operations.
Once a HAMP application was delayed or rejected, Bank of America would offer an in-house alternative, charging as high as 5 percent when the loan could have been modified for 2 percent under HAMP, according to an affidavit by William Wilson, who worked at the bank’s Charlotte, North Carolina office.
Wilson, who was a case management team manager, said he told his supervisors the practices were “ridiculous” and “immoral.” He said he was fired in August 2012.
Bank of America said it was not at liberty to discuss personnel matters.
Bank Of America Just Confirmed The Fed’s Fears About The US Mortgage Market
Bank of America just reported an earnings beat, but its mortgage business — a sector everyone’s been watching — was a disappointment.
First-mortgage origination’s declined 46% from this time last year. And BAC isn’t alone in this. Both JP Morgan and Wells Fargo reported declines in their mortgage businesses yesterday. Wells Fargo managed to crush earnings through cost-cutting measures.
JP Morgan, weighed down by legal costs, was unable to do the same, and posted slightly disappointing numbers despite its earnings beat.
This decline didn’t come out of nowhere. The Federal Reserve’s recent survey of loan officers showed weaker demand for loan origination in both prime and nontraditional mortgage loans, according to FactSet.
That’s a big change, as the same survey has reported a strong demand for prime mortgages over the last eight quarters before October. Even in July 2013, 50% of the loan officers the Fed surveyed were reporting strong demand.
Over at Bank of America, Consumer Real Estate Services posted a $1.1 billion loss. That’s less than the same time last year (a $3.7 billion loss) but at that time, the bank had legal fees to pay out to Fannie and Freddie.
This time, the bank is clear about the fact that the decline is due to weaker demand:
CRES first-mortgage originations declined 46 percent in the fourth quarter of 2013 compared to the same period in 2012, reflecting a corresponding decline in the overall market demand for mortgages. Core production revenue declined in the fourth quarter of 2013 to $403 million from $986 million in the year-ago quarter due to lower volume as well as a reduction in margins resulting from the continued industrywide margin compression over the past year.
JP Morgan’s mortgage origination saw a pretax loss of $274 million, “a decrease of $1.1 billion from the prior year, reflecting lower volumes, lower margins and higher legal expense, partially offset by lower repurchase losses.”
Across the board, Wall Street banks put aside less money to deal with losses this quarter. BAC, for example, set aside $959 million less for its mortgage provision than it did at this time last year, putting its provision at $474 million. The bank cited “increased home prices and improved portfolio trends.”
And that may be true. Banks are seeing less delinquency and reduced expenses, which is a solid reason to cut provisions.
But at the same time, they are still dealing with litigation (though less than they were before) and more importantly, they’re seeing rising interest rates, which is hurting mortgage demand.
It’s a delicate balance.
Bank Of America Allegedly Gave Cash Bonuses To Workers Pushing Homeowners Into Foreclosure
Bank of America routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing homeowners into foreclosure, according to affidavits filed last week in a Massachusetts lawsuit.
“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.”
In sworn testimony, six former employees describe what they saw behind the scenes of an often opaque process that has frustrated homeowners, their attorneys and housing counselors.
They describe systematic efforts to undermine the program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier “in-house” loans and paying bonuses to employees based on the number of new foreclosures they initiated.
The employees’ sworn testimony 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.
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.
“We continue to demonstrate our commitment to assisting customers who are at risk of foreclosure and, at best, these attorneys are painting a false picture of the bank’s practices and the dedication of our employees,” a spokesman said in a statement. “While we will address the declarations in more depth when we file our opposition to plaintiffs’ motion next month, suffice it is to say that each of the declarations is rife with factual inaccuracies.”
Since the housing crisis unfolded in 2007, BofA and other large mortgage servicers have maintained that the widespread delays in processing loan modifications largely resulted from an overwhelming and unprecedented wave of troubled loans.
But regulators have repeatedly cited lenders for mistreating borrowers trying to modify their mortgages. In April 2001, five big banks—including Bank of America—settled a sweeping complaint with 49 states and several federal regulators about their foreclosure and loan modification practices. The banks agreed to provide $26 billion in relief and adhere to a sweeping series of new rules when modifying loans.
Later this week, a monitor assigned to track the bank’s practices will issue a report that’s expected to cite ongoing violations of those new rules.
(Read More: Banks Slow to Clean Up the Mortgage Mess)
In their sworn testimony, the former Bank of America employees detail a series of specific company policies designed to provide as little foreclosure relief as possible.
“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.
“The unfortunate truth is that many and possibly most of these people were entitled to a HAMP loan modification, but had little choice but to accept a more expensive and less favorable in-house modification,” he said.
Courtney Scott was among the Bank of America customers who experienced repeated delays and denials for a government-sponsored modification of the mortgage on her suburban Atlanta home. The retired nurse and grandmother grew increasingly frustrated after bank representatives repeatedly requested she fill out paperwork covering the same information.
So she was surprised when the bank approved her six months later for an “in-house” modification.
“I got the (HAMP) denial in January, 2010 and then in June they came back with an in-house offer saying ‘Congratulations, you’ve been approved for a modification,” said Scott. “But it only lowered my payments by about seven dollars and some cents.”
Scott turned down the offer and the bank moved to foreclose,an action she is contesting with the help of an attorney.
Scott’s frustration in complying with the banks request was designed to motivate her to agree to the in-house modification according to the former Bank of America workers.
In his affidavit, Wilson said most of the information the bank repeatedly requested from homeowners was already available in multiple document review systems. Some completed applications were denied one at a time, while other borrowers were rejected en masse in a process known as “the blitz,” Wilson said.
“Approximately twice a month, Bank of America would order that case managers and underwriters ‘clean out’ the backlog of HAMP applications by denying any file in which the financial documents were more than 60 days old,” he said. “These included files in which the homeowner had provided all required financial documents.”
The procedures described in the affidavits will come as no surprise to attorneys working with borrowers trying to save their homes from foreclosures, according to Max Gardner, a North Carolina bankrupctcy attorney who trains other lawyers on legal strategies to thwart foreclosure
“This policy – of dragging it out as long as we possibly can and tell (the homeowner) you didn’t qualify or the mod failed or we didn’t get this document or you didn’t sign it in the right place or we lost this form – is consistent with what we’ve seen,” he said.
Beyond the policy of denying affordable loan applications, Bank of America also encouraged its employees to move loans to foreclosure – even when the process could have been prevented, according to said Erika Brown, a former bank customer service representative.
“These homeowners were eligible for loan modifications under HAMP, sent back all the required documents and made all their required payments under a trial plan,” she said. “Bank of America nevertheless damaged their credit ratings by reporting them delinquent, tacked on additional charges to their loans, increased the amounts it considered as being owed, and often referred these homeowners to foreclosure.”
The motivation for mortgage servicing companies like Bank of America to move loans to foreclosure is driven by the often perverse economics of the modern mortgage servicing business, according to consumer advocates and attorneys defending against foreclosures.
When the tens of millions of loans written during the housing boom of the mid-2000s were sold off to investors, lenders like Bank of America took over the job of collecting checks, making property tax and insurance payments, assessing late fees, and other clerical work.
When a borrower defaults on a loan and the bank forecloses, investors who own the loan typically bear the loss on the unpaid principal balance. But the foreclosure process generates a lucrative stream of fees for mortgage servicers—for everything from property inspections to legal work required to seize a home.
Those added fees provide mortgage servicers like Bank of America with a financial incentive to foreclose – and a disincentive to provide a more affordable loan, according to consumer advocates. The company shared those incentives – and disincentives – with its workers, based on foreclosure quotas spelled out in monthly meetings with managers, according to Gordon.
“A collector who placed ten 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 and 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.”
Bank of America agreed to abide by HAMP program guidelines, which require it to modify loans for qualified buyers, when it accepted $25 billion in bailout funds from the government in 2008 following the housing collapse. In return for the financial lifeline, the bank agreed to help millions of struggling homeowners by rewriting mortgages with more affordable terms. As an added incentive, the government agreed to pay a cash bonus for every loan that was modified successfully.
But, according to the former employees, while the bank was lying to borrowers, it was also falsifying its performance when reporting to the government the number of loans that had been modified.
“Often this involved double counting loans that were in different stages of the modification process,” according to Steven Cupples, who supervised a team of Bank of America underwriters until June 2012. “It was well known among Bank of America employees that the numbers Bank of America was reporting to the government and to the public were simply not true.”
The Center for Public Integrity evaluated the disclosure rules for judges in the highest state courts nationwide. The level of disclosure in the 50 states and the District of Columbia was poor, with 43 receiving failing grades, making it difficult for the public to identify potential conflicts of interest on the bench. Despite the lack of information in the public records, the Center’s investigation found nearly three dozen conflicts, questionable gifts and entanglements among top judges around the country. Here’s what the Center found in Texas:
how it ranks
total score: 40/100
Texas asks its Supreme Court justices to disclose at least some information in each category the Center analyzed. Unlike most states, Texas judges must report investment income, transactions and the number of shares they own in an individual company’s stock. Justices must also disclose their real estate interests.
Texas’ financial disclosures are notable for a couple of key loopholes. While judges are required to disclose their family members’ financial interests, the reporting instructions advise judges to report information about their spouse and dependent children only if the filer has “actual control over that financial activity.” That “actual control” language has been the subject of controversy. For example, state Rep. Linda Harper-Brown did not disclose that she was driving a $56,000 Mercedes-Benz — provided to her husband by a state contractor in exchange for accounting services — because her husband possessed “actual control” of the car. If “actual control” was not included as a caveat in the state reporting requirements, Texas’ score would have been 18 points higher, according to the Center’s calculations.
Judges are required to report gift amounts only if they are in the form of cash or a cash equivalent, such as a gift certificate. Additionally, judges do not report the exact value of their investment holdings. Instead, they indicate the number of shares they own in six ranges. Texas Chief Justice Nathan Hecht told the Center that while it would be difficult to report in exact amounts — “If the media finds you off 10 cents, they might make a big deal of it” — narrower value ranges might improve the form. “I do think the [value] categories are pretty broad,” Hecht said.
One now-retired justice reported a stock portfolio as vast and diverse as the Lone Star State itself. In 2012, Wallace Jefferson disclosed owning stock in more than 200 publicly-traded companies, ranging from Texas-based oil-and-gas titan Exxon Mobil to wholesale club Costco. Though many of the companies featured in Jefferson’s stock portfolio could potentially appear before the Texas Supreme Court, Jefferson said the argument to recuse in each instance is “far-fetched.” Jefferson — who retired from the bench in October — told the Center that while he disclosed those more than 200 stocks individually, they are part of a retirement account managed by Merrill Lynch, which he acquired while in private practice before he joined the court. “I don’t know what I’m doing in the financial arena, so I let the experts do it,” he said.
Read the 2012 reports
Wallace B. Jefferson
Nathan L. Hecht
Paul W. Green
Don R. Willett
Jeffrey S. Boyd
John Phillip Devine
After he resigned from the Texas Supreme Court in September, Wallace Jefferson was replaced by Nathan Hecht as the court’s chief justice. Hecht’s associate seat was soon filled by Jeff Brown, a Houston-based district judge appointed by Gov. Rick Perry. The Center for Public Integrity has posted the 2012 financial disclosures for all three judges.
How Texas scored
Is the judge required to disclose his/her household income?
Is the judge required to disclose investments (including real estate) for judge, spouse and dependent children?
Is the judge required to disclose gifts and reimbursements given to the judge, spouse and dependent children?
Is the judge required to disclose liabilities of judge, spouse and dependent children?
Are judges held accountable for filing?
Can members of the public easily access records?
Source: Center for Public Integrity analysis of state records, laws. See methodology for details.