According to affidavits signed by former Bank of America employees in a class action lawsuit filed in a Boston federal court, the bank regularly lied to customers seeking home loan modifications to deny their application.  The affidavits were filed last week in a multi-state class action lawsuit filed on behalf of homeowners who claim they were wrongfully denied a loan modification under the Home Affordable Modification Program (HAMP).

We were told to lie to customers and claim that Bank of America had not received documents it had requested, and that it had not received trial payments (when in fact it had).  We were told that admitting that the Bank received documents would ‘open a can of worms’ since the Bank was required to underwrite the loan modification within 30 days of receiving those documents, and it did not have sufficient underwriting staff to complete the underwriting in that time.”  Affidavit of Simon Gordon, Senior Collector of Loss Mitigation for of Bank of America from 2007 to 2012.

According to William Wilson Jr., a former Case Management Team manager for Bank of America, twice a month the bank would deny 600 to 1,500 modification applications at time in a procedure called a “blitz.”  Wilson states that Bank of America told its managers to “clean out” the backlog of HAMP applications even though all financial documents were received and Trial Payments had been made by the homeowners.   In addition, Wilson claims that homeowners were coerced to accept “in-house” modifications with 5% interest rates instead of the 2% rate provided under HAMP.

I personally reviewed hundreds of files in which the computer system showed that the homeowner had fulfilled a Trial Period Plan and was entitled to a permanent loan modification, but was nevertheless declined for a permanent modification during a blitz. . . . Employees who challenged or questioned the ethics of Bank of America’s practice of declining modifications for false and fraudulent reasons were often fired.”    Affidavit of William Wilson Jr.

Theresa Terrelonge, a “collector” for Bank of America, provides more details on how the bank denied applications. 

One tactic Bank of America used to delay the modification process involved telling homeowners who applied for a HAMP modification or who were in a Trial Period Plan to resubmit financial information each time they called to inquire about a pending modification.  Bank of America then treated any change in financial information as a justification for considering the home owner to have restarted the HAMP process.  Even a small change to financial information or correcting an error that Bank of America made will cause Bank of America to restart the application process under the pretext of changed financial information.” Affidavit of Theresa Terrelonge.

It gets worse.  Terrelonge declares that managers received bonuses based on how many applications they denied. 

The production goals of Bank of America placed on its managers were based on how many accounts they could ‘close’—meaning how many homeowners they could reject for the loan modifications rather than how many modifications they could successfully complete.  Managers received bonuses if their teams met or exceeded production goals. . . . Employees were awarded incentives such as $25 in cash, or as a restaurant gift card based on the number of accounts they could close in a given day or week—meaning how many applications for modifications they could decline.

It gets even worse than that.  Terrelonge states she witnessed employees and managers change, falsify and delete information from Bank of America’s computer system to make it appear that the homeowner was ineligible for a loan modification.

Steven Cupples was employed by Bank America as an underwriter and Team Leader in Bank of America’s HAMP department.  He observed that due to poor training, Bank of America employees did not know how to find all the documents submitted to the bank.

Most underwriters did not know that they needed to look for documents in multiple systems and often assumed documents had not been sent.  As a result, many borrowers were declined loan modifications that should have been received.”  Affidavit of Steven Cupples.

The statements made by these Bank of America employees match the complaints I have heard from my clients over the past four years.  Banks losing documents.  Banks requesting that documents be submitted over and over again.  Banks denying the application for no apparent reason. 

Studies have shown, however, that loan modifications filed while a bankruptcy case is ongoing have a significantly higher success rate.  In states like Florida where the bankruptcy courts have established mediation programs to help homeowners in the modification process, the success rate is nearly 90%. 

It is clear that the modification process requires a third party to watch over the banks to ensure that the applications are properly administered. We have helped many of our clients successfully apply for the HAMP program, and I believe bankruptcy court oversight is essential to making this program work.