It’s no surprise that Bank of America is caught up in yet another scandal. This bank is no stranger to lawsuits for various practices, and the bank is now the subject of a class action lawsuit involving the Home Affordable Modification Program (HAMP).
HAMP was a government program supported by the U.S. Department of the Treasury during the recession, after an overall crash in the real estate market. The intent was to help homeowners who were unable to make their mortgage payments during the recession, whether because of the loss of a job or because the banks had encouraged homeowners to take out mortgages that were too expensive in the first place.
Rather than abandoning houses on which borrowers owed more than the decreased value of the asset, and rather than needing to face a foreclosure, homeowners could apply for a mortgage modification, where the bank would reduce the amount of principal owed and write off the loss with help from the government.
There are several requirements that must be met for a homeowner to qualify for a mortgage modification.
- The loan must be owned by Fannie Mae or Freddie Mac.
- The remaining loan balance must be at least 80 percent of the home’s value.
- The borrower must have not been late with a payment more than once over the past year.
- The loan must have been originated on or before May 31, 2009.
It has been more profitable for Bank of America to deny applications for mortgage modifications, even those who qualify, and in some cases, redirect struggling homeowners to the bank’s own refinancing options.
Six former Bank of America employees and one employee of a contractor for Bank of America involved with the HAMP process have given statements to a federal court in Boston detailing exactly how Bank of America lied to its customers.
These are among the former employees’ allegations:
- Bank of America lied to homeowners, stating they did not receive HAMP application documentation that was clearly present. The program was understaffed, and it was easier to lie to the customers than process the applications. “We were told to lie to customers and claim that Bank of America had not received documents it had requested,” said one former employee, indicating this behavior was an accepted cultural practice for the bank.
- Bank of America categorically denied applications after thirty days. The bank was required by the government to process HAMP applications within thirty days, but when the bank couldn’t handle the volume, they automatically declined applications that had been sitting around. Despite the customers applying for HAMP assistance and expecting a response within a reasonable time-frame, because the bank couldn’t handle the load, the applications were rejected.
- The bank lied to homeowners who called to ask for updates. Employees were told to employees that their HAMP applications were “under review,” when they weren’t, and in some cases, the applications “under review” had already been denied for sitting around on someone’s desk too long.
- Employees were rewarded for avoiding HAMP. Employees of Bank of America who were able to initiate a foreclosure on a house for which the homeowner had applied for a HAMP modification were rewarded with financial bonuses. Those who placed ten or more customers into foreclosure in one month received a $500 bonus; other employees received rewards like restaurant gift cards. Some homeowners allegedly lost their house, despite being eligible for HAMP assistance, so a Bank of America employee could dine at a local restaurant for free.
Because this is a class action lawsuit, those who were harmed by the bank’s practices, whether by losing a house or paying more money than necessary, will never achieve anything approaching full restitution. The most likely outcome is that Bank of America will settle the lawsuit for an amount much smaller than the financial damage caused by what seems to be a strategy of lies emanating from high-level management, not rogue front-line employees. Homeowners who fell into the HAMP trap, if part of the lawsuit’s class, will receive nothing more than a token payment.
Parallel foreclosure trapped HAMP applicants. Although customers must have been current with their loan payments to qualify for HAMP, banks offer other mortgage assistance programs, and they become available when homeowners have been late with their payments. Thus, some customers have said that banks encouraged them to delay mortgage payments so they could show they were struggling financially, particularly after a HAMP denial. This counter-intuitive advice turned out to be a trap, resulting in “parallel foreclosure.”
While customers delayed mortgage payments to qualify, their credit scores sank because payment timeliness in a significant factor in the credit score calculation. As the credit scores sank, the bank would begin a process — parallel to the mortgage modification practice — to foreclose.
The financial industry wants to win over the hearts and minds of the unbanked and underbanked in an effort to broaden the customer base and generate more profit for shareholders. That’s not necessarily a bad approach, but large banks, especially Bank of America which has been involved in many class-action lawsuits over the past several years, are doing the industry no favors in terms of marketing. I try to tell people that in general they can trust the financial industry, but time and time again, when it’s uncovered that banks lie to customers to increase profits, I feel like a fool.