Bank of America was recently sued for lying to customers about the status of their modification applications. Six Bank of America employees testified that they were paid cash bonuses to give homeowners the run around and lose their paperwork. The employees were told that the bank collected more fees the longer the applications were outstanding.
The bank employees cited a number of specific practices Bank of America used:
- Stonewalling qualified borrowers under HAMP and steering them to more costly “in-house” loan products that were at least 3 points higher;
- Moving loans into the foreclosure process as quickly as possible;
- Issuing HAMP denials and then piggybacking approvals for more expensive modifications at higher rates;
- Asking for the same documents over-and-over again to wear down borrowers;
- Damaging client credit ratings to make modifications less likely;
- Giving homeowners “trial plans” and then denying them after they made all their payments; and
- Tacking on additional charges and fees to loans.
If you are a homeowner reading this blog post, your first reaction may be anger and rage. But, once you have cooled down, you may be wondering why any business, let alone one of the size and caliber of Bank of America would behave in such an unbusinesslike and unprofessional fashion.
The reason is simple. Banks make a lot of money servicing delinquent loans. This is a profitable business for the banks. Most investors that are ultimately left holding the bag on subprime mortgages (i.e., your pension fund) do not have much skin in the game. The expected income streams never materialized, the investments are worth pennies on the dollar, and the cost of servicing the loan pools is astronomical. From the investor perspective, a quick resolution would make a lot of sense. The bank servicing the loan, on the other hand, is paid based on the amount of work they do and how long that work takes. Thus, they have an incentive to delay, delay, delay. From the reports of the whistleblowers in the lawsuit mentioned in the article, Bank of America appears to be one of the worst offenders, taking advantage of both investors and homeowners and making a lot of money in the process, while everyone else takes big losses.
The next time you call up the loss mitigation department at Bank of America to check on the status of your loan modification, at least you will have a better understanding of the reasons behind the strange and unfair treatment you are receiving. When practices like this come to light and are flushed out through whistleblowers and lawsuits, it is helpful in forcing banks to change their ways. After all, Bank of America is a corporation, and unfortunately, more and more often, that means that they will seek out profits even through unethical means, unless their feet are held to the fire.
Bank of America Paid Bonuses to Foreclose: Lawsuit, CNBC.com, Monday, 17 Jun 2013. John W. Shoen. http://www.cnbc.com/id/100818866
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