By David Dayen
Bank of America’s mortgage servicing unit
systematically lied to homeowners, fraudulently denied loan modifications,
and paid their staff bonuses for deliberately pushing people into
foreclosure: Yes, these allegations were suspected by any homeowner who ever
had to deal with the bank to try to get a loan modification – but now they
come from six former employees and one contractor, whose sworn statements
were added last week to a civil lawsuit filed in federal court in
Massachusetts.
“Bank of America’s practice is to string
homeowners along with no apparent intention of providing the permanent loan
modifications it promises,” said Erika Brown, one of the former employees.
The damning evidence would spur a series of criminal investigations of BofA
executives, if we still had a rule of law in this country for Wall Street
banks.
The government’s Home Affordable Modification
Program (HAMP), which gave banks cash incentives to modify loans under
certain standards, was supposed to streamline the process and help up to 4
million struggling homeowners (to date, active permanent modifications number
about 870,000). In reality, Bank of America used it as a tool, say these
former employees, to squeeze as much money as possible out of struggling
borrowers before eventually foreclosing on them. Borrowers were supposed to
make three trial payments before the loan modification became permanent; in
actuality, many borrowers would make payments for a year or more, only to
find themselves rejected for a permanent modification, and then owing the
difference between the trial modification and their original payment. Former
Treasury Secretary Timothy Geithner famously described HAMP as a means to
“foam the runway” for the banks, spreading out foreclosures so banks could
more readily absorb them.
These Bank of America employees offer the
first glimpse into how they pulled it off. Employees, many of whom allege
they were given no basic training on how to even use HAMP, were instructed to
tell borrowers that documents were incomplete or missing when they were not,
or that the file was “under review” when it hadn’t been accessed in months.
Former loan-level representative Simone Gordon says flat-out in her affidavit
that “we were told to lie to customers” about the receipt of documents and
trial payments. She added that the bank would hold financial documents borrowers
submitted for review for at least 30 days. “Once thirty days passed, Bank of
America would consider many of these documents to be ‘stale’ and the
homeowner would have to re-apply for a modification,” Gordon writes. Theresa
Terrelonge, another ex-employee, said that the company would consistently
tell homeowners to resubmit information, restarting the clock on the HAMP
process.
Worse than this, Bank of America would simply
throw out documents on a consistent basis. Former case management supervisor
William Wilson alleged that, during bimonthly sessions called the “blitz,”
case managers and underwriters would simply deny any file with financial
documents that were more than 60 days old. “During a blitz, a single team
would decline between 600 and 1,500 modification files at a time,” Wilson
wrote. “I personally reviewed hundreds of files in which the computer systems
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 were then instructed to
make up a reason for the denial to submit to the Treasury Department, which
monitored the program. Others say that bank employees falsified records in
the computer system and removed documents from homeowner files to make it
look like the borrower did not qualify for a permanent modification.
Senior managers provided carrots and sticks
for employees to lie to customers and push them into foreclosure. Simone
Gordon described meetings where managers created quotas for lower-level
employees, and a bonus system for reaching those quotas. Employees “who
placed ten or more accounts into foreclosure in a given month received a $500
bonus,” Gordon wrote. “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.” Employees were closely monitored, and those who
didn’t meet quotas, or who dared to give borrowers accurate information, were
fired, as was anyone who “questioned the ethics … of declining loan
modifications for false and fraudulent reasons,” according to William Wilson.
Bank of America characterized the affidavits
as “rife with factual inaccuracies.” But they match complaints from borrowers
having to resubmit documents multiple times, and getting denied for permanent
modifications despite making all trial payments. And these statements come
from all over the country from ex-employees without a relationship to one
another. It did not result from one “rogue” bank branch.
Simply put, Bank of America didn’t want to
hire enough staff to handle the crush of loan modification requests, and used
these delaying tactics as a shortcut. They also pushed people into
foreclosure to collect additional fees from them. And after rejecting
borrowers for HAMP modifications, they would offer an in-house modification
with a higher interest rate. This was all about profit maximization. “We were
regularly drilled that it was our job to maximize fees for the Bank by
fostering and extending delay of the HAMP modification process by any means
we could,” wrote Simone Gordon in her affidavit.
It is a testament to the corruption of the
federal regulatory and law enforcement apparatus that we’re only hearing
evidence from inside Bank of America now, in a civil class-action lawsuit
from wronged homeowners, when the behavior was so rampant for years. For
example, the Treasury Department, charged with specific oversight for HAMP,
didn’t sanction a single bank for failing to follow program guidelines for
three years, and certainly did not uncover any of this criminal conduct.
Steven Cupples, a former underwriter at Bank of America, explained in his
statement how the bank falsified records to Treasury to make it look like they
granted more modifications. But Treasury never investigated. Meanwhile, the
Justice Department joined with state Attorneys General and other federal
regulators to essentially bless this conduct in a series of weak settlements
that incorporated other bank crimes as well, like “robo-signing” and
submitting false documents to courts.
These affidavits, however, should return law
enforcement to the case. William Wilson, the case management supervisor,
alleges in his statement that this “ridiculous and immoral” conduct continued
through August of 2012, when he was eventually fired for speaking up. That
means Bank of America persisted with these activities for at least six months
AFTER the main, $25 billion settlement to which they were a party. So state
and federal regulators could sue Bank of America over this new criminal
conduct, which post-dates the actions for which they released liability under
the main settlement. Attorneys general in New York and Florida have accused
Bank of America of violating the terms of the settlement, but they could
simply open new cases about these new deceptive practices.
They would have no shortage of evidence, in
addition to the sworn affidavits. According to Theresa Terrelonge, most
loan-level representatives conducted their business through email; in fact,
various email communications have already been submitted under seal in the
Massachusetts civil case. State Attorneys General or US Attorneys would have
subpoena power to gather many more emails.
And they would have very specific targets: the
ex-employees listed specific executives by name who authorized and directed
the fraudulent process. “The delay and rejection programs were methodically
carried out under the overall direction of Patrick Kerry, a Vice President
who oversaw the entire eastern region’s loan modification process,” wrote
William Wilson. Other executives mentioned by name include John Berens,
Patricia Feltch and Rebecca Mairone (now at JPMorgan Chase, and already named
in a separate financial fraud case). These are senior executives who, if this
alleged conduct is true, should face criminal liability.
Bank accountability activists have already
seized on the revelations. “This is not surprising, but absolutely
sickening,” said Peggy Mears, organizer for the Home Defenders League. “Maybe
finally our courts and elected officials will stand with communities over
Wall Street and prosecute, and then lock up, these criminals.”
Sadly, it’s hard to raise hopes of that
happening. Past experience shows that our top regulatory and law enforcement
officials are primarily interested in covering for Wall Street’s crimes.
These well-sourced allegations amount to an accusation of Bank of America
stealing thousands of homes, and lying to the government about it. Homeowners
who did everything asked of them were nevertheless pushed into foreclosure,
all to fortify profits on Wall Street. There’s a clear path to punish Bank of
America for this conduct. If it doesn’t result in prosecutions, it will once
again confirm the sorry excuse for justice we have in America.
Update: Read the full affidavits from the
active court case here
http://www.salon.com/2013/06/18/bank_of_america_whistleblowers_bombshell_we_were_told_to_lie/
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