It's no secret that the Obama administration's premier anti-foreclosure program – the Home Affordable Modification program, or HAMP – has been pretty much a flop. Meant to provide permanent mortgage modifications (i.e. lower payments) to four million homeowners when it was rolled out in 2009, the program has helped fewer than half that many households, and economists don't see it having a much bigger impact going forward.
Since its inception, the problem with HAMP has been that it is all carrots and no sticks for the banks involved in actually modifying mortgages. They can pocket federal payments for the mortgages they do modify, and face little to no repercussion for those they don't.
This has led the banks to engage in a game of runaround with many borrowers, stringing them along before dumping them out of HAMP and right back onto the road to foreclosure. And no bank has epitomized this approach more than Bank of America, which, from the beginning, has failed to get its borrowers successfully through the program. (Initially, it claimed the problem was that its borrowers were more incompetent than those who bank at other institutions; unsurprisingly, that turned out not to be the case.)
To see just how terrible things got, ProPublica laid out last month, in excruciating detail, the allegations of former Bank of America employees who said in a federal court case in Massachusetts that the bank instructed them to mislead borrowers, reject modification applications en masse without cause and even paid incentives to increase foreclosures:
"We were told to lie to customers and claim that Bank of America had not received documents it had requested," said Simone Gordon, who worked at the bank from 2007 until early 2012 as a senior collector. "We were told that admitting that the Bank received documents 'would open a can of worms,'" she said.
Anxious homeowners calling in for an update on their application were frequently told that their applications were "under review" when, in fact, nothing had been done in months, or the application had already been denied, four former employees said.
Employees were rewarded for denying applications and referring customers to foreclosure, according to the statements. Gordon said collectors "who placed ten or more accounts into foreclosure in a given month received a $500 bonus." Other rewards included gift cards to retail stores or restaurants, said Gordon and Theresa Terrelonge, who worked as a collector from 2009 until 2010.
Bank of America over the weekend vehemently denied the charges, calling the claims "impossible." But the bank has a history of running afoul of HAMP rules.
In 2009, for instance, Andrew Jakabovics and I caught Bank of America violating the program by siphoning troubled borrowers off into its own private mortgage modification program without assessing whether they were HAMP-eligible; this was clearly against the guidelines to which the bank had agreed and likely meant a worse deal for anyone who took the bank up on its offer.
Meanwhile, a whistleblower in a case in Colorado made allegations extremely similar to those leveled against the bank in the Massachusetts case, claiming that employees pretended to lose homeowners' documents and misled them about their eligibility for modifications. (According to the complaint in that case, Bank of America "let through just enough HAMP modifications to avert suspicion and allay congressional critics, while not enough to incur any substantial losses to its own bottom line.")
Why does this matter? In addition to the injustice of individual homeowners and families losing their homes due to a bank's potential neglect and cynical manipulation of a federal program, the barely-a-recovery that the U.S. is currently experiencing could have been much helped by fewer foreclosures and less mortgage debt.
As Roosevelt Institute Senior Fellow Mike Konczal laid out, the recovery is weakest, and unemployment the highest, in parts of the country where there is more mortgage debt. "Foreclosures exacerbate these problems by creating vicious cycles of destructive economic activity. Some estimate that foreclosures have caused an additional 25 percent of the decline in economic activity," he wrote. Bank of America is not solely responsible for the foreclosure fire continuing to burn across America, but it certainly played a part.
Bank of America's casual disregard for its own customers is also indicative of the larger trend of banks going right back to the same old profits-above-people attitude that helped precipitate the 2008 financial crisis. The much ballyhooed foreclosure fraud settlement, for instance, has been largely a joke. New rules meant to rein in risky bank trading have been watered down or simply ground to a halt. And it's homeowners, their neighbors and ultimately all Americans who are paying the price.