Is BofA mining profits from mortgage misery?

A Laurel to The Palm Beach Post

Kimberly Miller of The Palm Beach Post broke an important story about how the Bank of America allegedly rewarded employees who tricked borrowers seeking modification of their mortgages into foreclosure. Three days later Miller came back with another significant exclusive on possible bank violations of rules set up in the wake of the mortgage crisis. She deserves a CJR Laurel for her work, and some major news outlets that failed to follow her stories need to get in gear.

Miller’s first piece, on June 13, began:

Bank of America systematically worked to deny thousands of loan modifications with specific delay tactics that included lying to homeowners and repeatedly requesting documents employees knew were already in the system, according to statements added last week to a multi-district lawsuit filed in federal court.

The suit, which is seeking class-action status and includes a Boynton Beach homeowner, claims that the lender purposefully hindered modifications requested by borrowers through the federal Home Affordable Modification Program.

According to former employees of the Charlotte, NC-based bank, loan modification agents handled up to 400 cases at a time and eligible borrowers were pushed into foreclosure during periodic “blitzes” where any file with documents 50 days old or older was automatically denied.

“This included files in which the homeowner had provided all required financial documents and fully complied with terms of the trial period,” said William E. Wilson, a former Bank of America — underwriter who worked for the company between June 2010 and August 2012. “The delay and rejection programs within Bank of America — were methodically carried out.”

And then came this zinger, based on testimony by former bank employee Simone Gordon:

Employees who placed 10 or more accounts into foreclosure in a month could get gift cards to Target and Bed, Bath & Beyond or $500 bonuses, Gordon said. “We were regularly drilled that it was our job to maximize fees for the bank by extending HAMP modifications by any means we could, including lying to customers,” Gordon said.

Miller quoted the bank’s statement that the testimony by six former employees was “rife with factual inaccuracies”—a general denial with no specifics, and with no denial that rewards were paid to employees who abused borrowers.

Three days later, Miller was back with a Sunday front-page story that raised serious questions about whether Bank of America and other banks are violating the National Mortgage Settlement between five big banks and state attorneys general.

Miller reported that in numerous cases “homeowners with pending loan modification applications are also finding themselves moving quickly toward a final judgment and foreclosure sale—a procedure known as dual tracking.”

In essence, her report showed that at least a few hundred people who did everything required to get a mortgage modification, and who successfully completed a trial period to show they could handle the modified loan, were then foreclosed on anyway. The significance of her story was in showing that Bank of America believed it was authorized to pursue these dual tracks under the mortgage settlement.

ProPublica and Salon followed up on her first scoop. Unfortunately none of the Big Five newspapers did, or any other major news organization. And not knowing what Miller reported in either story explains why a subsequent official news event resulted in stories that seem tepid at best, and gave the misleading impression that the $25 billion National Mortgage Settlement is working well for wronged homeowners.
On June 19, the settlement’s monitor issued a report and spoke with reporters who— judging from the tone of their stories—had no idea of the news Miller had broken. A typical example of the coverage is Shaila Dewan’s piece in The New York Times on Shaun Donovan’s remarks:

The nation’s five biggest mortgage lenders have largely satisfied their financial obligations under last year’s $25 billion settlement over mortgage abuses, helping hundreds of thousands of families keep their homes. But four of the five have yet to meet their commitment to end the maze of frustrations that borrowers must navigate to modify their loans, according to a report on Wednesday by the settlement’s independent monitor.

The most common failure involved a requirement that borrowers be notified in a timely manner of any documents missing from their applications. Banks also failed to meet strict timelines for approving applications. The settlement requires that borrowers be notified of missing documents within five days and given 30 days to supply the missing paperwork and that decisions be rendered at most 30 days after an application is completed.

Bloomberg posted a less tepid report by Clea Benson, who wrote that “the largest US mortgage servicers, including Citigroup and Bank of America have not done enough to upgrade their treatment of customers in danger of foreclosure, according to a court-appointed monitor.”

That $25 billion in principal reductions and payouts, by the way, seems like a big number—until you do the math on how many people it covers. Many people wrongly foreclosed on by the five banks, for example, can expect as little as $840
though a payment of a bit more than $1,000 is more likely. That is not much for people wrongly foreclosed on.

Reporters who follow up on all of this might first read an intriguing piece in the trade newspaper American Banker by Kate Berry, a one-time CJR intern, about how banks are pitching mortgages in ways that increase their profits. “B of A’s Refi Pitch a Bubble-Era Flashback,” was the headline on Berry’s piece. She wrote that the bank offered borrowers lower monthly payments, but at a high cost since they would pay nearly $9,000 in closing costs in the banks model example and add ten years to their payments.

In short, B of A’s pitch, with its focus exclusively on lowering the borrower’s monthly payment, implied that the deal was in the consumer’s best interest, even though the borrower would end up paying a higher interest rate and would be adding 10 more years to the overall life of the loan.

“This is like an old school subprime pitch,” says Brian Koss, a managing partner at Mortgage Network, a Danvers, Mass., mortgage bank. “The emphasis is on the word ‘payment,’ not the rate. They’re not hiding anything, it’s just the spin of it. If they said something like: ‘Are you up to your ears in debt looking to consolidate your debt into one lower manageable payment,’ the pitch would be cleaner.”

Reporters covering the ongoing mortgage crisis would be smart to talk to people who are the subject of the National Mortgage Settlement. They might get a revealing story about the aftermath of the institutionalized fraud that melted down the economy five years ago, including the continuing human toll and how some big banks stand accused of profiting off that misery.

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David Cay Johnston covers fiscal and budget matters for CJR’s United States Project. He is a reporter with 46 years of experience, including 13 at The New York Times; a columnist for Tax Analysts; teaches tax and regulatory law at Syracuse University Law School; and is president of Investigative Reporters & Editors (IRE). Follow him on Twitter @DavidCayJ. Tags: , , ,