Foreclosure Bonuses – Is the Mortgage Modification Plan Phony?

According to court documents filed this week in Boston, Bank of America employees were routinely awarded for forcing (sometimes undeserving) homeowners into foreclosure. Yes, that’s the same company appearing nightly on your television set promising to help you through your hard times.

Former bank employees allege that they were told to lie to customers about why their federally-mandated loan modifications were being delayed or failing. They were told to request documents and information they already had in some instances. The bank even had twice-monthly “blitzes,” when scores of loan modifications would be denied without a second glance at the merits of the application.

To top it all off, the bank would do all of this and then turn around and lie to the federal government and the public about how many loan modifications were being granted. Why do all of this instead of helping homeowners as promised? Simple: the bank and its servicers make a ton more money that way.

In a regular mortgage situations, mortgage servicers make only a modest fee for taking in and distributing payments. When borrowers begin to go into default, however, the servicers make many more fees. If a loan modification is granted, the servicers go back to making their modest fee, assuming borrowers can keep up with the payments. If the modifications are denied, though, borrowers likely continue to default and the servicers collect fees.

Why lie about giving loan modifications? First, it gives the public a better impression of the bank. It allows the public to believe the television commercials claiming that the bank will help. Another reason to lie, however, is because the bank gets even more money that way. The government HAMP program, requiring some banks to grant loan modifications under certain situations, pays the banks a set amount for each loan modification that is granted. The government pays for successful loan modifications because they understand the financial incentive for banks to deny them. In an effort to prevent what is happening with Bank of America, the government established this incentive program.

From the court documents filed this week, though, it seems like Bank of America thought that the best route was to lie in order to collect both the government incentive and the fees from customers.

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If you want to discuss your loan modification, mortgage situation, or foreclosure with an experienced professional, please contact the office using the contact form on the website or by calling 732-752-8834.