Seven former bank employees and contractors have come forward with allegations that “Bank of America Corp. (BAC), the second-biggest U.S. lender, rewarded staff with cash bonuses and gift cards for meeting quotas tied to sending distressed homeowners into foreclosure.” In addition, the former employees report that they were encouraged to “improperly disqualify” borrowers from loan modifications through the federal Home Affordable Modification Program (HAMP), falsify or effectively “misplace” documents, mislead borrowers on the status of their loan modification applications, and generally delay the process while raking in fees. A four-year employee explained that “loan collectors who put at least 10 customers into foreclosure, including those who were in trial modifications, were given a $500 bonus.” The employee reports paint a picture of a culture of widespread abuses across the loan modification process, and exemplify why greater federal oversight is essential to creating a financial services marketplace that is fair to consumers.
Read these pieces from Bloomberg and ProPublica for a thorough account of the claims. Bank of America has denied the allegations. A spokesperson stated: “At best, these attorneys are painting a false picture of the bank’s practices and the dedication of our employees. While we will address the declarations in more depth when we file our opposition to the plaintiffs’ motion next month, suffice it to say that each of the declarations is rife with factual inaccuracies.” Whether these allegations prove true or false, they have profound implications for struggling homeowners and the asset-building community more broadly.
Incidents like these plainly demonstrate why we cannot rely solely on financial education and pre-homeownership counseling to prevent negative outcomes for homeowners. According to the claims made by former employees, even those homeowners who filed all the appropriate paperwork ran into problems, for example, when bank employees removed documents “from homeowners’ files to make the account appear ineligible for a loan modification.” Thus, even if these particular claims are untrue, they illustrate precisely how customers can fall victim to bank abuses. While it is important for borrowers to be educated and informed about the terms of their mortgages, individuals simply do not have access to the level of information about bank practices that the banks themselves do. There is an inherent mismatch of the level of access a company has to information when compared with its customers. If a bank misleads or lies to a customer about the status of their loan review, their eligibility for a loan modification, or offers a costlier product when the customer qualified for a cheaper one, how will the homeowner know? In short: they probably will not.
The stakes are incredibly high. As a former Bank of America loan manager put it, “On many occasions, homeowners who did not receive the permanent modification that they were entitled to ultimately lost their homes.” Losing a home to foreclosure is different from losing any other asset because it immediately affects a family’s ability to meet their most basic needs for shelter. Beyond the immediate and severe impacts of foreclosure, the harm to consumers persists in the form of ongoing deficiency judgments and damaged credit, which present barriers to future borrowing.
The combination of such high stakes with such profoundly unbalanced access to information creates a potentially explosive situation. Informational mismatch between the customer and the financial services industry is precisely why there is great need for effective high-level regulation of and enforcement within the industry. When functioning at their best, federal agencies, such as the Consumer Financial Protection Bureau, are able to do what individual consumers cannot: they use their national scale to gather information about allegations of abuse, investigate and confirm the validity of these claims, and work with consumers and industry to resolve the matter and restore fairness and transparency to the financial services marketplace. While questions remain about the particulars of this specific case, these allegations provide additional evidence that directing greater attention to industry practices, rather than individual homeowners, is central to structuring an equitable and accountable housing market.