If you keep an eye on the legal entanglements of Bank of America Corp (NYSE:BAC), you will recall the brouhaha that ensued last summer when the bank was accused of abusing troubled homeowners who approached the bank for help under the government's Home Affordable Mortgage Program.
Now, smaller cousin SunTrust Banks Inc. (NYSE:STI) inked a $320 million deal with government regulators concerning its own missteps in administering HAMP, a case in which the bank was charged with some of the same behavior as B of A – such as lying to customers about the status of their applications, unopened piles of which were stacked so high in a storage room as to crack the floor joists beneath them.
Similar shenanigans caused unnecessary borrower distress
Bank of America was also accused of ignoring loan modification requests. Workers with Urban Lending, a contractor used by the bank to help process HAMP requests, have said that so many applications were stored at a warehouse location in Colorado that piles reached the ceiling. Interestingly, Urban Lending worked for SunTrust, as well.
In an effort to control the clutter, B of A allegedly destroyed HAMP document files in frenzied housekeeping "blitzes" when the paperwork became more than two months old. The bank would then turn around and tell worried customers that they never received the information, according to court testimony from former employees.
There are other similarities. Like Bank of America, SunTrust often would plunge homeowners into foreclosure before the end of their loan modification trial, a big no-no for HAMP. Dubbed "dual tracking", this behavior was highlighted earlier this year by the Special Inspector General for the Troubled Asset Relief Program as being one of the most common complaints consumers report to SIGTARP in regards to loan modifications.
A legacy of errors
The ineptitude caused an unknown number of borrowers who may have been helped by HAMP to lose their homes, even as they did what was requested of them to move their cases along. In the case of SunTrust, SIGTARP's Christy Romero told The Wall Street Journal that the bank botched the process so badly that borrowers "would have been exponentially better off having never applied through the bank in the first place".
Last spring, the Obama administration extended HAMP, giving homeowners in need until December 31, 2015 to apply for aid. At the end of the first quarter of 2013, a little over 1 million troubled borrowers had successfully completed a loan modification. At the program's inception in 2009, it was estimated that 3 million to 4 million would have been helped by that point in time.
Five years later, many borrowers who may have been helped early on may not be able to take advantage of the HAMP extension. For others, perhaps it is not too late to put the detritus of the housing crisis behind them.