Bank Of America Finally Admits Its Mortgage Modification Program Is A Mess

Ever since the Obama administration launched the Home Affordable Modification Program (HAMP), Bank of America has lagged woefully behind the other big banks in terms of the number of borrowers that it managed to navigate through the program. So far, it has only approved 11 percent of eligible borrowers for permanent mortgage modifications.

Part of the problem is that BofA was siphoning borrowers off into its own private mortgage modification program, in violation of its deal with the Treasury Department. However, the bank was also incredibly slow in getting the program up and running, and still has problems streamlining the process, as borrowers’ documents are lost and requests for modifications go unanswered.

BofA had been dismissing its shortcomings by blaming its customers for failing to make it through the program. “On average we have more customers that fail the eligibility requirements than competitors,” said one of its executives last year. However, yesterday, the bank finally admitted that its program has serious shortcomings:

“We certainly know that as we rolled out the modification process we have not handled our customers to the standards Bank of America is accustomed to,” said Jack Schakett, a Bank of America credit loss mitigation executive during a conference call. A reporter had asked about homeowners’ tales of lost paperwork and frustration when applying for loan modifications…“We continue to train and retrain to try to improve our process and we’ve done a lot of things to try to make sure we don’t lose documents anymore,” he said.

Well, at least BofA isn’t trying to blame borrowers anymore for its own ineptness, nearly 14 months after the program was launched.

With the rush of worries caused by the Greek fiscal crisis, lingering high unemployment, and the Gulf oil spill, the housing crisis has been bumped off the radar. However, problems still remain, and banks across the country could still face a day of reckoning when it comes to home mortgages, even leaving aside the commercial mortgage woes that could be ahead.

The New York Times reported this week on the supposedly growing number of people who simply stop paying their mortgages, and are living rent-free until their bank works through its backlog and forecloses on them. As Reuters’ Felix Salmon explained, this could make the banks rue their collective inability to get borrowers into sustainable mortgage modifications early on.

“From the bank’s point of view, if this catches on, there’s a very large number of banks in this country who are just toast,” he said. “And in hindsight they were just much better off dealing in a realistic way with these borrowers a year ago or two years ago when the problem first reeled its head instead of extending and pretending. Now they are in a pickle.”

JP Morgan Chase has actually warned investors that “underwater homeowners may walk away from their mortgages.” According to the latest data, just 300,000 borrowers overall have received permanent mortgage modifications under HAMP, while the mortgage delinquency in the first quarter of this year was 9.38 percent (meaning nearly one in ten borrowers is delinquent), more than one point higher than at the same time last year.