Several of the nation’s biggest banks have gotten themselves into hot water for their inability to get homeowners into sustainable loan modifications. Bank of America, for instance, routinely lost homeowners’ paperwork, dragged the modification process out for months, and even foreclosed on one homeowner just days after approving him for a mortgage modification. And this was when the bank wasn’t intentionally denying homeowners federal mortgage aid.
Adding to the list of horrors, ProPublica found that Litton Loan Servicing, which was owned by Goldman Sachs at the time, denied many troubled homeowners mortgage modifications after sending their paperwork to India and losing it:
When homeowners faxed their documents, they didn’t go to Litton, [former employee Chris Wyatt] says. They went to India, where a low-cost company scanned and filed the documents — but often misfiled or lost them. Wyatt says Litton routinely denied modifications because homeowners had not sent their documents when, in fact, they had.
In a process internally referred to as a “denial sweep,” Litton’s computers would automatically generate denial letters for every homeowner who, according to Litton’s records, hadn’t sent their documents. But untold numbers of those documents had been lost on another continent. Wyatt complained about the practice in multiple meetings with senior management, he says, but managers were chiefly worried about reducing the overwhelming backlog.
Behavior of this sort is part of the reason that the Obama administration’s mortgage modification programs came up so woefully short of their goals. The programs depended far too much on providing incentives to the banks to modify mortgages, despite the shoddy state of those banks’ modification processes, and therefore only a fraction of the people at whom the programs were aimed actually received any help.