Why Bank of America Won't Modify Your Mortgage

As a boy, I always loved the story of David and Goliath. Herewith, a modern-day update to the story. If I were a betting man, I'd take Goliath.

I was opposed to TARP ("Troubled Asset Relief Program") from the moment it was announced. I wasn't fully certain of all the reasons at the time, but something about it just didn't feel right. I've done a lot of reading since that day to try to understand it, and after my last call with Bank of America last week I believe I finally have the answer. There's a valid moral question about whether principal reduction on underwater mortgages should be the latest in a long list of government giveaways, and many are opposed to it. This administration, however, seems more than willing to hand out more candy to borrowers.

In the fall of 2008, when it was first proposed, TARP smacked of financial cronyism. Hank Paulson, former chairman of Goldman Sachs, was Treasury Secretary under President George W. Bush. Along with virtually every other financial institution on Wall Street, Goldman Sachs was among the market makers in dodgy financial instruments with disaster written all over them, despite their gold star ratings. (I learned later many of the market makers were selling the market short from another desk in their houses.) It's what they do -- they play both ends of the market. Nobody complains. It's all perfectly legal. So why should we as free Americans reward them for their risky behavior, I wondered? Those were my initial thoughts.

I wrote a letter to the editor of the Deseret News commending Congress for voting down TARP the first time. I've documented most of my feelings about all that on these pages in the past.

Fundamentally, there was a strong negative bias deeply embedded in my DNA against the philosophical roots of the bailouts for the financial institutions. I've been asked why. Would I have chosen a complete financial worldwide meltdown instead?

Here's my summation argument: By bailing out failing companies, Congress in effect decided to confiscate money (I use the word intentionally) from the productive elements of the U.S. economy, companies and individuals, and then made arbitrary decisions about which failing units to transfer it to. With banks who had ignored the risks and invested in sub-prime mortgage instruments assembled in securitization pools, Congress told us, "They are too big to fail. They must be rescued. Without the bailout there will be a worldwide financial catastrophe by Monday morning."

In the case of the auto industry, the government chose to sustain failed companies with obsolete or unsustainable business models. The unions imposed unsustainable demands, the company executives kept passing the higher costs along to consumers, and they deserved to fail. But by choosing to bail them out, the government prevented the resources of these failed and arcane behemoths of industry from being liquidated in the open market where other better-managed companies could have taken those resources and put them to better use in a thriving concern.

So everyone, including George W. "I'm a free market guy" Bush, held their noses and passed TARP. Congress went along with the dire warnings from Paulson and TARP was hatched. We learned later just how much lobbying money went into the re-election campaigns of those who voted "aye."

Back in the day when I studied Economics, it was a basic fact of life (I was told) that in a healthy free market we must permit failure to occur. (Sounds a lot to me like the arguments in favor and opposed to free agency in the pre-mortal world.) Success will be rewarded, but failure will also be punished by investors who will seek a higher return with commensurate risk elsewhere. It sounds so harsh, doesn't it? Survival of the fittest.

With a bailout, I argued at the time, the incentives are reversed. Failing companies are saved from their risky behavior and resources from the taxpayers are shifted arbitrarily by government, rather than being sorted out by the sometimes brutal efficiencies of the marketplace, where profitability is always rewarded. To this day I cannot understand how the bailouts were supposed to be good for our economy. In a country that I know rejects corporate business collusion, why would we as free Americans ever permit the government to pick and choose the winners and losers, when a free market economy does it so much more efficiently? Shifting those decisions to bureaucrats and politicians seemed exactly what we would want to avoid.

Here's a brief history of what happened in the infamous TARP bank bailout package of 2008, and then some comments about one participant's experience with one of the banks deemed "too big to fail" -- the one that services my mortgage:

Bank of America received $20 billion in the federal bailout from the U.S. government through the Troubled Asset Relief Program (TARP) on January 16, 2009, and also got a guarantee of $118 billion in potential losses at the company. ("US gives Bank of America 20 billion dollars in capital injection," Breitbart.com. 2009-01-15. Retrieved 2010-10-17).

This was in addition to the $25 billion given to them in the Fall of 2008 through TARP. The additional payment was part of a deal with the US government to preserve Bank of America's merger with the troubled investment firm Merrill Lynch. (Giannone, Joseph A. [February 5, 2009]. "U.S. pushed Bank of America to complete Merrill buy: report," Reuters).

Since then, members of the U.S. Congress have expressed considerable concern about how this money has been spent, especially since some of the recipients have been accused of misusing the bailout money. (Ellis, David [February 11, 2009]. "Bank CEOs flogged in Washington," CNNMoney.com. Retrieved March 31, 201).

Then CEO, Ken Lewis, was quoted as claiming "We are still lending, and we are lending far more because of the TARP program." Members of the US House of Representatives, however, were skeptical and quoted many anecdotes about loan applicants (particularly small business owners) being denied loans and credit card holders facing stiffer terms on the debt in their card accounts.

According to a March 15, 2009, article in The New York Times, Bank of America received an additional $5.2 billion in government bailout money, channeled through American International Group. (Walsh, Mary Williams [March 15, 2009], "A.I.G. Lists Firms It Paid With Taxpayer Money," The New York Times. Retrieved March 31, 2009).

As a result of its federal bailout and management problems, The Wall Street Journal reported that the Bank of America was operating under a secret "memorandum of understanding" (MOU) from the U.S. government that requires it to "overhaul its board and address perceived problems with risk and liquidity management." With the federal action, the institution has taken several steps, including arranging for six of its directors to resign and forming a Regulatory Impact Office. Bank of America faces several deadlines in July and August and if not met, could face harsher penalties by federal regulators. Bank of America did not respond to The Wall Street Journal story. ("US Regulators to B of A: Obey or Else," The Wall Street Journal, July 16, 2009).

On December 2, 2009, Bank of America announced it would repay the entire US $45 billion it received in TARP and exit the program, using $26.2 billion of excess liquidity along with $18.6 billion to be gained in "common equivalent securities" (Tier 1 capital). The bank announced it had completed the repayment on December 9. Bank of America Ken Lewis said during the announcement, "We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest... As America's largest bank, we have a responsibility to make good on the taxpayers' investment, and our record shows that we have been able to fulfill that commitment while continuing to lend." (Bank of America to Repay Entire $45 Billion in TARP to U.S. Taxpayers, PR Newswire, December 2, 2009; "Bank of America Completes US TARP Repayment." 12-10-2009. Retrieved December 12, 2009).

Now to one man's story about trying to deal with the beast. First, there are no real live people working in Utah for the Bank of America with whom a mortgagor (borrower) can speak. All communication with Bank of America is done via mail or telephone. I have personally had to deal with them at three different physical locations and multiple phone numbers.

My mortgage was originated in 1997. After two and a half years of unsuccessfully attempting to modify my mortgage for a lower interest rate, I finally wrote a letter expressing my frustrations as follows:


November 10, 2010

Bank of America Home Loans Servicing, LP
390 Interlocken Crescent, Ste 350
Broomfield, CO 80021

Bank of America Home Loans Servicing, LP
PO Box 650070
Dallas, TX 75265-0070

Office of the Attorney General, Mark Shurtleff
Utah State Capitol Complex
350 North State Street Suite 230
SLC UT 84114-2320

REF:  Bank of America Mortgage Loan #xxxx

Gentlemen:
I received a telephone call from Bank of America this week informing me, “Your request for a loan modification has been declined.”  Further, I was informed I would be contacted next by a “negotiator” who would share with me my “options” within the next 30-45 days.  Now I’m wondering who the “negotiator” will be representing, and what will be “negotiated.”

Attached (click to enlarge), please find a letter dated March 30, 2010, in direct contradiction to the phone call, stating “You qualify for a permanent modification of your home loan under the Home Affordable Modification Program.”  I was told “we will be sending it to you soon.  Please be on the lookout for a package in the mail and return the Agreement to us by the requested date so that we can finalize your loan modification.”  That was SEVEN months ago!  The mailbox is still empty.

I am hoping what we have here is a case of the left hand not knowing what the right hand is doing.  The question before me now is which Bank of America do I believe?  My approval letter came from the first address listed above.  I have been making my payments to the second address listed above.

The person with whom I spoke most recently indicated I had passed “three stages of approval,” but somehow for reasons not adequately explained as she read from a prepared script that I had failed some test in the “fourth stage” of the approval process.  Until that phone call, I was unaware about anything regarding “stages of approval.”

I have made my trial payments of $xxx per month without fail since the first agreement dated July 3, 2009, after being told there was a “three month” trial period.  If this final stage development in the result of underwriting that was done over a year ago, you undoubtedly are making a decision that should be updated with fresh financial data which I would be happy to supply.  My income is still a fraction of what it once was, but I assure you it is sufficient today to more than qualify under a modification if reviewed and updated.  Fifteen months (two birthdays) have come and gone since the underwriting was originally done.  I’ve made the trial payments faithfully as agreed.  The whole drawn out process has now been in play for FIFTEEN MONTHS!

Your communications to me have now put me in an “awkward position,” to be stating it as simply as I can.  I have acted in good faith.  However, Bank of America has done the opposite, it appears, unless there is a simple explanation you can offer besides another phone call from someone reading a script.

When sharing my dilemma and my frustration this week with a good friend who is also a mortgage broker here in Utah, I was advised to take my case to the Attorney General of Utah, Mark Shurtleff, because in his words, “Bank of America has become the poster child for how not to handle foreclosure procedures.”  I have also copied Shurtleff’s office on this letter.

I am writing to inform you that until I hear back from you (is ten days enough time?) I will proceed as advised and bring action against Bank of America through my legal counsel, who is also copied on this letter for specific performance by Bank of America under the letter dated March 30, 2010 (see attached) upon which I have relied.  You can’t treat your customers this way.

Sadly, instead of resolving my loan with a modification to assist me in keeping my home, I am left to hope I am wrong in the assumption I am being victimized.  I still believe we can resolve the matter amicably.  However, I assure you I will not become another mortgage foreclosure statistic under these specious circumstances without some clarification I hope will be forthcoming.

I have relied upon your representations under the “Making Home Affordable” program.  I will herewith resist any and all efforts, legally or otherwise, from your office unless or until you make good on a modification offer as originally represented.

Thanks for your immediate attention to this matter.

Sincerely yours,

David B. Goates

Another five months elapsed before I heard from them again. Instead of a real person calling me back, I received yet another form letter advising me my note was in default (and has been for two and half years since this process began), and that I had three options: 1) a short sale for which I would not be held liable for the shortfall if I cooperated; 2) a deed in lieu of foreclosure, also helping me avoid liability for the shortfall; or 3) a rental contract if I wanted to continue living in the home after surrendering the deed, also escaping liability for the shortfall. I wrote back and indicated I wanted to stay in my home and that I would begin making the full payments once again, which I have been doing recently. However, the note is still in default technically and the issue is now compounded because the shortfall has increased as the effects of the negative amortization have increased the outstanding balance.

Nowhere in the communication was there a reference to any specific point I raised in my letter. Days later I received a call from a "customer service representative," who once again read from a script and suggested that I apply online for yet another modification application, stating, "The program has been improved and updated."

So I did as suggested and called the department given to me to remain proactive. Rather than discuss a new modification agreement, however, I was given to a collector whose first question was, "When do you intend to make a payment to bring the account current?" I explained why I was calling, was transferred to another representative, then to another who took down my financial information, and concluded by saying, "Based upon the information you have given me today, I am sorry to inform you that you do not qualify for a mortgage modification at this time, Mr. Goates." I asked for the specific reason(s) why I did not qualify. I was put on hold for five minutes, then the line went dead.

I have decided to tell the story publicly now. There remains little hope of reaching a resolution with anyone at Bank of America. And why, you ask?

My mortgage was originated by a little mortgage loan broker, then it was sold in the secondary market and scooped up by Countrywide, who was acquired by BoA, who is merely the servicer of the mortgage. Because my mortgage is owned now by Fannie Mae as part of a larger securitized mortgage pool that was eventually sold to investors, it is virtually guaranteed that the loss on my mortgage will be covered by Fannie Mae via the bailout money available under TARP. 

The banks too big to fail were saved, but the public relations message of wanting to keep borrowers in their home is little more than a scam. There is virtually no incentive for a bank to work with a borrower. They come out whole by systematically removing all their delinquent borrowers from their homes, bidding their total mortgage balance at sale, then cleaning their books and collecting their reimbursement check from the government. 

Despite a warning shot across the bow of Bank of America's ship last week from Utah Deputy Attorney General John Swallow, warning BoA they were not in compliance with Utah statutes by failing to provide local personnel to be available for face to face meetings with residents of Utah, there is little doubt in my mind that BoA, the country's largest bank will find a way to comply and foreclosures will proceed.

Because of our elected representatives in both houses of Congress in Washington D.C., who picked the winners and losers in their infinite wisdom, why would any bank today choose to work with a borrower if the government is waiting in the wings with an open checkbook to cover their losses?