Bank of America suit under scrutiny of settlement watchdog

The Charlotte ObserverJuly 2, 2013 

CHARLOTTE, N.C. -- Claims by former Bank of America Corp. employees that they were offered incentives to deny mortgage modifications have caught the attention of the national mortgage settlement's monitor.

Joseph Smith, who oversees the $25 billion settlement reached last year with 49 states and five major banks, including Bank of America, said he's examining a lawsuit in federal court in Massachusetts for any evidence that the bank violated the agreement.

The former employees' allegations are in affidavits filed as part of the lawsuit.

"The allegations are serious," said Smith, who added he intends to review the court documents.

The lawsuit generated renewed attention in June when former Bank of America employees filed statements alleging that the bank offered cash bonuses and gift cards to employees who forced a certain number of homeowners into foreclosure. The homeowners claim they were wrongly denied requests for modifications under the federal Home Affordable Modification Program, or HAMP, which was designed to lower monthly mortgage payments for struggling borrowers.

In his statement, William Wilson, a Charlotte-based employee, described workers being made to participate in a "blitz." During those, he wrote, the bank would order case managers and underwriters to "clean out" a backlog of HAMP requests by denying all those whose financial documents were more than 60 days old.

Bank of America has denied the employees' accusations, calling them "absurd." The bank is expected to file a formal response to the claims sometime this month.

Smith, a former North Carolina banking commissioner, doesn't have watchdog authority over the federal program, which is funded by the Troubled Asset Relief Program. TARP has its own special inspector general to investigate fraud and waste in the program.

As monitor of the mortgage settlement, Smith must determine whether banks are meeting servicing standards to which they agreed. The standards, which took effect in October, are designed to "make foreclosure a last resort" by requiring servicers to evaluate homeowners for foreclosure alternatives first.

Smith has the authority to impose fines on banks if he determines they failed to meet servicing standards.

"We are taking a look at it," Smith said of the lawsuit. "I don't think there's any question at all that the settlement was clearly intended to address allegations of the kind that are being made in the Massachusetts lawsuit."

The lawsuit was filed in 2010, the year after HAMP was launched. Homeowners sued Bank of America, claiming it breached contracts with them by failing to modify mortgages and prevent foreclosures.

It's unclear how much the lawsuit might cost Bank of America. A hearing on a request for class-action status is set for August.

The statements from seven former Bank of America employees, including one contractor, were filed in court in June. Attorneys say their allegations buttress claims by the homeowners, who accuse Bank of America of asking them to resubmit the same paperwork over and over as well as other hassles in dealing with the bank.

The bank, the lawsuit says, "serially strung out, delayed and otherwise hindered the modification processes."

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