These whistleblowers, who reviewed over 1600 files and tested hundreds more in the attenuated start up period, saw abundant evidence of serious damage to borrowers. Their estimates vary because they performed different tests and thus focused on different records and issues. When asked to estimate the percentage of harm and serious harm they found, the lowest estimate of harm was 30% and the majority estimated harm at or over 90%. Their estimates of serious harm ranged from 10% to 80%.
Both Bank of America and Promontory suppressed and ignored both broad categories and specific examples of borrower harm. We’ll discuss how this occurred from two vantages. The first was organizational: that the reviews were structured and managed so as to make it hard for particular cases of borrower harm to get through the gauntlet. The second was substantive: that the bank and Promontory excluded some types of harm entirely and insisted other aspects of the review be focused as narrowly as possible, which served to minimize and exclude evidence of borrower abuses.
After recruiting “claim reviewers” with meaningful mortgage document and foreclosure experience with the understanding that their job was to ferret out evidence of damage to borrowers, Bank of America and Promontory put in place a structure to impede those efforts.
However, the files next went to the Quality Assurance department, which was in Bank of America and staffed with both permanent employees and contractors. The reviewers would have the opportunity to rebut any objections QA made before the file was sent on to Promontory.
Curiously, Bank of America had discussed the formation of QA and some related efforts with the reviewers:
All reviewers report serious pushback from QA.
RB: One person was this way, went to one of the managers, I think the last week that we were there, and said, “Hey, I have a problem with this test,” and he just kind of rolled his eyes and said, “I know, just like every other test.” And she’s also the same person that found a borrower that made like a $20,000 payment and the whole payment just disappeared out of the system.
YS: Mmmm.
RB: The borrower did not get the money back. It was never applied to any fees or any payments. It just was gone. And that was escalated to, you know, someone else. They pulled the loan out of her queue, and she would repeatedly ask, “Hey, did anybody hear about that loan?” And they would repeatedly tell them to stop digging.
Other terms of opprobrium were “going out of scope” and “going down rabbit holes”. Reviewer A stressed that Bank of America had little tolerance for that:
You would, uh – you could also be dismissed for what they called being a digger, and – for instance if you had, if you were doing a C test but you found harm in a particular loan and it went off in a different direction other than specifically something addressed in the C test, you were called a digger. And if you made notes in the system regarding something outside of the scope of your test, you ran a risk of getting yourself in some pretty hot water and winding up with the call later that night from your agency saying, “Well, you know, you should – you’re not allowed to go back.”
Substantive efforts to limit or bar findings of borrower harm
Predictably, Bank of America staff tried to eliminate and minimize any evidence of damage to borrowers. The main ways they did that were:
Excluding some major types of abuses from the reviews entirely
Narrowing the scope of the reviews
Document/record fixes and fabrications
Excluding some major types of abuses from the reviews entirely In Part II, we described how the reviewers found that Bank of America engaged in some practices systematically that hurt borrowers. We need to underscore that some of these systematic, and perhaps pervasive types of bad conduct were omitted completely from the reviews. Bear in mind that all of them have been flagged in the media and by foreclosure defense attorneys as abuses they see often.
One big one was impermissible charges in Chapter 13 bankruptcies. Many borrowers lose their homes to them.
During the period when a borrower payment plan is being approved and the 60 months under the plan, all creditors are “stayed”, meaning they cannot impose new charges on the borrower. All claims (principal, interest, any fees owed) must be submitted to the court prior to the negotiation of the plan. The borrower must make his 60 months of payments under the court approved plan. Chapter 13 plans are very demanding and contemplate that the borrowers live meagerly. The borrower emerges with no debts and (unless he had an unexpected windfall) no savings.
Servicers often (too often) accumulate late fees or other fees during a bankruptcy, even though these fees are not allowed (payments made pursuant to a Chapter 13 are timely irrespective of what the mortgage originally specified), and hit the borrower with them shortly after emerging from Chapter 13. The borrower is by design broke and can’t afford court fees. Many borrowers lose their house this way.
Many of the reviewers had bankruptcy experience and knew these charges weren’t legal. Yet when they asked about how to include them in their reviews, the trainers incorrectly told them that it was legal to incur fees during the bankruptcy but not charge them then. This appeared to be the belief of the Countrywide managers who were supervising the reviews. Perhaps more important, Promontory, which was responsible for the design of the reviews, was responsible for making sure all laws, and bankruptcy law was specifically mentioned in the OCC consent order, were complied with. Yet Promontory appears to have taken its view of what was kosher from Bank of America rather than from relevant law. The result is that this abuse was completely ignored.
Another type of borrower abuse that the reviews wouldn’t consider was zombie title. That occurs when a servicer completes all the steps up to the sale of the home, sometimes including evicting the borrower, yet neither takes title itself nor sells the property to a third party (in other cases, the borrower, led to believe eviction is imminent, leaves on the assumption the bank is about to take the house). Recall that the reviews included foreclosure actions that started in 2009 and 2010 so foreclosures left in limbo that started during this period would be eligible for relief. Yet as we demonstrated earlier, complaint letters that cited this sort of problem were rarely addressed properly and rejected when they were because they did not fit in the review template.
Another conveniently-omitted abuse was the all-too-common HAMP trial modification hell, in which borrowers made all their trial modification payments, were told to ignore foreclosure notices (the foreclosure process would continue in parallel with the trial mod) and reassured that they were likely to get a permanent mods and then were foreclosed upon, were also typically excluded from the review. One reviewer described his frustration:
That was a big question was, was the modification offered and in place and what determined whether a modification was actually in place and were payments made? For instance, if someone was offered a trial modification and made their payments in a timely manner, the letters for the trial modification stated, “If you’ll make the next six payments, you will be offered a permanent modification.” Well later on, I mean, these, some people would make seven, eight, nine, ten payments. Nothing would happen in regard to a permanent modification. And so we would be asked, was a trial modification in place or was a permanent modification in place? Well, the letter said six months, a permanent – after six months of payment, a permanent modification would be offered. Well it wasn’t, and the person made 10, 12, some – I remember a case where someone made 18 trial modification payment, they were never offered a permanent modification. So the letter said six months. So I said, “Yes, there was a permanent modification in place. They paid as agreed, the letter said they would be offered the permanent modification, they exceeded the number of payments, nothing happened. So, yes, there was one in place.”
That would create a tremendous argument, because is it in place or isn’t it? If I said it wasn’t in place, there was no permanent modification in place, that stopped the investigation. Well, that’s not right, because they made more than the required number of payments and you’re saying, just, there was no permanent modification in place?
This example raises a much bigger issue. Reviewer A was almost certainly wrong, in that a permanent modification was not in place, the borrower had instead been left in a trial modification limbo and then foreclosed on. However, the media and policymakers discussed this type of abuse frequently. The tests at Bank of America by design omitted one of the biggest groups of harmed borrowers and this reviewer was refusing to sanction that ruse.
Narrowing the scope of the reviews. All the reviewers complained of how Bank of America personnel (not necessarily the team leaders, but QA and the unit managers) would go to sometimes logic-defying lengths to narrow the scope of the tests, even though several of the major tests had open ended questions to allow the reviews to provide information about types of harm not captured elsewhere. See, for instance, this question from E test:
[Refer to first of two slides in ORIGINAL POST.]
One of the regular battles was over the review period. The staffers in Tampa Bay were processing borrower complaints relating to foreclosures completed in 2009 and 2010. Bank of America managers would instruct the reviewers to look back from the completed foreclosure to what it called the nearest critical default and no further. But the questions form that they used when undertaking the test told them to use earlier default dates if they saw fit (see the “General Guidance” column, click to enlarge):
[Refer to second of two slides in ORIGINAL POST.]
Even when reviewers complied with that directive, they got resistance:
RB: Well, one was the very first question, which was question E10, and it would ask if the fees were charged to the borrower’s account during the review period. Well, the review period for us was different than the review period for the whole rest of the project. So we were not just going by anything that was, you know, related to a foreclosure during 2009 and 2010, we were going by the original default date.
YS: Mmhmm.
RB: Now if they did bring the loan current, originally we were told six months, we were told three months, we were told all different kinds of things, but we were told if they brought the loan current for a specific amount of months, we could skip that default and go to the next one.
YS: Mmhmm.
RB: So if you answered the question yes, there were fees charged to borrower’s account during the review period, inevitably the QA department would take it back and argue with you over review period.
YS: Well that also just sounds crazy, because the whole – one hates to say it, the whole point of foreclosure – not, well, the whole point, but foreclosures inevitably involve – I mean it just sounds Orwellian. Foreclosures inevitably involve charging extra fees, and yet if you say you did what was permitted during a foreclosure, even if they only did stuff that was permitted, it got kicked back. I mean, that’s –
RB: Right.
YS: Is that what you’re saying?
RB: Pretty much.
YS: Oh my God….
RB: Well, and sometimes too we had to go through a guide that was provided to us on an Excel spreadsheet, and it was all these investor allowable fees, so there was Fannie, Freddie, HUD, FHA, VA, all of them were on the spreadsheet that we had to go through and compare each fee with what was allowable. But the more – the bigger your review period, even though we had a different review period, you know there were, the easier chance you’re going to have of finding something wrong, so it was almost like they would even argue with you about your review period, even though you were following what you were told and what was on the guide, just to shrink it down and make it just a shorter timeframe that you were reviewing. Now, if you even had a foreclosure that was in with that, say they had a foreclosure in 2004 and you had to review the fees as a part of that, because that was in your review period, it would still get kicked back and QA would say that you were not reviewing fees within the scope of the project.
Reviewer C similarly pointed out that the reviewers on her tests (E and F) had latitude to choose longer review periods but still faced resistance:
RC: A lot of times we had what was called a fee review period, and we would, we would start with the latest default that had to do with the foreclosure action we were reviewing, and – default meaning 90 days. And there could have been several defaults, and a lot of times the quality analysis analysts didn’t agree with what our fee review period was, although it was very subjective. So, most of the time if I got anything back for that, I would just say, “Well, this is what I’m choosing, this is what I’m sticking with.” And normally, I had gone back farther than what they were saying to go back.
YS: And….what would your basis be? Your basis would be it started X because of X, this reason. What would their – why would they choose a narrower period?….
RC: So a lot of times borrowers will be late 90 days, catch up, you know, and it’ll happen again and again.
YS: Right.
RC: So – you know, in our instructions we were told we can back further if we choose to do so.
Some files wound up not being subject at all to certain tests. It’s one thing to have that be an accident, but when the team leaders were told about it and refused to remedy it, it was clearly intentional. Both the B and D tests (done together by one set of reviewers) and the E and F tests (done by a different group) had questions requiring them to confirm that a particular foreclosure activity had occurred before proceeding.†† The reviewers were directed to look at the “Foreclosure Account Followup Screen” in the main servicing system, AS400, for verification. That screen listed all the steps that had taken place relative to a foreclosure action.
But it turns out that screen was not always reliable. One reviewer would check the Foreclosure Review Account Followup Screen against court filings and found out the screen would be wiped clean if a borrower who had had the foreclosure process start later got a modification. This was germane because any fees relating to a foreclosure that had started were often capitalized in the modification. If those foreclosure actions or the fees were not proper, the borrower would have been eligible for compensation, but most reviewers would miss that. This reviewer would perform his check of these earlier foreclosure actions, and flag that the earlier tests (B and D) had missed them in their file review (B and D included tests of whether the foreclosure process was executed in keeping with applicable laws). He would also raise the omissions with his team leader and unit manager, and was told “Don’t worry, Promontory will catch that.” He’d check these files periodically after they went to Promontory and never saw the omitted tests completed.
Document/record fixes and fabrications. Reviewer A discussed a problem with breach letters, which are the first letter sent to borrowers in the foreclosure process. Defective breach letters would point to harm under the tests that related to whether the foreclosure executed properly:
Well, we were having a very difficult time locating breach letters, you know, the letters of acceleration, and our pipelines were getting clogged up with – because we would have to wait for these documents … And so oftentimes we would have to have someone go find these, what we call document retrieval unit, try and find these, and our pipelines were getting very clogged up waiting for someone to find these documents and eventually we started getting breach letters sent back to us, say, from a Countrywide file, but the breach letter was on Bank of America letterhead. But it was a Countrywide file. How did it get on Bank of America letterhead? So there was a big hue and cry through the, at least through the level 3s, saying, “What in the world is this? You know, this is a Countrywide loan, it has Countrywide loan numbers, it’s on Bank of America letterhead. How is this supposed to be legitimate?” Eventually all those files were taken away from us…it was causing enough of a stir so that we were simply told to stop what we were doing as far as these breach letters were concerned, and if we had a breach letter that was missing we were to notify management and it would be sent to another team…
And we were told at one point that the breach letters were sent out registered, and we oftentimes would ask, “Well, can you give us the receipt?” And of course there was, “No, those don’t exist anymore. They get thrown away.” Well, you know, I don’t necessarily believe that, but nonetheless these loans were taken away from us and given to another team, the breach letter team, who was then assigned to take care of them and we wouldn’t see them again for the most part.
In case you think this is one of those “mere paperwork” issues, a January 23, 2013 ruling in Florida, Bank of America v. Casey, in favor of a borrower on this very issue says otherwise (hat tip Florida Foreclosure Fraud Weblog):
In the most fundamental sense there is a world of difference between having to bring a court action to assert the non existence of a default or any other defense to acceleration and the right to assert in the foreclosure proceeding the non existence of a default or any other defense to acceleration. The former requires affirmative action on the part of the borrower to file a complaint, which almost all are ill equipped to do, or pay an attorney to do so. It also requires the payment of a filing fee at a time when the borrower is least capable of doing so. It is significantly different from taking no action, waiting until the foreclosure proceeding is filed and then asserting why acceleration is not correct or specifying other defenses. To equate the two is to ignore both the terms of plaintiff’s mortgage and the economic burden of the substituted language.
Also, equation of the two requires one to ignore the Supreme Court pronouncements in this area. This is one of the few times in the history of Florida jurisprudence where the Florida Supreme Court has deemed it necessary to subject an entire industry to special rule due to the industry’s documented illegal behavior. The amendment of Fla. R. Civ. P. 1.110 (b) was a direct result of the robosigning scandal. The comments to the rule amendment, In re Amendments To The Florida Rules Of Civil Procedure, 44 So.3d 555, 556 (Fla. 2010) indicate the depth of the court’s concern with this industry. To suggest now that a non-party, to whom the owner of the note has delegated its obligations, has “substantially” complied with the notice provision by wrongly telling the borrowers they have to file a separate law suit to assert their defenses turns logic on its head.
In Florida, many appellate cases have also reversed lower court foreclosures on this very issue,††† often relying on Paragraph 22 of a standard Freddie/Fannie mortgage form (used extensively for GSE and non-GSE mortgages alike).†††† It is likely there are favorable rulings on this question in other states.
Moreover, in the case of the Bank of America letters in Countrywide files, it is not clear whether defective letters were sent out on time, or whether the files were sloppily doctored after the fact (as in letters on Bank of America rather than Countrwide letterhead were loaded in after the fact). The failure to send a breach letter would put homeowners in non-judicial foreclosure states with short timetables like Georgia and Texas at a severe disadvantage. In those states, after a letter is sent (or in these cases, perhaps not), the next step is the advertisement of the pending foreclosure sale, and that serves as the notification of the sale date. Those ads run two weeks prior to sale, which is hardly enough time to intervene even if the borrower manages to see or hear of the pending sale on the day the notice appears.
Another controversy discussed widely among the Tampa Bay reviewers (the open floor plan, team structures, and use of instant messaging facilitated gossip) were the missing fee notification to North Carolina borrowers during foreclosures.
In October, the matrixes for the tests involving fees were updated, and it included new material on state fees. One major new item was that North Carolina law has a strict policy on fees, that the fee must be charged to the borrower within 30 days of being rendered and the borrower had to be notified in writing of the fee within 45 days being charged (there were some minor exceptions to this rule).
Many reviewers on the fee tests were unable to find any such letters; even a more savvy reviewer who thought that some of his colleagues might not have been as diligent as they could have been about looking said on average only 10% to 20% of the letters were in the system. Even a reviewer who was tasked to other tests mentioned them. He’d gone looking for them on his North Carolina files and had found none.
However, one reviewer who did find them pointed to a suspicious pattern:
Reviewer E: This didn’t come down until October…or November. And –
YS: What do you mean, this “come down”? It wasn’t included in your reviews, or – ?
RE: Yeah! We didn’t know about this rule. It was a new rule that nobody knew about. Well, I was, I had a file that happened to be North Carolina that I was in with someone when this new rule came out. So I had to go back in and look for it. Nothing there. So I just let it sit for a minute and moved on to another file. About two weeks later, there were 50 of those letters that magically appeared in the system.
YS: Mmmm. Wow.
RE: Very common.
YS: So you’re, you’re saying that while the review was on, Bank of America was fixing the documents, uploading stuff in the system?
RE: They weren’t there, and then magically when the law was brought to light?
YS: Mmhmm.
RE: Magically they started appearing, in the thousands.
YS: Yeah. Wow.
RE: Where there’s no proof they got mailed? Nothing. It’s –
YS: Yeah.
RE: – just a one-page document –
YS: Right.
RE: – that has a fee on it.
When I went back to the reviewer with the argument that he might have simply not looked thoroughly enough the first time, he replied:
There was only one place in the system for documents like this to be, which was in the I portal see the link to the program in the blue box, second row, on the left in Port Com Docs. When I was first looking at the borrower records I mentioned to you, there were only ten documents there, no fee notification letters at all. When I went back into the file, there were 20, and the new ones were all North Carolina fee letters. And I saw other letters appearing in borrower files. You’d see a document with a title, say, “Inspection fees” but if you clicked on it, it was a blank page. I’d come back later, and it would be completed, with a date and a fee amount.
This reviewer also stated that a colleague working in a different building claimed to be on a team of roughly 300 people that was documents, changing servicing notes, backdated fees, and reclassifying fees so they would look as if they had been charged to investors rather than borrowers. We have not obtained confirmation of this charge, but as we pointed out in an earlier post in this series, virtually every borrower file had reclassified fees, well beyond the level that can be attributed to corrections of mistakes. So while we are not certain there is a fire here, there is certainly a troubling amount of smoke.
____
† In this series, all reviewers are described as male irrespective of actual gender.
†† For instance, question E-150: “Was a foreclosure sale initiated?” and question E-190: “If the foreclosure sale has not occurred, will the borrower be obligated to pay the amount of the impermissible miscalculated fees and/or penalties in the future if not corrected?”
† This is a partial list (hat tip Evan Rosen):
Judy v. MCMC Venture, LLC. , 100 So.3d 1287 (Fla. 2nd DCA 2012) (summary judgment reversed where notices of default failed to specify the breach);
Konsulian v. Busey Bank, N.A., 61 So. 3d 1283 (Fla. 2d DCA 2011) (summary judgment of foreclosure reversed when bank did not defeat affirmative defense relating to failure to provide the acceleration notice);
Sandoro v. HSBC Bank, USA National Association, 55 So. 3d 730 (Fla. 2d DCA 2011) (final judgment of foreclosure after summary judgment reversed where record reflected genuine issues of material fact regarding whether Mr. Sandoro had been provided with a notice of acceleration because such notice was a condition precedent);
Goncharuk v. HSBC Mortgage Services, Inc. , 62 So. 3d 680 (Fla. 2d DCA 2011) (summary judgment of foreclosure reversed when issue of acceleration notice remained even though nonmoving party did not file an affidavit in opposition);
Laurencio v. Deutsche Bank National Trust Co. , 65 So. 3d 1190 (Fla. 2d DCA 2011) (plaintiff not entitled to summary judgment where it had not established that it had met the conditions precedent to filing suit, i.e. it had not established that it gave Homeowner a notice which the mortgage required);
Frost v. Regions Bank, 15 So. 3d 905 (Fla. 4th DCA 2009) (summary judgment of foreclosure reversed when bank did not factually refute the Frost’s lack of notice and opportunity to cure defense);
Lazuran v. Citimortgage, Inc. , 35 So. 3d 189 (Fla. 4th DCA 2010) (summary judgment of foreclosure reversed when affirmative defense of improper acceleration not sufficiently addressed);
Valencia v. Deutsche Bank National Trust Co. , 67 So. 3d 325 (Fla. 4th DCA 2011) (foreclosure summary judgment reversed when there was a discrepancy between the date of default alleged in the foreclosure complaint and the dates referred to in the notice to cure letters that were allegedly sent to borrowers).
†† 22. Acceleration; Remedies. Lender shall give notice to the Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument (but not prior to acceleration under Section 18 unless Applicable Law provides otherwise). The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and, (d) that the failure to cure the default on or before the date specified in the notice may result in an acceleration of the sums secured by this Security Instrument, foreclosure by judicial proceeding and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to assert in the foreclosure proceedings the non-existence of a default or any other defense of Borrower to acceleration and foreclosure. If the default is not cured on or before the date specified in the notice, a Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may foreclose this Security Instrument by judicial proceeding. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to all attorneys’ fees and costs of title evidence.