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"In May 2008, a family applied to Countrywide Financial for a loan modification, because the payments on their adjustable-rate mortgage were about to increase. Every month, they called to check in on their request. Finally, in January 2009, Countrywide -- by now owned by Bank of America -- told them the application had been approved and they would receive a modification agreement in the mail.

Instead they received a letter telling them that they were in serious default and that if they didn't fix the problem, foreclosure proceedings would be initiated. When they called to ask about this, they were told not to worry, because they'd been approved for a modification.

That assurance was soon contradicted by another letter, telling them their modification request had been denied. Nonetheless, a Countrywide rep then told them that the loan was not in foreclosure and that they should make a modified payment. The second of these payments was rejected, however, because the loan was in foreclosure.

By now it was April 2009. At Bank of America's request, the family again faxed over all of its financial information -- twice. In response, they were again promised they had been approved for a modification.

And yet, two weeks later, they got a call from Bank of America, asking what they wanted to do about their home. Their request for a modification had been denied two weeks earlier, they were told, and their home was due to be sold June 30. They were told to fax over their information for the fourth time, which they did.

In June, the family was informed by Bank of America's automated response system that collection activity had been suspended and their loan forwarded to a negotiator. They were told not to contact the negotiator, because it might delay the process.

The following month, they received a letter from Bank of America discussing potential assistance for homeowners in foreclosed properties. When they called to follow up, they were told their home had been sold on June 30. They were also told the modification request was still in review.

With the deadline to vacate their home approaching, the family signed a contract for a rental. Soon afterward, Bank of America called to discuss the modification request. The day after that, the bank sent the family a letter denying the request.

That's the Boschian hell that one family in Chino Valley, Ariz., was put through by Bank of America, according to a lawsuit (PDF) filed last week against the firm by the state's attorney general, Terry Goddard. It's just one of numerous equally nightmarish tales detailed in the complaint, and in a similar one (PDF) filed by Goddard's Nevada counterpart, Catherine Cortez Masto.

The twin lawsuits, from two of the states hardest hit by the bursting of the housing bubble, accuse Bank of America of "widespread fraud" and outright deception in dealing with loan modification applications -- the procedure that is supposed to enable struggling borrowers to request a change in the terms of their loan. The allegations indicate that the extent of the foreclosure mess that's been making headlines since this fall goes far beyond banks cutting corners on paperwork, as it has sometimes been portrayed. Rather, the abuses also appear to involve banks routinely misleading borrowers about the modification process, and making that process as time-consuming and confusing as possible. And the lawsuits offer evidence suggesting that of all the bad actors in the mortgage market, BofA may have been the worst.

"The mortgage servicing system is broken," Ira Rheingold of the National Association of Consumer Advocates told The Lookout. "BofA and banks like it have failed American homeowners miserably."

The AGs charge that, among other deceptions, Bank of America falsely told borrowers that:

• They had to be delinquent on their mortgage payments to be considered for a loan modification.

• A foreclosure wouldn't proceed while a modification request was pending, or while payments were being made.

• They had been approved for, or denied, a modification.

• They'd be approved for a permanent modification if they successfully made all payments during a trial modification.

• BofA would make a decision on their modification request in a short time-frame.

The suits suggest this misinformation wasn't just carelessness. The current modification process was largely set up by Congress and the Obama administration last year as a way to help desperate homeowners, and it's not something the major lenders have ever treated with enthusiasm. As the lawsuits note, thanks to the existence of late fees and other default-related charges, it's often in the banks' interest to delay or deny modifications. And of course, moving people into foreclosures as speedily as possible has been a hugely profitable business model for lenders. That model is disrupted by loan modifications.

Not surprisingly, then, one former employee of BofA's modification-request call center quoted in the Nevada lawsuit described the operation as "chaotic, understaffed and not oriented to customers." Another testified that such employees "received almost no training or direction from Bank of America." And a third said that "nobody at BofA seems to care what we say to the borrower as long as we get them off the phone."

The suits also charge that BofA's behavior hasn't been limited to Arizona and Nevada, referring to a "pervasive nationwide pattern and practice of conduct." They note that a Treasury Department report (PDF) released in October found BofA takes longer than any other lender surveyed to answer calls from homeowner, and has the worst "call abandon" rate -- suggesting that its call centers can't handle the flood of calls. It also takes longer than anyone else to resolve third-party complaints. And it has, by far, the highest number of trial modifications that have been pending for more than six months -- 32,000.

"Bank of America has been the slowest of all the servicers to ramp up loss mitigation efforts in response to the housing crisis," said Goddard, who will leave office next month, in filing Arizona's suit. "It has shown callous disregard for the devastating effects its servicing practices have had on individual borrowers and on the economy as a whole."

A nationwide task force of all 50 state attorneys general, led by Iowa AG Tom Miller, has been conducting its own probe of the mortgage mess. Investigators have asked for information from Bank of America, as well as JP Morgan Chase and Wells Fargo, among other major lenders.

Separately, Miller and federal prosecutors announced a criminal investigation Monday into mortgage fraud in Iowa.

Bank of America has expressed disappointment that the Nevada and Arizona lawsuits were filed "at this time," given its cooperation with the multi-state probe. And it said it has made improvements to its loan-modification process."
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