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Homeowners Sue BofA for Failing to Permanently Modify Loans

Homeowners in Washington State are suing ""Bank of America"":http://www.bankofamerica.com, alleging the nation's largest lender is ""intentionally"" and ""systematically"" thwarting and ignoring borrowers' requests to make reasonable mortgage modifications that would prevent homes from being foreclosed.


The case, filed in a Seattle federal court, claims that Bank of America is required to modify troubled mortgages as a condition of the $25 billion federal bailout it accepted as part of the Troubled Asset Relief Program (TARP).

""We intend to show that Bank of America is acting contrary to the intent and spirit of the TARP program, and is doing so out of financial self interest,"" said Steve Berman, managing partner of Hagens Berman Sobol Shapiro, representing the plaintiffs.

As a recipient of three bailouts, Bank of America was considered one of the institutions to receive ""exceptional assistance"" and part of the Treasury's ""Capital Assistance Program"":http://www.financialstability.gov/docs/CPP/FAQ_CAP.pdf (CAP), which did include a commitment to the Home Affordable Modification Program (HAMP) in the fine print.

Bank of America has since repaid its $25 billion capital injection from the government in full, and as a participant in HAMP, the company has pledged to work to prevent foreclosures and permanently reduce mortgage payments for eligible borrowers struck by financial hardship.

According to the Treasury Department's latest report on servicers' HAMP progress, Bank of America services more than 1 million mortgages that are considered eligible for the federal modification program. As of the end of February, BofA had approved approximately 43,000 for a permanent mortgage relief solution, half of which were still awaiting the borrower's signature.


""We contend that Bank of America has made an affirmative decision to slow the loan modification process for reasons that are solely in the bank's financial interests,"" Berman said.

The complaint notes that part of Bank of America's income is based on loans it services for other investors, fees that will drop as loan modifications are approved. The complaint also notes that Bank of America would need to repurchase loans it services but has sold to other investors before it could make modifications.

The lawsuit, which seeks class-action status, names Seattle residents Kamie and Daniel Kahlo as the plaintiffs. The suit states that the Kahlos requested assistance from Bank of America after their annual income was cut to $20,000, making it difficult to make their $1,460 monthly mortgage payment.

They claim Bank of America advised them to default on the loan in order to qualify for HAMP. The suit says the bank, in turn, issued new terms and conditions for the Kahlos' home loan, but after making their trial payments, submitting the required paperwork, and paying a mandated upfront modification fee of $1,400, the plaintiffs discovered BofA had failed to make the modification permanent.

""Bank of America came up with every excuse to defer the Kahlo family from a home loan modification, from stating they 'lost' their paperwork to saying they never approved the new terms of the mortgage agreement,"" said Berman. ""And we know from our investigation this isn't an isolated incident.""

A Bank of America spokesperson told DSNews.com that the company has not yet been served with the lawsuit. In response, the bank pointed out that since January 2008, it has helped more than 760,000 customers with a loan modification, including more than 500,000 modifications through BofA's own programs, nearly 21,000 completed HAMP modifications, and nearly 240,000 active HAMP trials.

""We continue to lead the industry in the number of customers helped with trial modifications, accounting for nearly 30 percent of total active trial modifications under HAMP,"" Bank of America said in an emailed statement.

The plaintiffs in the Washington lawsuit are seeking to obtain an order for Bank of America to perform its obligations under HAMP, as well as compensatory and other damages.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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