Big Bank’s Software Glitch Denies Mortgage Modifications

A SEC quarterly filing from a large U.S. Bank revealed that it had mistakenly denied mortgage modifications to roughly 625 consumers. According to the Bank, the denials were caused by a “calculation error” in the underwriting software used to determine whether borrowers qualified for loan modifications through programs like the Home Affordable Modification Program (HAMP).

HAMP, according to the Department of Treasury, is a program that supports servicers’ efforts to modify mortgages, while protecting taxpayers’ interest.  The program is designed to reduce delinquent and at-risk borrowers’ monthly mortgage payments and avoid foreclosure.

Programs like HAMP established a standardized process to determine if homeowners were eligible for loan modifications.  This particular bank created its own underwriting tool to make the loan modification process more efficient, but an underwriting software glitch may have caused the calculation error.  The bank estimates that of the 625 erroneous loan modification denials, about 400 of the loans resulted in foreclosure.  The bank reports that the affected consumers were foreclosed on between April 2010 and October 2015.  In the second quarter of 2018, the bank set aside $8 million for remediation.