Banks faulted for denying mortgage relief during crisis

Lenders improperly denied mortgage modifications to many applicants at the peak of the national foreclosure meltdown, exacerbating the crisis, according to a financial regulator.

A new status report from the Office of the Comptroller of the Currency gives a snapshot of the progress more than a dozen big banks have made in paying out roughly $3.9 billion to around 4.4 million eligible borrowers.

{mosads}The report concluded that banks had disbursed 3,948,415 checks, totaling $3,385,814,432, as of January.

The lenders are also on the hook for $6.1 billion for foreclosure prevention measures.

The hefty payouts follow an independent foreclosure review looking at how banks mishandled loans after the housing bubble burst in the late 2000s. The crisis is seen as a major contributor to the ensuing recession — the nation’s largest since the Great Depression.

The report issued this week contains new observations about how banks botched loans in 2009 and 2010.

The regulator cites improper loan modification denials that were “aggravated by rapidly increasing modification request volume without adequate staffing and changing program guidelines.” Improper denials of loan modification applications amounted for 9.1 percent – nearly one in 10 – errors involving financial harm that were identified in the report.

Poor communication and insufficient recognition of bankruptcy protection guidelines complicated the problem.

The complete report is available here. 

This story was updated on Friday at 8:10 a.m. to correct an error involving the number of improper application denials.