Bank errors called drag on mortgage adjustments

Later, the lender said it was actually her low income that disqualified her. She tried to get to the bottom of it all, but got no answers.

After an inquiry by the Associated Press, the bank, America’s Servicing Co., a division of Wells Fargo & Co., apologized for the 7-cent error and said the foreclosure sale had been put on hold.

Gooch is far from alone in her problems with the Obama administration’s loan modification program, which provides federal subsidies to encourage lenders to renegotiate rather than foreclose. Many qualified applicants are being rejected, often through bank errors, with no avenue of appeal. Until this month, lenders did not even have to say why.

“If the servicer messes up, even by accident, there is no meaningful way to complain, no real appeals process, no viable ombudsman to consider,’’ said Kevin Stein, associate director of the California Reinvestment Coalition. “Most importantly, there are no consequences to the banks for failure to do what they have promised to do.’’

Foreclosure filings are on a pace to hit about 3.5 million this year, up from more than 2.3 million last year, according to RealtyTrac.

Government officials can’t say how many people have been turned down because of a typo, a lost fax, or an oversight by a poorly trained bank employee. But the Treasury Department acknowledges that far too many applicants have wrongly been rejected.

In August, it told mortgage buyer Freddie Mac to begin auditing banks.

A Treasury spokeswoman said officials are trying to determine the scope of lenders’ noncompliance with the program.

Freddie Mac is currently reviewing about 1,000 files per week, but there are no reliable figures yet on how many mistakes were caught, she said.

Lenders have been directed by the government to set up their own appeals processes. And by December, banks participating in the program will be required to report why certain homeowners were not offered mortgage relief. Those reports will be made public. The administration also wants to impose tough new penalties on lenders who wrongly deny applicants, including kicking them out of the program or taking away incentives.