Investigation reveals banks illegally denied loan modifications

An investigation by the nonprofit journalism operation, ProPublica, raises intriguing questions about reasons desperate homeowners are being turned away for the very government program aimed at helping them.

Some of the problems ProPublica uncovered echo complaints WalletPop heard when we wrote about troubles with the federal Home Affordable Modification Program last year: trial modifications being extended just as they are completed, and loans being denied because an income decline is considered temporary.

That temporary hardship, the focus of ProPublica's latest story, was not intended to be legitimate grounds for denial, as was clearly explained by the Treasury Department in a December memo. Now, JPMorgan Chase -- which was involved in all of the cases the investigation uncovered -- has acknowledged its error and encouraged anyone denied for that reason to reapply. A spokeswoman told ProPublica that the company "adapts as quickly as possible" to the Treasury guideline missives.

As of the end of 2009, the government reported, more than 900,000 trial modifications had been started, but only 66,465 had transitioned into permanent breaks for the borrowers. The report also showed JP Morgan Chase was second only to Bank of America as a participant in the federal HAMP program.