BOA's mortgage cuts not CSR, but good try

Wednesday, Bank of America made news by announcing loan modifications for underwater borrowers, up to 30% of principle for some borrowers. Initially, this sounds great. But, BOA's CSR illusion was unmasked: these modifications are not their choice- it was Martha Coakley's bidding. Additionally, many borrowers already qualify for loan modification under year old legislation, 2009's House Affordable Modification Program (HAMP). The next day, Obama announced the launch of a more extensive loan modification program, also offering mortgage cuts Nice try BOA, but being forced to follow laws is not CSR.

BOA Forced into mortgage reductions by Martha Coakley

Although BOA takes credit for their sympathy for recession-stricken customers, the whole policy was the product of a settlement with Massachusetts AG Martha Coakley. BOA showed no such sympathy prior to being forced to, and resisted settling with customers claiming modification rights under HAMP. In fact, BOA received HAMP funds (government reimbursement for loan modifications) but had only helped 4% of the 15% of customers eligible for HAMP, which the Wonkroom describes as "willful noncompliance". To be reasonable, implementing laws takes time and usually more than a year. However, BOA continued to foreclose on HAMP eligible customers unless the customers forcefully asserted their rights, usually requiring an attorney. It also lagged behind other banks in implementing modifications. Further, Obama's announcement of new legislation only sounds like HAMP 2.0, with more enforcement to make banks follow loan modification laws. BOA is no friend to borrowers as Wednesday's press release may have customers believe.

The current settlement only sounds good, and helps BOA

Even Coakley's settlement is not terribly significant compared to BOA's size. It will affect 45k mortgage holders that must meet various credit requirements, and will set BOA back $3 billion in payment that probably would have been sunk costs anyway. If banks don't defer or reduce payments on many of these homes, they are at high risk of losing ALL value. Reducing or deferring mortgage obligations is one of the only options banks have to delay the bad debt on their balance sheets. Additionally, foreclosure incurs expensive legal costs to banks; it's a long legal process, especially where mortgagees fight it. Banks', and specifically BOA's obstinate refusal to help mortgagees so thus far reflects irrationally tight fists, not business logic, and casts banks in a malicious light.

Legal compliance isn't CSR

BOA wants to get CSR credit for legal compliance. Yes, following laws is socially responsible, but it's default responsibility we all have. Corporate social responsibility assumes legal compliance, and requires companies go beyond what they are obligated to do. If companies don't follow laws, they are being illegal and irresponsible. If companies are being forced to do something, it specifically is not CSR- it's regulation. CSR is almost necessarily done willingly. So while BOA is trying to squeeze some CSR PR value out of their regulation misfortune, customers should not believe that the bank is reducing mortgages because they think it's the right thing to do. Indeed, they resisted to the last moment, and vigorously fought implementation of previous legislation that did the same thing.