Fresh off his Daily Show appearance, HUD Secretary Shaun Donovan announced that Bank of America will provide additional assistance to homeowners under the as-yet undisclosed foreclosure fraud settlement. BofA will write down to market value, according to Donovan, over 200,000 loans that correspond to certain criteria: if the homeowners are underwater, delinquent by more than 60 days, and saddled with payments that are over a quarter of income, then they must be offered the mod. These are slightly better terms, we are told, than the rest of the settlement (other banks aren’t required to offer mods to everyone who fits the criteria, and they can write down to within 120% of loan-to-value, not market value).

Donovan might want to check the fine print on the BofA agreement, however. Because a whistleblower lawsuit that was just unsealed alleges that BofA defrauded the government’s HAMP program.

Bank of America NA prevented homeowners from receiving mortgage-loan modifications under a federal program in order to avoid millions of dollars in losses while benefitting from financial incentives for participating in the program, according to a complaint unsealed in federal court Wednesday [...]

The complaint unsealed Wednesday was filed by whistleblower Gregory Mackler, a Colorado resident who said he worked alongside Bank of America executives while an employee at Urban Lending Solutions, a company to which Bank of America contracted some of its HAMP work.

While working at Urban Lending, Mackler said he saw BofA and its loan servicing subsidiary, BAC Homes Loans Servicing LP, implement “business practices designed to intentionally prevent scores of eligible homeowners from becoming eligible or staying eligible for permanent HAMP modification.”

The bank and its agents routinely pretended to have lost homeowners’ documents, failed to credit payments during trial modifications and intentionally misled homeowners about their eligibility for the program, the complaint alleged.

BoA let through just enough HAMP modifications to avert suspicion and allay congressional critics, while not enough to incur any substantial losses to its own bottom line, according to the complaint.

Even under this “requirement” in the settlement, BofA will have the authority to identify borrowers eligible for principal reductions, and to deliver them. In other words, there’s no reason that they can’t extend the process by losing the paperwork needed to verify income, or that they can’t deny mods after stringing along the borrower. And as for enforcement, remember that we’ve been told that the banks will self-report their principal reductions, and distribute the reports to a monitor who only then can request additional data. It will be many months before anyone can discern if something has gone awry, and as this complaint alleges, BofA knows how to keep up appearances.

The lawsuit comes close to Mackler saying he knows the underlying business practices of BofA, so I’d really like to see his evidence. But we have lots of evidence showing that this is how banks used HAMP, to string along borrowers and squeeze trial payments out of them. Sadly, it’s possible that this lawsuit ties in with the settlement; the lawyer for Mackler would not confirm or deny. Hopefully we’ll get more clarification on that in the coming days.