NEW YORK -- Katie Diaz arrives at the Bronx County Courthouse hoping for clarity, if not a reprieve from the foreclosure case threatening her home. Five months have passed since she submitted an application to Bank of America seeking lowered mortgage payments. She is eager for a decision -– an approval, a denial or at least a negotiation.

She gets none of these things. Instead, in the course of a perplexing morning spent beneath the dim chandeliers of Courtroom 607, she absorbs a display of the chaos that still besets the nation's foreclosure proceedings, despite promises of improvement from major banks under a settlement with the Obama administration and state attorneys general.

Diaz, 52, is here for a settlement conference, a face-to-face meeting of lender and borrower mandated under the foreclosure process in New York state. As soon as she sits down at the wooden conference table, an attorney representing Bank of America confirms that she is under review for a loan modification. A few minutes later, the bank lawyer corrects himself: Her case has been closed, he says, because she supposedly never sent required documents. Fifteen minutes after that, he corrects himself again: Her file was never reviewed, because her paperwork has been sitting in the wrong office inside Bank of America.

"This file has just been sitting in a dead corner somewhere?" asks the man presiding over the conference, a court-appointed "referee" Steven Konigsberg. "No one has looked at it?"

The bank attorney, Tom Antel, nods reluctantly. "It was forwarded to the wrong place," he says.

When Diaz's lawyers press for an inventory of the documents in her file, Antel picks up his cell phone to ask the bank, only to land on hold. So passes nearly an hour in Bronx Supreme Court.

Antel eventually gives up, telling those assembled that the bank cannot locate Diaz' complete records. He turns to Diaz. "Do you have a copy of your application on file?" he asks.

It has come to this in a courtroom in New York City. A lawyer working for Bank of America wants to know whether the woman whose home it is trying to take through foreclosure might perhaps provide the documents the bank itself cannot locate.

"The bank doesn’t have a system for putting documents in the right place," the referee says, glaring at Antel. "It's a good thing you don't practice medicine."

The waiting inside this Bronx courtroom is emblematic of the waiting across the nation as the foreclosure crisis grinds on without resolution, keeping millions of distressed borrowers like Diaz stuck in legal and financial limbo.

The waiting continues despite the $25 billion foreclosure settlement the Obama administration and state attorneys general struck in February with the nation's five largest mortgage companies -– servicers, in industry parlance.

The deal, which resolved complaints of unlawful foreclosure practices, detailed standards mortgage companies must meet or face fines up to $1 million per initial violation: Servicers must approve or deny loan modification applications within 30 days of receiving them, and must also provide distressed borrowers with a single contact person to discuss their cases in a bid to eliminate confusion.

President Barack Obama touted the "landmark settlement" as a curative, asserting that it would "speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry and begin to turn the page on an era of recklessness that has left so much damage in its wake."

Despite the approach of an early-October deadline by which servicers must fully comply with the new standards, those who defend and process foreclosure cases say little improvement has emerged.

"We're not seeing any changes in servicer behavior," says Megan Faux, director of the foreclosure prevention project at South Brooklyn Legal Services, a legal aid firm that represents poor people confronting foreclosure in New York City. "We're still seeing huge delays, improper denials of modification, very few principal reductions. None of their practices are really changing."

Obama administration officials maintain that progress will develop gradually, as mortgage companies overhaul their systems. Before the foreclosure crisis, servicers merely mailed out bills to homeowners and collected checks on behalf of the investors who own most of the loans. Today, they confront a host of complex tasks, managing a flood of paperwork while making determinations about loan modifications.

“We are mandating the reform of an entire industry, which will take time," Jim Parrott, senior adviser at the President's National Economic Council, tells The Huffington Post. "But make no mistake, these reforms have teeth behind them, so to the degree that servicers are not meeting their obligations, they will be held accountable.”

Bank of America declines to respond to questions about Diaz' case, citing the foreclosure litigation. The bank also declines to discuss generally its handling of foreclosure cases, providing only a written statement.

“Bank of America has completed more than one million modifications through all available programs,” the statement asserts. “Bank of America is successfully extending relief to our customer in need of assistance through the programs launched under the agreement with the attorneys general and federal government, and we are on a path to meet our responsibilities under the agreement.”

In one key regard, the foreclosure settlement reiterated what has already been the rule under the Obama administration's primary loan modification plan, Home Affordable Modification Program (better known as HAMP): Servicers must decide how to respond to borrowers within 30 days of receiving an application. They can write back to request more documentation, extend a trial modification offer, or issue a denial, while sending out notice of their decision within 10 days of making a determination.

From its inception three years ago, the HAMP program has generated an archive's worth of complaints that servicers have failed to respond to borrowers within the required time frame, prompting the Treasury Department to threaten sanctions. Such threats have repeatedly proven hollow, in part because of the structure of HAMP: The program merely gives mortgage servicers taxpayer subsidies when they agree to modify a loan. When they mishandle applications, all Treasury can do is withhold those payments.

The settlement brought a new element to bear by threatening mortgage companies with fines when they fail to meet required standards, administration officials emphasize. It established a full-time compliance monitor devoted to holding servicers to account. The monitor, Joseph Smith Jr., a former North Carolina banking commissioner, carries a reputation as a regulator willing to take on major banks in the face of wrongdoing. Through a spokeswoman, he declines to comment on the performance of the servicers.

But according to people who work within the foreclosure apparatus, the settlement has yet to spur discernible change. A paralegal at a law firm that represents major banks in foreclosure proceedings in New York state says most lenders still routinely fail to meet required deadlines for responses to borrowers, satisfying the 30-day limit perhaps two-thirds of the time. Bank of America has a conspicuously poor record, he adds, meeting that standard only about 40 percent of the time.

"I haven't seen much movement at our firm," says the paralegal, who spoke on condition he not be named, for fear of being disciplined by his employer for disclosing proprietary information. "The courts need to come down on the banks, and they're not doing it."

IN THE PIPELINE

That foreclosure cases in New York are still rife with problems underscores how trouble can be found anywhere. The settlement was crafted with assumption that state attorneys general would provide the primary enforcement muscle, meaning results would vary depending on jurisdiction. New York has one of the nation's more transparent and rigorous foreclosure processes, one overseen by the court system. The state attorney general, Eric T. Schneiderman, is known as an aggressive advocate for holding mortgage companies accountable.

During the negotiations that produced the multi-state settlement, Schneiderman pressed to narrow its scope to resolve only claims stemming from the so-called robo-signing scandal, which emerged in 2010, with revelations that mortgage companies had for years improperly rubber-stamped documents en masse. That left open his ability to bring additional enforcement against Wall Street investment banks for alleged wrongdoing in their packaging and selling of mortgage-related securities. His office is now investigating several major institutions, according to sources familiar with these activities.

Many states have used their share of the foreclosure settlement funds to plug holes in unrelated parts of their budgets, but Schneiderman has directed New York’s money toward the crisis. In June, he announced a Homeowner Protection Program, delivering $60 million to finance housing counseling and legal services for struggling borrowers.

"The attorney general has been really good for us," says Jacob Inwald, director of foreclosure prevention litigation at Legal Services NYC, a legal aid organization that managed to avoid significant cuts to its foreclosure prevention staff through the funding Schneiderman provided. "The servicers know when they're in New York what our judicial process is, and that there's consequences for a failure to take the process seriously."

Nonetheless, the foreclosure process remains plagued by delay and disorganization, Inwald adds. The court system is contending with a backlog of cases left from the robo-signing scandal, which prompted many mortgage companies to slow or even halt their foreclosure pipeline. A New York state law imposed in response to robo-signing revelations requiring that servicers sign affidavits asserting that they have individually reviewed documents in foreclosure cases has enhanced homeowner rights, Inwald says. Yet the results often turn out the same, with servicers reluctant to extend loan modifications.

"Each time we come back to court, there's some sort of excuse about why they can't even negotiate," Inwald says. "The question of enforcement is very much open."

Attorney General Schneiderman says that enforcement is on the way. His office is now laying the groundwork, putting in place a mechanism to identify systemic problems, he says. He has championed legislation that would increase criminal penalties that apply to abuses by mortgage companies.

"We are organizing and funding a comprehensive network of lawyers and housing counselors who will be our eyes and ears statewide to report and remedy any violations of the agreement," Schneiderman tells HuffPost.

The settlement is ultimately a work in progress, the attorney general adds, one that requires vigilance from state and federal authorities to ensure that mortgage companies comply.

"It would have been naive to think that servicer behavior would have changed overnight, given the scale and scope of documented misconduct in the past," Schneiderman says. "While we were hoping for the best, we have been preparing for the worst."

Whatever happens next, most experts assume the foreclosure crisis is still unfolding, with no end in sight.

Over the last four years, some 3.6 million American homes have been lost to foreclosure, according to CoreLogic, a leading real estate research firm. From April to June, more than 300,000 homes began the foreclosure process, a 9 percent increase from the three previous months, according to RealtyTrac, which maintains a national database.

From 7 million to 8.7 million borrowers remain in significant danger of defaulting, according to analysis by Laurie Goodman at the Amherst Securities Group.

Those facing the most imminent peril are the roughly 4 million borrowers already two months or more past due on mortgage payments. Another 4 million have previously landed in arrears, with roughly half likely to slide back into default eventually, Goodman estimates.

About 2 million borrowers are current on their loans yet significantly underwater -- meaning they owe the bank more than their homes are worth. From 20 percent to 30 percent are expected to default eventually.

"Even though we believe housing prices are at or near the bottom," Goodman says, "there is a lot more in foreclosure activity to come."

'IT WAS BRICK'

On a muggy morning in late July, Katie Diaz arrives at Courtroom 607 in the Bronx hoping to find a way to rescue her own home from the foreclosure docket.

The property at the center of her case is the first and only home she has ever owned. She bought it with her sister five years ago, paying about $500,000 in a transaction that felt like the realization of a lifelong aspiration.

"I've always dreamed about owning a home," she says.

Diaz grew up in a rough neighborhood in Brooklyn. She raised two now-grown children as a single mother, in a series of rented apartments. All the while, she imagined a place that felt permanent. She thought she had found it in a neighborhood near the Bronx Zoo: a modest, two-story house on a quiet, tree-lined street.

"It was brick," she says. "It told me 'security.'"

When she bought her home, Diaz was working as an executive assistant at a local college, a stable job she held for a decade. She earned about $60,000 a year, plus health and retirement benefits. That was enough to manage the mortgage payments, which ran about $2,800 a month, including taxes and insurance -- a sum she split with her sister.

Unlike those caught in the first wave of the foreclosure crisis -- borrowers with subprime loans carrying exploding interest rates, and people who took on more house than they could afford -- Diaz is part of the group that came later, those faced with the loss of homes purely by dint of the Great Recession.

In 2008, her sister lost her job in the mortgage industry and could no longer manage her half of the payments. Diaz called Bank of America to say she was having difficulty. Selling the property to cover her balance was not an option: The balance on her primary loan was about $400,000, and her home was by then worth closer to $300,000. The bank sent her the paperwork for a loan modification.

She sent back the required documents -– banking statements, pay stubs, and a letter explaining the hardship that she believes qualified her for lower payments. In February 2009, the bank agreed to a loan modification, extending the terms of her mortgage to 40 years and lowering her interest rate, yielding a monthly payment of about $1,700.

But later that year, when Diaz's employer began cutting her hours, she fell behind on her payments, she says. The following year, she was laid off.

"I felt horrible," she says. "I've been working since I was 14."

With no income, even the modified loan payments were by then beyond her. She called Bank of America to ask about further help, but got nowhere, she says. She offered to send as much money as she could, but the bank told her not to bother, she recalls. Pay in full, or don't pay at all.

In the months that followed, Diaz looked for work in the midst of the worst job market since the Depression, encountering rejection after rejection.

"I was always overqualified or too old," she says. "One headhunter literally said to me, 'A lot of these companies are only hiring kids right out of college. They think, because of your age, you'll probably seek early retirement.' I was losing hope."

This is how a woman accustomed to being the most organized person in the office, a woman who took pride in staying on top of her bills while climbing from poverty into the middle class, came to find herself living in a nebulous state of delinquency. She was no longer paying her mortgage, yet nothing was happening -– no legal action, no negotiation, nothing.

Maybe the paperwork was lost in the flurry of foreclosure documents by then choking Bank of America and every other major American lender. Perhaps the bank was so saturated in distressed real estate that it had yet to get around to foreclosing on her property.

She felt a measure of embarrassment, and a measure of fear, each day bringing the possibility of an abrupt ending.

"You're always afraid that the marshals are going to come knock on the door," she says. "I was really emotionally sick. I was always depressed."

Diaz sustained herself with a $354-a-week unemployment check, and by drawing down much of the $23,000 she had managed to stash away in her retirement account. She earned occasional money through babysitting and making custom-designed photo albums. Her health plan was "hoping and praying," she says.

Her aging roof began leaking, but she opted not to replace it. Her wood floors needed work, but she deferred it.

"Why invest in something they're going to take away from me?" she says.

Last May, she finally secured another office job, this one paying about $35,000 a year.

"I didn't care whether it was $20,000, or even $10,000," she says. "I just cared that I was finally making some money and not going crazy at home, and I maybe had a chance to save my house."

She called Bank of America hoping to negotiate. She now had income from work, plus a tenant whose rent replaced most of her sister's old share of the mortgage. But the bank simply demanded that she pay $55,000 in interest accrued while she fell behind, she says. Bankers told her they were not authorized to offer relief, she says, because they merely handled the billing for the institution that owns her mortgage, Freddie Mac, the government-controlled mortgage giant. Freddie was unwilling to provide relief -- a position underscored in recent weeks as Freddie’s federal overseer, the Federal Housing Finance Agency, has dismissed growing calls to forgive principal balances for underwater borrowers, even as its own analysis has shown that such a course would save taxpayers money.

In early January -– some 2 1/2 years after Diaz slipped into default -– Bank of America finally sent her a formal legal complaint initiating foreclosure proceedings.

Diaz went to the courthouse in the Bronx to seek advice from a foreclosure prevention clinic run by Legal Services NYC. Staff there helped her submit an application for a loan modification while adding her case to their workload.

According to Legal Services NYC, the bank did not respond to her application until May 18, some 84 days after she sent it, constituting a violation of applicable standards, including the HAMP program, New York state banking regulations, and the provisions of the multi-state foreclosure settlement.

The bank's eventual response was a letter notifying her that some of her documents were missing. Diaz sent the extra documents the following month, she says.

Then, she waited.

In early July, her lawyers wrote to the bank, asking for an update on the status of the case, but never received a response, they say.

This is where things stand as Diaz walks into the courtroom.

"I'm just living in limbo," she says, "waiting for them to say 'yea' or 'nay.'"

'TIMEFRAME CONTROL'

Diaz takes a seat in one of the brown vinyl-backed auditorium chairs in the back of the courtroom, facing the judge's bench. As other defendants file in, she waits for her case to be called.

In the front of the room, a half-dozen attorneys representing major banks occupy chairs in the jury box, waiting for their cases.

Tom Antel sits in the front row, in the corner furthest away from the entrance. Brown-haired and trim, with a light smattering of beard, he appears to be in his early- to mid-30s. He wears a conservative grey suit and a look of agitation on his face as he presses a smartphone to his left ear.

One of Diaz's lawyers, Justin Haines, who runs the Bronx office of Legal Services NYC, approaches to ask about the status of her loan modification application. Antel turns him away abruptly. "Give me a minute," he barks, gesturing at his phone. He is at this moment trying to determine Diaz' status for himself.

Haines is immediately displeased, pegging Antel for what he is –- a lawyer sent by a major firm just for this case, as opposed to a staff attorney.

"They are supposed to come here with the authority to settle," Haines grumbles, "but he's merely of counsel."

The firm on whose behalf Antel is appearing, Fein, Such & Crane, represents creditors in New York and New Jersey, according to its website, and touts itself "a nationally recognized leader in professional service and timeframe control for judicial state foreclosure practice.”

But once the conference begins, timeframe control comes in for a stiff challenge.

First, Antel says Diaz is being reviewed for a loan modification, but one document is still missing, something that might explain what has come of her retirement account.

Haines is annoyed. The HAMP program does not require that borrowers exhaust their assets to qualify for a modification, he says.

"It's been like 20 days since we reached out to them for answer," Haines says. "It's sort of unconscionable that they could say that we haven't sent them the required paperwork."

Haines asks whether an account statement would be sufficient. Antel doesn’t know. He picks up his cell phone and repeats the question to a representative at the bank, eventually emerging with a new piece of information: "She has been declined for HAMP because of missing documents."

Haines rolls his eyes and leans toward Antel. "When did they send the missing document letter?" he asks.

This, too, Antel doesn’t know. He picks up his cell phone and repeats the question to the bank. Another 10 minutes goes by as Antel sits on hold. The sounds of another conference waft in from a table in the front of the courtroom, where the talk also centers on documents supposedly sent and not received.

The referee motions to a clerk to hold off on other cases until this gathering is adjourned. Diaz, who has skipped a day of work to be here, quietly seethes. Haines fidgets and frowns. Here they all sit, waiting uneasily while Bank of America's lawyer struggles to grasp the particulars of the case he represents.

Antel eventually delivers an answer: The bank sent Diaz letters informing her that her loan modification application was missing documents three times -– once in 2010, then twice in early-2011.

But that was more than a year ago, Haines says. What about the latest application, which Diaz made in February? What about the documents she delivered in June, in response to a letter from the bank?

"This is amazing," Diaz says under her breath. “I'm the type of person where when you send me something and say I need to send you something, I send it. I'm an administrative assistant. This is bullshit."

Antel puts down his phone and comes back to report a new development: Diaz’s HAMP application has been closed. The person Antel has been talking to inside the bank is merely the messenger for this news. She suggests that Diaz try to get a loan modification through a program especially for Freddie Mac borrowers.

"She said that she personally can't reopen the HAMP review," Antel says. "She gave me a phone number you can call."

The referee suggests Haines call the number to see what happens. This dismays Haines. The HAMP program offers much lower interest rates than the standard modifications on Freddie Mac mortgages. More than that, Haines dislikes the thought that Bank of America can just say, “Whoops, we lost the documents,” and start over.

"It's been three years since her default," Haines tells the referee. "Now, here we are at the first conference and it's not acceptable that they're not considering her for a HAMP modification."

"I hear you," the referee says.

'THEY OUGHT TO HAVE THEIR ACT TOGETHER'

Konigsberg, a blunt-spoken lawyer with a salt-and-pepper beard, walks away to chat with a scrum of people from another case. He returns 10 minutes later, incredulous that Antel is still sitting on hold with Bank of America.

"What's going on?" he demands.

"Okay," Antel says, lifting a sheaf of papers uneasily. "This was actually sent to the HAMP department, but not sent to the traditional review department, because the HAMP review was closed."

"Who sent it to HAMP?" Konigsberg demands. "So it's just been sitting there?"

Back in June, when Diaz received the letter from the bank claiming that paperwork was still missing from her application, it included a cover sheet she was instructed to use when she faxed the documents. She sent the documents to the very fax number that the bank printed on the cover sheet. That number, Antel now reports, went to the wrong department.

"I don't know why it was generated," Antel says.

"They sent it to where you asked for it to be sent, and now you're saying that's the wrong place?" Konigsberg says.

Antel nods.

"What do you want to do about that?" the referee asks.

Haines has an idea what to do. The bank ought to swallow the $44.52 a day in interest it has been adding to Diaz's account while her loan modification application has been lost inside the bank.

"They've got their lines crossed at B of A," he says. "They've got too many departments not talking to one another. Why should she be penalized for that?"

Konigsberg is inclined to agree, bringing a suddenly energized defense from the bank lawyer.

"There hasn't been a significant delay in the review," Antel says. "We're taking up time today to clear this up." It would be unfair to make the bank pay the interest charges, he says, adding: "I'd object."

"For what reason?" Konigsberg asks, using the sort of tone a weary parent might use on a perpetually misbehaving child. "You have to have reasons. You can't just object because it sounds good. Don't waste my time. We've been doing nothing but sitting here while you sit on the phone for 45 minutes.”

"I was on hold," Antel says. "I don't have a direct line to the bank. I don't have a single point of contact. I had to go through an operator."

"This all should have been handled before we sat down," the referee says.

The conference breaks up with little more than a promise that documents will be exchanged between the two lawyers before they come together again in October.

Ever since the beginning of the foreclosure crisis, as stories of bureaucratic dysfunction have become legion, those who represent distressed homeowners have argued over the cause of this grief. Are the servicers merely disorganized, trying but failing to manage a mountain of paperwork? Or is something more malevolent at work, a kind of strategic incompetence in which they have devoted inadequate staff to problems they have no real incentive to fix quickly, while profiting from extra fees they accrue from the foreclosure process?

As Haines walks out of the courtroom on this day, he is partial to the latter school of thought.

"I think a huge part of it initially was that they were overwhelmed, and they didn't have the structure in place to handle it," he says. "But now, all these years later, after the robo-signing scandal and the foreclosure settlement, they ought to have their act together.

"I think B of A is just too big," he adds. "They can't keep track of all this. This kind of crap happens all the time."

As if to emphasize that point, the next day Diaz receives a FedEx package from Bank of America. She reads the letter inside, informing her that she has been turned down for relief under the Freddie Mac Modification Program.

"Your loan is not eligible for a modification because you did not provide us with the documentation we requested," the letter explains.

She is invited to contact the bank for more information.

"We are here to help," Bank of America assures her.