She never missed a payment, but the adjustable rate mortgage she got in 2004 shot up to a monthly payment she could no longer afford.

First she provided documents without getting any response, then she was denied in April by her servicer, Bank of America, for not providing documents it never actually asked for.

As one part of the bank appealed that decision and approved her for a trial modification, another part denied her again - twice - providing two new reasons in part based on inaccurate calculations, according to documents reviewed by Reuters.

When asked about Burnell's case, a bank spokesman said she was unable to qualify under "imminent default provisions," a third reason that Burnell said she had never been given.

At one point, Burnell even received notice the bank would accelerate foreclosure proceedings, despite her perfect payment record and the letter itself saying the bank owed her $281.01.

"They gave you a funky loan in the first place, and now they're refusing to work with people to get it worked out," Burnell said. "It just keeps you upset all the time."

Bank of America is "committed to keeping customers in their homes whenever the homeowner has the financial wherewithal to make reasonable payments and the desire to keep the home," a spokesman for the bank said.

Three years after the foreclosure crisis began, the process to apply for a loan modification remains a bureaucratic nightmare that is complicating the housing recovery and could dull the impact of any Obama administration initiatives in the works.

The administration's biggest foreclosure-prevention effort, the Home Affordable Modification Program (HAMP), targeted to help 3 million to 4 million homeowners, has reached only about a quarter of that since its 2009 inception.

The program pushed mortgage servicers to cut interest, extend terms, or defer parts of a loan in an effort to reduce monthly payments and keep borrowers in their homes.

But servicers have dragged their feet on providing wide-scale modifications. They continue to lose documents, use inaccurate numbers to issue denials, or both approve and deny applications at the same time, according to housing advocates.

"It delays resolution of the problem of defaulting loans and it is adding uncertainty to the market," said Susan Wachter, a housing expert at the Wharton School of the University of Pennsylvania.

Around one in every 12 mortgages in the country is delinquent, and only a fraction of them have received modifications.

"Somehow the borrower is unreachable, or the servicer hasn't found the right way to reach the borrower, but the fact is, we see (modifications) piercing maybe 10 to 25 percent of the potential population," said Diane Westerback, a managing director of global surveillance analytics at Standard & Poor's.

Banks have stepped up efforts to deal with the foreclosure crisis since 2009. Chase, for example, set up 82 centers around the country specifically to deal with struggling homeowners. Wells Fargo hosts one-day fairs for homeowners to bring in all of their paperwork and potentially get approved for a modification on the spot.

Bank of America says it has completed almost 1 million modifications since 2008, and Wells Fargo says it initiated or completed more than two modifications for every one foreclosure of owner-occupied homes in the past two years.

But the majority of homeowners, advocates say, still get stuck in byzantine mazes, with no real enforcement mechanism to pursue under HAMP.

"If you get a minor traffic ticket, you get a right to an impartial hearing, but if you are applying for federal home saving assistance, the bank is judge, jury, and executioner," said Joseph Sant, a lawyer at Staten Island Legal Services who helps defend homeowners facing foreclosure.

'GOING IN CIRCLES'

It took nearly one year for Hakan Tale to convince his servicer, Chase, that it overvalued his house by more than $100,000 in rejecting a modification.

Once he was able to convince Chase of that mistake, it rejected him again, dropping his monthly income by almost $4,000 and determining he didn't make enough money to qualify, even though his actual income had not changed.

In November, more than two years after Tale first sought a modification, Chase asked him to submit an entirely new application.

"Maybe they don't want me to be an example for other people," said Tale, who lives with his wife and three children in Staten Island, New York. "Any excuse they find, they deny it."

"We have worked with the customer and reviewed his application multiple times, and have been involved in multiple mediation meetings," a Chase spokesman said.

Another Staten Island resident, 77-year-old Hamson McPherson, was first denied a modification two years ago by his servicer, Wells Fargo, after it miscalculated his income.

The bank then served him with a foreclosure summons and complaint, which in New York can lead to court-supervised settlement conference. But it stalled on moving forward for so long that McPherson triggered the proceedings himself in August 2011 to try to negotiate an alternative to foreclosure.

In October, more than two years after he first applied for a modification, the bank told him there was an investor restriction on the loan, which meant it couldn't modify it.

That investor agreement was public, Wells Fargo told him.

But after confronting the bank with that agreement, which did not include any such restriction, the bank told him there was a previously undisclosed secret document that included the restriction.

"It's a nightmare," McPherson said, "when you have these things, you don't get proper sleep at all."

In an ironic twist, the hold music played when he called Wells Fargo once was a song called, "Going in Circles."

"I listened to it for five minutes and then hung up because I was so upset," he said.

A Wells Fargo spokesman said the bank has "worked for some time to find payment assistance within the investor guidelines of the loan."

"We continue to work with him to find alternatives to foreclosure," the spokesman said.

'NOT DOING THEIR JOB'

Even with staff additions -- Chase, for example, added some 10,000 employees to deal with defaults, and Bank of America increased its 5,000 employees to 40,000 -- individual negotiators can still have hundreds, or even thousands of cases open, according to housing advocates.

Employees can be so overwhelmed that applications languish for months. Banks consider financial documents "stale" within two or three months, forcing homeowners to provide updated documents all over again.

While housing counselors have seen some improvements in the past few years, many borrowers are still not even able to email applications in; they have to fax them in, thus creating no real paper trail.

Carlos Cespedes, an advocate with the Neighborhood of Affordable Housing in Boston, said his files include 25 faxes of the same document, provided over and over to a servicer that said it never received it or lost it.

One of his clients traveled to Central America to obtain her deported husband's signature on a document renouncing his interest in the property, but had to send that same document six times to her servicer who kept losing it.

"These are institutions that have taken a huge amount of bailout money. There should be a level of responsibility to communities," said Josh Zinner, an advocate with the Neighborhood Economic Development Advocacy Project in New York. "HAMP is far from perfect, but the biggest problem is servicers not doing their job."

(Reporting by Aruna Viswanatha; Editing by Xavier Briand)

• A Permanent Economic Emergency