Michael Barr, who is leaving the Treasury Department, made a few calls to the financial press in recent days (still waiting by the phone, sigh) to update them on the government regulator’s efforts in combating foreclosure fraud. He spoke with Felix Salmon and focused on an “11-agency, 8-week review of servicer practices, with hundreds of investigators crawling all over the banks.”:
That information is finding its way to the state attorneys general, in their review. Meanwhile, said Barr, an alphabet soup of regulators (OTS, OCC, FDIC) is looking at various financial services companies (MERS, along with lots of different servicers, trustees, and banks); HUD is holding everybody to FHA and HAMP guidelines; and the FTC is looking at non-bank lenders. And keeping everything coordinated is the new Financial Fraud Enforcement Task Force which has been put together under the leadership of Justice’s Tom Perrelli.
“Why are we investing these resources and including Tom Perelli in the discussions?” asked Barr. “We’re holding the banks accountable to fix it.” I asked him whether he thought that was even possible. “Their conduct suggests they can’t,” he said, adding that “they can be held accountable for not following the law. HUD can assess significant fines on them.”
The banks are simply not likely to self-correct. Their financial incentives run entirely the wrong way – servicers make money on foreclosures and don’t think they’ll be held to account for faking documents. I’m glad that this investigation, whatever it is, will share information with the 50 state AGs, but let’s keep in mind, Treasury has “held accountable” the servicers for clear violations of the guidelines in HAMP by not imposing one sanction or financial levy on them. And past history suggests that, if the problem is wide enough to present a systemic risk, the likelihood that Treasury moves heaven and earth to shovel the banks money instead of unwinding the largest firms goes way up. I don’t know how they can get that accomplished with a Congress which simply won’t go near bailouts anymore, but nothing in this review process makes me believe that Treasury’s prime directive has shifted away from “protect the banks.”
Salmon did get Barr to say “You should hold us to whether things get better or worse. If a year from now nothing has changed, that would be a reasonable criticism.” I’m sure I can find someone to make it. Yves Smith, for example.
But how many mortgage mod programs have the Bush and Obama administrations put into place, which each time led to embarrassingly inadequate results? Here, one can easily imagine more fundamental change might be warranted. Yet in the blogger meeting with Treasury last August, when pressed about the lousy results of HAMP, Geithner took pains to point out that Treasury had little authority over servicers. So how, pray tell, can they force changes in behavior? [...]
Get a load of this comment via Felix from Barr:
“Barr told me that they’re doing file reviews which take between five and eight hours to go through a single loan file: this is hard, detailed work, and at the end of it all there will be a real understanding of what needs to be done—something necessary, if not sufficient, to finally resolve this mess.”
Securitization professionals tell me that someone who was competent would not be capable of spending five, much the less eight hours on a loan file. This is proof that they are so clueless that they don’t have the foggiest idea of what is germane.
This all fits seamlessly with what Barr told the Financial Stability Oversight Council for 15 whole minutes yesterday, that they’re working diligently to uncover basic problems in the foreclosure process and “hold the banks accountable to fix it.” The foreclosure task force may, or may not, actually uncover the information needed to describe the depth of the problem. But whether they use that information is unlikely, and whether they focus on actually punishing banks for committing fraud or just hoping they fix it going forward seems like a question easily answered.