In a Senate Banking Committee hearing just now, Acting OCC head John Walsh gave an update on the investigation into servicer practices, which was the subject of several news reports today. Here, in essence, was what he said:

• “Federal banking agencies have concluded investigations on servicers found critical deficiencies and shortcomings that violate state and local foreclosure laws.”

• However, they found that in most cases, loans were seriously delinquent and that the servicers had the proper documentation and the legal standing to foreclose.

Let’s stop right there. This investigation started at the end of 2010. It would be impossible for them to look at every single delinquent loan, which number in the millions, assess the situation for all of them, assess all the documentation, and conclude that most of the cases were operating on a generally legal basis. The courts certainly haven’t found that, and they had many more months to make the assessment. This is a ridiculous statement that cannot possibly be backed up with comprehensive evidence. In fact, the Wall Street Journal says that the review sample was 2,800 foreclosures. Out of millions. And bank regulators who may not be well-versed in specific real estate law in every state made the investigation.

• However, Walsh said that a “small number” of foreclosure sales should not have proceeded.

• Therefore, Walsh is currently finalizing sanctions to address comprehensively the problems identified. This would include appropriate remedies for customers.

• OCC is discussing actions with state Attorneys General to make this fix comprehensively, and to draw lessons from the investigation to develop nationwide servicing standards.

• They are still at a “relatively early stage,” but they plan to achieve significant reform in mortgage servicing practices.

The numbers thrown around in reports last night for sanctions come to, at most, $10 billion for the whole industry (probably half that), probably in the form of a pot of money for restitution. There would also possibly be some mortgage modification actions with an eye toward principal reductions. For context, the states got $8 billion out of just Countrywide for predatory lending in 2008. The Wall Street Journal had the best look at what this would amount to.

In addition to fines, federal regulators have been considering new rules aimed at correcting what U.S. officials have concluded are deficiencies in how borrowers are treated during the loan-modification process. The requirements could include a code of conduct for home-loan servicers, a “single point of contact” for troubled borrowers and procedures for how banks handle loan modifications and foreclosures simultaneously.

People involved in the talks cautioned that no agreement has been reached, partly because of differences between various agencies about the size of penalties and the scope of procedural changes that are needed.

OCC officials have proposed relatively modest fines, according to people familiar with the situation. Officials from the Bureau of Consumer Financial Protection and FDIC have pushed for larger penalties that could include compensation for borrowers or forcing mortgage servicers to consider reducing loan balances, these people said.

But the servicing standards proposed by OCC would still give a lot of discretion to the industry.

Tom Miller, who is heading up the 50 state AG investigation, said that his probe would continue regardless of the OCC enforcement action. And other federal regulators don’t appear happy with what OCC has come up with either. But Walsh is clearly pushing for a global settlement. And you have to understand who Walsh is.

The OCC’s actions in trying to derail a more substantial settlement raises questions over the Obama administration’s delay in nominating the agency’s next leader.

Its last chief, John C. Dugan, stepped down in August after his five-year term ended, and joined Covington & Burling LLP, where he leads the firm’s financial institutions group. Dugan “advises clients on a range of legal matters affected by significantly increased regulatory requirements resulting from the financial crisis,” according to the firm’s Web site. One of his colleagues is Edward Yingling, who last year stepped down as president and chief executive officer of the American Bankers Association, the industry’s largest trade group.

Consumer advocates pushed for the White House to nominate an outsider who was less connected to the OCC’s prior failures. The agency came under withering criticism for its lax oversight of the industry in a report published by the bipartisan, Congressionally-appointed Financial Crisis Inquiry Commission.

Treasury Secretary Timothy Geithner picked Dugan’s former chief of staff at the OCC, John Walsh, as Dugan’s interim replacement. Obama has not yet named his successor. The nomination requires Senate approval.

If you hadn’t noticed, I think this is bullshit. Walsh is buying the “but the deadbeats didn’t pay their loans” argument, ignoring clear evidence of servicer abuse. He’s also silent on the illegal fees that servicers routinely impose on borrowers to line their pockets, and how they take their fees out of monthly payments before applying them to interest and principal, in violation of pooling and servicing agreements. This basically accepts the argument that it was only a few select problem cases, and that the industry will have to make good on those (notice this comes out a day after JPMorgan Chase slobbers all over military families to make good on their violations of law) and goes no further. And needless to say, it doesn’t come close to putting anyone in jail for their admitted violations of law, in keeping with the practice of our two-tiered justice system (Matt Taibbi’s article, linked there, is really a must-read).

Walsh is undermining the entire investigation into servicer practices with this action.

UPDATE: Here’s the statement from Americans for Financial Reform on this:

We are deeply disturbed, but not entirely surprised, to learn that the Office of the Comptroller of the Currency (OCC) is opposing tough enforcement against illegal practices that are costing millions of families their homes. The evidence of abuse and illegality by the industry at every stage in the mortgage, servicing, foreclosure, and modification process is staggering, and the impact of this abuse on individuals, communities, and the economy as a whole is devastating. But, as the American Banker reported, “the Office of the Comptroller of the Currency is concerned about taking overly harsh actions”.

The OCC over the last 10 plus years has a repeated record of standing in the way of efforts to protect the public interest, and standing up instead for its big bank ‘clients’. Systemic failures by some of the country’s biggest banks occurred – and continue to occur – on the OCC’s watch. Between 2000 and 2008 as the mortgage market grew wildly and abusive practices against homeowners proliferated the OCC took only two enforcement actions against banks around mortgage lending, despite strong evidence of abuses – and the two actions involved small Texas lenders. Even as the evidence of their abysmal and destructive record on servicing and foreclosures becomes ever more apparent, the OCC has continued to give ‘Outstanding’ grades for community reinvestment performance to all of the nation’s largest banks.

Restructuring unsustainable home loans is a win-win solution that will help families, help investors, boost the housing market, and create stimulus for the economy as a whole. Regulators have a tremendous opportunity, and responsibility, to make this work. But the OCC – with a temporary acting head at its helm – appears to be making this harder. The OCC must get out of the way of holding the big banks and servicers accountable. And the President must swiftly nominate – and the Senate confirm – a new Comptroller of the Currency to lead the agency in the public interest.