There’s more today about a potential settlement in the foreclosure fraud scandal, which once again looks to be a civil rather than criminal matter. This hasn’t stopped bank executives from whining and screaming about it, however. And they’re joined by the OCC, which might as well be the “Office of Bank Advocacy” at this point.
But absent from this otherwise united government front, which is preparing to submit a proposed settlement to financial firms within days, is the regulator of the nation’s largest banks, the Office of the Comptroller of the Currency.
The OCC has raised concerns that the firms might be required to pay too large a fine – $20 billion or more – and adopt mortgage procedures that the agency doesn’t think make financial sense.
From the time that OCC pre-empted state officials who were trying to deal with the foreclosure issue as far back as 2006, they have basically been a barrier to progress in the housing market, always flacking for the banks. John Walsh, the current acting chair, was chief of staff to John Dugan, who was literally a bank lobbyist.
The counterweights to OCC have been Sheila Bair of the FDIC and Elizabeth Warren, the senior adviser to the President who is standing up the Consumer Financial Protection Bureau. Even though the CFPB isn’t officially up and running, she has put herself in the middle of these discussions and is pushing for a higher fine.
There’s no question that this will end up disappointing to many who have been pushing for a settlement with real teeth. First of all, as Adam Levitin points out, this settlement will be the culmination of basically eight weeks of investigations, which is woefully too short to get a sense of the full impact of servicer wrongdoing. At the end of this process we’ll be not too much more enlightened than at the beginning, and that makes it nearly impossible to provide a legitimate assessment of what this should cost banks and their servicer entities.
Next, as Yves Smith mentions, the state and federal investigations should be completely separate, simply because they involve separate issues. The federal investigations have to do with wrongdoing at the banks regulated by the government, while the state investigations are more concerned with frauds upon state courts. The more individual regulators involved in a global settlement, given all the differences of opinion, the less ambitious such a settlement will be.
Third, there’s this:
U.S. banks received a 27-page proposal late Thursday from state attorneys general and several federal agencies that could require them to reduce loan balances of troubled mortgage borrowers, according to people familiar with the matter.
The document, sent to the nation’s largest mortgage servicers, doesn’t specify penalties or fines but instead represents a detailed code of conduct for how they must treat borrowers throughout the loan-modification process, these people said.
What I’ve read of the proposal isn’t bad, including single point of contact, an end to dual-track, and mandatory increased staffing of servicers to deal with increased delinquencies. But we’re back to a code of conduct now? How is this any different than the guidelines for HAMP, which were summarily not enforced, with Treasury never sanctioning one servicer participating in the program? In fact, I suspect that this settlement is basically seen as a HAMP substitute. The House Financial Services Committee passed a bill yesterday to end HAMP and other foreclosure relief programs. The House will probably take it up next week. While the Senate may not follow suit, they surely know that HAMP is indefensible. And so this settlement steps into the breach created by a crippled program without the support of Congress or the general public, who through word of mouth have slowed the new modification take-ups to a crawl.
In addition, this code of conduct proposal has been split from the monetary fine, which is quite unusual. The only reason for such a split is to help the banks in their naked PR effort to minimize their exposure as much as possible. Witness this incredible line in today’s Politico Morning Money, which explains that the banks would have to sign off on this settlement:
Morning Money spoke with a number of bank executives about the concept of a $20 billion “global settlement” of state and federal mortgage servicer abuse probes. The executives view the idea as a naked shakedown by regulators, especially at the CFPB. There is little enthusiasm for signing on to it. They also view it as a direct contradiction of the administration’s attempt to take a “pro-business” stance. “How can they be business- friendly and sign-off on something like this?” one executive said, noting that he did not believe the OCC was in favor of the deal.
Is that the most insane thing you’ve ever heard? These clowns, who broke the global economy, think that accountability for crimes, even minimal accountability like this, is anti-business. Actually, it’s pro-business in the sense that it favors businesses that play by the rules and don’t screw over their customers.
Notice also how OCC is held out, as the banks try to play the regulators off each other.
I’ve often said that the worst thing that can happen to the foreclosure fraud situation is if Congress or the White House got involved in it. As it is, the banks are struggling with courts that aren’t buying their nonsense anymore, and state legislatures who are stopping all foreclosures without full title histories. This could and probably will spur the investors to act on the inability of trustees to properly convey notes to the securitization trusts. If it’s loan modifications you want, this will spur them faster than anything, to keep the investors at bay. Yves says it’s already happening.
Thus you could expect the banks to start offering mods if they had the sort of pressure on them that this legislation would provide, and indeed that might be happening. A reader in comments said Bank of America had suddenly gotten religion about offering mods. And having banks offer mods quietly, on a case by case basis, is less likely to produce resentment by other homeowners than a highly visible program. Of course that assumes the banks become competent at doing mods. They’ve had every reason to be bad at them, since saying they can’t possibly work operates to their advantage.
Heck, I’d roll the dice on Federal Trade Commission investigations into servicer practices over this seemingly compromised global settlement.
Next week, the state AGs are meeting in Washington, and presumably this settlement will be one of the major topics under discussion. Groups like BanksterUSA and the National People’s Action network will be there, kicking off an action on Monday with 600 homeowners, demanding a legitimate settlement. With respect to the AG investigation, all that’s left for pressure is people power.