I think I’ve made my position on the foreclosure fraud settlement pretty clear. Nevertheless, there’s a time to stew and a time to figure out how to make this work as well as possible. I think there are some tangible steps that can be taken, if not to improve the deal, then to improve housing policy overall to the benefit of homeowners rather than bank balance sheets. Here’s a probably incomplete list:
1) Release the terms. It’s hard to fully commentate on the settlement without the settlement terms in hand. It’s unconscionable that these haven’t been released, and everyone with even a passing interest in housing policy should be up in arms. Once we get the terms, then we can better know where things need to be shored up. It’s an absolute joke that we’ve gone 24 hours without settlement terms; we should not go a week.
2) Follow the money to the states. Wisconsin Governor Scott Walker has already announced that he will not put the hard money that states receive in the settlement to anything dealing with housing, but to plug his budget holes. I imagine that will be the case in Republican states throughout the country, and indeed it will be a tempting target for any state with a budget shortfall.
This should generate massive outrage. The money is a one-time payment from banks specifically targeted for foreclosure mitigation programs. In particular it should go toward mandatory mediation, which has proven to be a low-cost winner for many states, and legal aid for foreclosure victims and people facing foreclosure, so they can continue their private rights of action with the banks that is allowable under the settlement. Nobody in Wisconsin should just sit back and allow Walker to steal money earmarked to help homeowners. That should become an issue in his recall election.
3) Servicing standards at CFPB. I view the servicing standards announced with the settlement as kind of irrelevant. The Consumer Financial Protection Bureau has the authority to make rules on nationwide servicing standards that will stick. The rules that will allegedly be adhered to in the settlement will only last three years. That’s clearly not good enough. And there’s substantial question as to whether the servicing business can even mechanically do some of the requirements. CFPB needs to engage in a comprehensive examination of servicing, including audits of servicer software to check for systemic errors, and they need to dismantle the business if it is shown to not work meaningfully. The standards at CFPB will far outlive this document, and that’s where the focus needs to be.
4) Help California choose. Depending on whose numbers you believe, California either got 37.5% of the principal reduction under the deal, or much more, closer to 60%. But more important, they secured an independent, California-specific monitor to ensure compliance, with large penalties if the banks falter. They haven’t yet named that monitor. I’ve been asked by staff in Kamala Harris’ office for suggestions. Let’s open the floor. How about Bill Black? If you can actually make the principal reduction real in California through enforcement, then at least one corner of this inadequate deal looks better.
5) The task force. Most every activist group has used the phrases “down payment,” “drop in the bucket” and more to describe the settlement, and they’ve turned to the RMBS working group to get the real relief for homeowners and accountability for the banks. I’m dubious, but as Matt Stoller writes today in a superlative post:
The initial signs aren’t hopeful; DOJ has assigned 55 people to the task force, including 10 FBI agents. During the S&L crisis, which was 40 times smaller that this one, roughly 1,000 FBI agents were involved in the investigation. To put it another way, given the $5 trillion of home equity lost in the crisis, DOJ has assigned one person for every $100 billion lost. It is as if Apple lost its entire cash horde of $100 billion, and the government assigned just one person to find out what happened.
But there has been a good amount of private litigation and effort already, so though unlikely, it isn’t absolutely hopeless that there could be some handcuffs. A good test case to see what happens next is to see who is chosen to head the task force on a staff level. Someone like former TARP Inspector General Neil Barofsky or Rep. Brad Miller of North Carolina would indicate some level of seriousness. A traditional Justice Department bureaucrat would indicate otherwise.
The staff director should be non-negotiable for the activist community. Moreover, they should hold Eric Schneiderman and the rest of the law enforcement leadership to their promises about a “down payment” (even the President). If the political dynamic has shifted against Wall Street, then scale Lanny Breuer and Robert Khuzami and prove it.
6) Class action America. Not only are private rights of action allowable, but so are private class action lawsuits. The American Foundation for Equal Rights has used a large bankroll to push forward marriage equality in the courts. An American Foundation for Homeowner’s Rights could do the same over systematic erroneous document assignments. Find an appropriate venue, fundraise the hell out of it and get going. Resources were always the hurdle to private suits, which is why suits from investors have moved much further. But there are methods to find the resources.
7) Up the chain. Iowa AG Tom Miller is fond of telling everyone that criminal liability was not released in this settlement. In practical terms, AGs have no credibility to issue criminal charges, given that they just invested years in a settlement without pursuing anything on the criminal side. But that’s not entirely true in two cases: Nevada and Missouri. There, AGs Catherine Cortez Masto and Chris Koster have active criminal investigations that could theoretically continue to go up the chain, from the document processors to the servicers to the corporate parents, to find who authorized the persistent forgeries and document fraud. This won’t be an easy road because of the settlement, but it’s legally plausible.
8) Fannie and Freddie. Nearly two-thirds of the housing market sits outside the scope of this settlement. Homeowners who by accident have a mortgage guaranteed by Fannie Mae and Freddie Mac get none of the benefits. There are programs pushed by the Administration to rectify that. But so far, the overseer of the GSEs, Ed DeMarco, has been resistant. House Democrats are pummeling DeMarco, especially after the revelation that Fannie Mae stopped a plan for principal reductions out of “philosophical” opposition. DeMarco could be replaced by the Administration. They’ve already shown the ability to make recess appointments when critical policies are on the line. They should not hesitate in this case to change leadership at FHFA if they want a full-spectrum policy on housing.
9) Be real. Don’t let anyone tell you this settlement is OK. Not to toot my own horn, but people in absurdly high positions have told me that my work helped move the settlement in a better direction. Frankly, I don’t want to take that credit. I don’t want to be associated with this. If you accept this as a “positive first step” or whatever the PR is, you make yourself irrelevant for the next steps. And there are many necessary steps ahead. As Abigail Field writes, this is a call to action:
My slim hope for good bank and housing policy rests on you. If Team Obama is confronted with an informed and active electorate over the next several months–confronted with enough voters demanding good policy instead of easily disprovable talking points–I think it’s possible to goad a-scared-we-won’t-be-reelected Team Obama into actually doing good policy.
So what can you do? Participate with CredoAction, The New Bottom Line, The Other 98%, Occupy Our Homes or any other group pushing hard for good policy, refusing to provide political cover to a weak incumbent too ??? to do the right thing. Start your own group. But participate. Be a DOER. Call your members of Congress; call your Attorney General, your state representatives, your governor, President Obama. And in an era when the Supreme Court insists corporations have the right to speak at a volume calculated to drown out everyone else, insist on being heard.