naked capitalism

Georgetown law professor and securitization expert Adam Levitin has come upon a real doozy in terms of how banking regulators aren’t even bothering to mount a serious pretense that their much-touted efforts to rein in mortgage abuses are anything more than a coverup for the banks. And he is suitable irate.

If you’ve been following this sorry saga, you may recall that in April of this year, major servicers entered into servicing consent orders with the OCC and Fed. They were clearly all for show. Rather than observer the normal procedure, and have a regulator conduct the exams, the consent orders instead provide for the banks to hire soi-disant independent parties to conduct the reviews. As we and more recently Francine McKenna pointed out, there is pretty much no one with a brand name that is worth renting that doesn’t either have a relationship with the big banks or is keen to develop one. Since the reviews won’t be made public, there is every reason to expect that any problems reported will be strictly cosmetic.

As low as our expectations were, the banks have managed to undershoot them on the downside. Levitin reports on an ad via a temp agency (!) for the sort of foot soldiers who will be performing the audits. Note that this means, contra McKenna, that the actual work won’t be done by experienced professional staff of major firms. Remember, the job is to determine whether “a there was financial harm to the borrower.” As Levitin points out, this involves making multiple legal determinations, such as whether the foreclosure was executed in compliance with relevant state and Federal laws (he’s not making that up, you can see it in the job description). So do they want to hire a lawyer? Nah, you only need a year of “mortgage serviceing/foreclosure experience”. An applicant could be a former robosigner or a servicer call center employee. And that’s consistent with the pay, which is a mere $23 an hour. Home cleaners make more than that in the NY metro area.

Per Levitin:

Do you have what it takes to be a Mortgage Foreclosure File Reviewer Level 2?…I have seldom seen a document that says more about the bullshit malarkey that the OCC and Fed are trying to pass off to cover for the banks than this job ad. I think it demolishes even the thin fiction that the OCC/Fed servicing consent orders are anything more than Potemkin villages. Instead, what we have here is nothing less than a federally-blessed Robosigning 2.0…

Bottom line here–it’s hard to take the OCC/Fed consent orders seriously when all they mean is that a marginally more skilled employee is reviewing the robosigners’ original work. And one can easily imagine an LPS red light/green light world in which they are incentivized to review more files faster and less carefully

And he stresses that although the latest revelation is particularly galling, the entire process is fatally flawed:

Even if the banks were paying for top grade legal talent (and it’s a buyers market for legal services now), they can’t determine that there was no financial harm done to the borrower–they simply lack the information to do so.

First, it’s not clear that the banks have maintained files on their foreclosures dating back to 2009, when the consent orders run. Without the original files, there’s really no good way to figure out if the homeowner was harmed financially. I’m not ready to assume that there’s great record keeping on past foreclosures.

Second, even if a lawyer looked at the bank’s file, that’s insufficient for determining if there has been harm. One would need to know something about the borrower’s potential defenses before making such a determination.

It’s worth reading Levitin’s post in full, since he explains at greater length why these are not trivial issues to unravel and require a much more extensive investigation than will be done.

Even though banking overseers increasingly engage in regulatory theater, it’s too easy to see how little the man behind the curtain is really doing. But they and the banks can be so brazen because they assume these matters are sufficiently arcane that only a relatively small number of people, those who have some expertise in the area and aren’t part of the con, will figure out what is going on.

The flaw in the logic is that it is obvious to hundreds of thousands, if not millions, of borrowers that they have been hurt by servicer errors and fraud. And the media has reported on so many inexcusable errors that the victims now know that their experience is far from isolated.

This parasite of bad servicing will only kill the host. Quite a few people on my blog have said they will never own a home (again) or would buy only in cash. The housing market and the balance sheets of millions of American families have and will continue to suffer the consequence of uncorrected abuses by servicers who simply refuse to clean up their act. Not only is this looting, it’s hugely inefficient looting, since servicing isn’t a terribly profitable business even in the best of times. But no one in the officialdom seems willing to stand up to the banks’ imperial right to profit.