Matt Stoller is a fellow at the Roosevelt Institute. You can follow him at jttp://www.twitter.com/matthewstoller
I was listening to Bloomberg surveillance this morning and they were discussing the problem of skyrocketing rents mixed with tight credit for mortgages and increasing foreclosures. One of the hosts said that “everyone was waiting for the 49 state mortgage settlement” as a go signal to start foreclosures again. That’s what the mortgage settlement really is, a cultural, legal, and political signal of “all clear”. How exactly a new wave of foreclosures is supposed to help the housing market is still something of a puzzle, but it does show that the administration and most settlement pushers really do believe that the market needs to clear via foreclosures before it can reset. I guess we’ll see.
Meanwhile, here’s more evidence that the settlement is really just meant to kick off a new round of injury to homeowners. The monitor of the settlement, court-appointed North Carolina official Joe Smith, clearly doesn’t know how to do his job.
The Federal Reserve and the Office of the Comptroller of the Currency could have built a best-of-breed project team inside their agencies to conduct the foreclosure reviews mandated by consent orders last April against twelve mortgage servicers. Instead, they delegated that job to each bank. As a result, the banks chose friendly firms and some of those choices are less than arm’s-length away from the problems and abuses they’re reviewing…
“I don’t have a quick and easy answer to that right now,” Smith said when I asked him how he’s going to avoid the same conflicts of interest we’re seeing in the foreclosure reviews when he hires his own “primary professional firm.”
Finding the “appropriate balance between independence and capacity,” as Smith describes it, is not easy when sufficient independence may mean too little experience and sufficient experience may mean conflicts of interest. Conflicts of interest tempt consultants to bend the rules on behalf of current and future bank clients.
Smith has already invited about 40 handpicked professional services firms to express interest in the “primary professional firm” role. Depending on the response he gets, some will be invited to respond to a request for proposals and then subjected a highly personal final selection process.
“I’ll meet personally with the firm I’m going to depend on,” he promises. The banks, according to Smith, want to deal with one firm for settlement compliance reporting. That’s not surprising. Better the devil you know…
He’ll meet personally with highly conflicted firms before depending on them? Like a meeting, in person? Wow! That’s a devastating accountability mechanism. Then there’s this embarrassing nugget.
“If litigation against the banks continues and plaintiffs’ claims continue to contradict what I’m hearing from bank leadership,” Smith says. “I’ve got to pay attention to it.”
So Smith is saying that if bank leaders continue to lie to him, he might have to pay attention to the fact that they are lying to him?
Joe Smith seems up for the task he’s agreed to. “I’ve got a lot of stuff I have to enforce. I’m hoping all the time and money the banks are spending on the foreclosure reviews will show up as we do our work.”
I really hope Smith is not as stupid as he sounds.