By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen
A couple months ago, Elizabeth Warren and Elijah Cummings opened what they described as an investigation into the Independent Foreclosure Reviews. We all knew the IFRs deserved some form of response by Congress, and we knew that the OCC and the Fed wanted no part of any questioning of their latest gift to predatory banks and their fraudulent practices.
But we didn’t know how much they would try to stonewall this investigation right from the outset – at least not until today, when Warren and Cummings released some of their recent correspondence with the federal regulators. First of all, in the general niceties, acknowledging that Comptroller Thomas Curry and Fed Chair Ben Bernanke responded to their request for information about the reviews and the settlement, they note that the response only arrived last Friday – they requested the information January 31. And then there’s this:
For our 14 specific requests, your response letter provided two partial responses and only one full response. The table below details specifically what we requested, the information you provided in your March 22 letter, and the information yet to be provided.
The only full response was OCC and the Fed’s confirmation that no remediation has yet been paid out, though cards went in the mail last week announcing the settlement to those affected, with checks to be mailed in April. This is a trivial piece of information compared to Warren and Cummings’ requests for all the performance reviews conducted by the regulators of the IFRs, correspondence between the regulators and the servicers on the matter, amounts paid to each contractor conducting the reviews, total requests for review from borrowers, and the actual findings of the reviews. Now, OCC has dribbled out this information bit by bit, but not in a comprehensive manner, and certainly not enough for Congress to conduct oversight. You can read the dismissive, two-page letter from Curry and Bernanke here.
Warren and Cummings did pull out one piece of information they have been given, however, to make a pretty powerful point:
By your account, the Federal Reserve and the OCC have overseen the expenditure of $2 billion on the Independent Foreclosure Review process – nearly $20,000 per file reviewed. That is a staggering amount. It is nearly five times the average payout that will go to homeowners as part of the settlement.
But Warren and Cummings are letting them off easy here. It’s not a 5:1 relationship; by my count it’s over 20:1. The only hard dollars in the OCC settlement are the approximately $3.6 billion going to 4.2 million foreclosure victims from 2009 and 2010. That’s less than $1,000 per victim. The $5.7 billion in “relief” for current borrowers in the settlement has been revealed as laughable by anyone who has taken a cursory look. Banks can theoretically reduce a borrower’s debt by one dollar on a million-dollar loan and get $1 million in credit. It’s not at all worth mentioning that exercise in creative accounting.
So what we have here is a penalty for banks robbing people of their homes (Warren and Cummings are quick to point out the 700-plus illegal foreclosures banks have admitted to in the course of the reviews), where shadow regulator “reviewers” like Promontory Financial Group made out at twenty times the rate of the actual victims who were harmed. And as Yves has painstakingly documented, the consultants were more interested in finding elegant ways NOT to review the files, or to creatively spin the findings. Paradoxically, this probably led to higher costs for the reviews in many cases, because they were standardized in such a way that brought confusion into play, causing unnecessary delays and errors. So Promontory and the gang got to rack up their billings, while foreclosure victims got crumbs.
Whether 5:1 or 20:1, the few representatives willing to overturn the rocks and look at this are at least pressing the issue. Warren and Cummings, in their letter, take OCC and the Fed up on the offer of a briefing on the IFRs; they want to hold it April 9. And they plan for that as a prelude to “establish a schedule for the production of the documents we have requested.” In potentially better news, Sherrod Brown will hold hearings on the reviews, and specifically the third-party consultants who earned the rewards:
U.S. lawmakers plan to summon regulators and outside consulting firms to explain shortcomings in a multi-billion dollar settlement over botched mortgage foreclosures, according to two people briefed on the plan.
Senator Sherrod Brown, chairman of the Senate Banking Committee’s subcommittee on financial institutions, is scheduling a hearing to examine the relationship between federal agencies and third-party firms for mid-April, according to the people, who asked not to be named because the hearing hasn’t been announced.
Good for Brown to use his subcommittee in this matter. And if you like such boldness from the typically somnambulant Banking Committee, the announcement that Chairman Tim Johnson will retire this year will set off a chain reaction that could see the Chairmanship fall into Brown’s hands. (In a nutshell, Jack Reed covets the open Armed Services Committee chair, Chuck Schumer would have to give up the opportunity for caucus leadership, Bob Menendez already has a committee, and Brown is next in line). Brown remains committed to solving the Too Big to Fail problem, and has forged alliances with conservatives toward that goal. He and David Vitter passed a (nonbinding) resolution to the Senate budget late last week to end the implicit subsidies for Wall Street banks with over $500 billion in total assets. The amendment passed 99-0.
Now, I wouldn’t expect a Break Up the Banks bill, say, tomorrow, but at least a few members of Congress do seem offended enough by the IFR and the cash cow to shadow regulators like Promontory that they want to make an example of them. And the more information that gets out there, the more of a chance for action.