Lawmakers Increasing Heat on Servicers on the Foreclosure Front While Regulators Try to Give a Pass

At least some legislators are taking the foreclosure crisis seriously. Representative John Conyers, Marcy Kaptur, Raúl Grijalva, and Alan Grayson wrote to Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, to ask that he investigate foreclosure fraud and conduct an audit of GMAC, Fannie, and Freddie. SIGTARP is a full fledged prosecutor, and Barofsky has an established history of being a serious investigator.

In a parallel action, six senators (Sherrod Brown, Tom Harkin, Barbara Boxer, Debbie Stabenow, Sheldon Whitehouse and Mark Begich wrote Timothy Geithner and Ben Bernanke, demanding that they crack down on foreclosure abuses “in the best interest of homeowners and investors.”

In general (quelle surprise), the Congressional response is breaking along party lines, with Democrats at the liberal end of the spectrum taking interest, Republicans working with banks to try to make this go away quickly and the Obama Adminstration trying to befriend the banks as much as possible without riling progressives too much. From Politco:

How long will President Barack Obama and Congress be able to avoid wading into the foreclosure mess? …

Still, administration officials are wary of a backlash from liberal Democrats and progressive groups unhappy that the government hasn’t been more successful convincing banks to renegotiate mortgages for homeowners who can’t keep up with their payments. House Speaker Nancy Pelosi has asked the Justice Department and bank regulators to open investigations of foreclosure abuses but has not called for a nationwide moratorium.

Republican leaders have said little about the foreclosure problems, except for House GOP Whip Eric Cantor, who warned that a moratorium threatened to destabilize the housing recovery.

Behind the scenes, Republicans are consulting with the banks, which are hoping to reach a quick settlement with attorneys general from all 50 states who have announced a joint investigation into home foreclosures. The settlement would involve a sizable fine and some basic reforms to the foreclosure process.

By contrast, the official minders of banks seem to be doing their very best to look the other way.The Office of the Comptroller of the Currency is repeating bank talking points. From the Huffington Post:

The nation’s top bank regulator doesn’t believe homeowners are being harmed directly by an ongoing foreclosure fraud scandal, despite multiple reports of banks mistakenly evicting homeowners who aren’t even in foreclosure….

The Office of the Comptroller of the Currency does not view anecdotes like Jacobini’s as evidence of consumers being harmed by the unfolding foreclosure fraud scandal.

Yves here. This posture is curious on two levels. First, the remarks focus strictly on the robo signing issue, which as we have indicated, while a serious abuse of court processes, is a mere symptom of much deeper problems, most importantly, the failure to convey the promissory note to the securitization trust. But even on a more superficial level, the OCC is clearly adopting a “don’t ask, don’t tell” posture. Again from the Huffington Post:

Part of the purpose of having a human being actually look at a file and verify that a particular mortgage should be foreclosed is to prevent that kind of thing from happening,” said Alan White, a professor at the Valparaiso University Law School. “OCC assumes incorrectly that foreclosures are initiated (and the robosigning starts) ONLY after all efforts at modifications and short sales are exhausted. This is clearly incorrect. Servicers routinely file foreclosure (with robosigned affidavits) at the same time that their loss mitigation departments consider requests for modification and short sales.”

Yves again. We are also told there was a meeting yesterday among the OCC, the SEC, and others, in which the participants ‘fessed up that they were only coming to grips now some of the more serious legal questions. So how can the OCC then claim that there is not nothing to see here when it hasn’t even done its homework?

Similarly, a reader told us that the FDIC is also taking a bank friendly view. From an e-mail message:

I inadvertently got into a tussle with a senior Bair staff member.

It seems she is absolutely, positively convinced that the current foreclosure mess is just a paperwork issue. She claims that while allowances for litigation will have to increase, there really is nothing major to worry about. Her certainty made me more afraid, not less.

This is a variant of the strategy we saw employed in 2007 and much of 2008: a combination of lack of investigation, denial, and confidence building talk. Two beliefs seemed to be operative: first, that the financial system problems weren’t that bad, and second, siding with the bank was going to work out best for everyone. We know how valid those assumptions proved to be.

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26 comments

  1. F. Beard

    House Speaker Nancy Pelosi has asked the Justice Department and bank regulators to open investigations of foreclosure abuses but has not called for a nationwide moratorium.

    Where is that lady’s head? The bankers are the direct cause of the boom-bust cycle. Any bailouts should have been given to the victims, the US population at large, not the villains, the banks. And paradoxically, the banks would have been fixed in nominal terms too.

    I’ve been reading Stephen Zarlenga’s The Lost Science of Money. I recommend it though it is expensive ($81). “Respectable” banker is an oxymoron.

    Well, all this is fascinating but I pity the victims which may eventually be me too.

    1. Toby

      I’m almost finished with it, and it’s a fascinating read. I’ve always held that money should not be a commodity, and would thus like to see profit-making on money itself reduced to as close to zero as possible, i.e. an end to all usury, so was very boosted by the content of the book. (It’s great to see that the US Green Party have signed up to the American Monetary Institute’s money reform proposals. Go Greens!)

      Zarlenga has no concrete plan for ending usury, though he would like to see it stopped somehow. A tricky problem, but perhaps, along with a raft of other deep changes, such a thing might be doable by transitioning gently away from ownership and towards access/rent concepts. I believe this is a favoured idea of many ecologically minded economists. E.g., you don’t buy a fridge, you rent it. The manufacturer then automatically responsible for its longevity and robustness, making the incentive structure totally geared towards quality rather than quantity. Apply this to cars, houses, etc., and you get a very different economy indeed.

      The need to save would be greatly reduced by such a change. Only investment in new equipment and big budget enterprises would present a problem. Here I envision an internet service (or similar) where people with ideas needing investment can present them to “The People”, thus initiating a more democratic approach to investment. Should sufficient demand be there, the funding could be organised with some short-term money type drawn up either at regional or national level, without interest, but as a sort of loan.

      And all this on top of an ending to our systemic addiction to perpetual GDP growth. Unless GDP growth measures literacy, crime, health, and so on.

      Just my thinking on the subject…

  2. Voltron

    I thought that the putbacks would mean the end of “extend and pretend” then I had an epiphany. I realized, to my horror, that since putbacks are at par (i.e. 100 cents on the dollar) once the FDIC puts all the big banks into receivership, the Treasury (that’s you and me) will be “forced” to fund the putbacks at 100 cents on the dollar. John Paulson wins again.

    1. freepressmyass

      Right. Bernanke should be behind bars.
      He’s the one who has repeatedly set us up to cover all their losses.
      Obama is totally complicit. He should be behind
      bars as well. This is just unbelievable.
      They’re intentionally squeezing millions into the poverty level.

  3. Crony Retires to Dascha

    To expect the OCC to do anything is just delusional. A number of DC area bastards should have been fired including bank lobbyist/lawyer John Dugan, who recently left the helm. The OCC are simply a captive agency that promotes Banking interests, driving people into the ground is good money, we’ll set the rules accordingly.

  4. alex

    Gotta love this line: “The settlement would involve … some basic reforms to the foreclosure process.”

    Uh, what sort of reforms would those be, following the law?

  5. Edwardo

    This is entire escapade is beyond a travesty now. The government, well, at least two of the three branches, but, probably, “upon review” the judiciary as well, deserves to be removed and some portion of its number prosecuted.

    Tell me by what rights an executive and legislative branch that systematically seeks to subvert, deny, or otherwise obstruct justice has any legitimacy? Please make the case.

  6. readerOfTeaLeaves

    Well, I view this from the perspective of living Out West, where property rights is a fundamental, foundational concept.

    The way that I read this, it appears that the DC-based GOP — in cahoots with the banksters, and Cantor’s blathering as Exhibit A — is pouring fuel on the fire of Tea Partiers. My sense is that the Tea Partiers really do care about what this foreclosure mess means for property rights;

    I could be wrong (again), but from where I sit it’s amazing to watch the DC-based, lobbyist-based GOP commit political suicide by canoodling with the banksters; their inability to see how this foreclosure mess is calling the fundamental premises of ‘law and order’, contract law, and property rights into question is almost stupifying to witness.

    …unbelievable…

  7. Francois T

    It’s time to fess up DC fuckers: all this lawlessness happened during your watch. You let it happen, yet, you STILL refuse to admit the obvious; you are guilty.

    If demanding elementary respect for the rule of settled law ,like real estate law, is function of which political party you’re in, the electoral season we’re in and which ass must be kissed today or tomorrow, this country is basically and irremediably fucked up beyond any possible redemption.

  8. Francois T

    I’ve seen this behavior in patients with cancer, alcoholism and other addictions. The denial that runs very, very high.

    The parallels are eerie.

    None of these poor souls in DC want to acknowledge the plain truth: the cancer of lawlessness is eating the very foundations of the economic system in this country. The truth is so threatening because being the elites, they’re the ones who profit the most from this system; hence, they stand to lose the most too.

    1. readerOfTeaLeaves

      I’ve seen this behavior in patients with cancer, alcoholism and other addictions. The denial that runs very, very high.

      The parallels are eerie.

      All 50 state AGs are investigating fraud, and the DC Beltway seems to believe that they can create some new voice-vote loophole that will make it all go away?
      That’s denial on an epic scale.

  9. Doug Terpstra

    This is great, Yves: “By contrast, the official minders of banks seem to be doing their very best to look the other way.” “Their very best”! People should really try to appreciate just how much effort this requires … and the sleeping pills. It can’t be easy ignoring such overwhelming evidence, the very lumpy rug, and the constant whining of peasants. This is why they get paid the big bucks when they retire to private employ.

    At least Eric Cantor, whip for the rule of law and accountability party, clearly has his priorities straight. A national emergency is certainly not the time to observe constitutional niceties or conceal hypocrisy. We must understand, enforcing due process and preventing banks from wrongly throwing families under bridges could be very destabilizing to the free market. Such times call for courageous leaders to man-up and be counted. Fortunately, like Obama, Nancy already seems to understand this too, and on her next salon appointment is about to have her spine stiffened to match her coif.

  10. freepressmyass

    Yeah sure. Increasing heat. Blather. They’re not doing a damn thing. But the criminals and lowlifes never sleep.

    The latest scam by the same terrorist banks is buying up liens and foreclosing on the homes. They go into poor or middle class neighborhoods, hiding behind another name like Joe Blow Tax Collectors, contract with the local tax assessor to collect back taxes and the scam to get people out begins. You might be fully paid up on your mortgage but owe a few hundred dollars in property taxes. They come in and immediately tack on huge fees that become impossible to pay if let’s say you’re a senior on a fixed income . Within a few months they foreclose and you’re out. So, wealthy investors pay off a bunch of liens, take ownership of a bunch of houses, sell them. Quite a return on their investment.

    They foreclosed on a Florida wildlife rescue group who rescued oil slicked animals from BP’s carnage in the Gulf. They’re not human. Neither is Obama for letting them do this to us. One woman owned her home outright. She owed a couple hundred dollars on a shitty water bill. They charged her thousands in fees which she couldn’t pay and they took her home. A home she already owned outright.
    They’re doing the same sort of thing as they’re doing with people behind in their mortgages. They make it impossible for people to keep their homes. The goal is to kick people out, period. I see this as putting a gun to our heads.

    These are the guys using our money to rob us blind. And we have a president that has stood behind them all the way. These bastards are perpetrating the worst type of depraved scams on innocent Americans. Some lost their jobs due to these same pieces of shit trashing the economy, while our elected officials remain mum as they throw family after family out into the streets.

    Heres the Link to the full article from HuffPo Investigative:

    http://huffpostfund.org/stories/2010/10/new-tax-man-big-banks-and-hedge-funds

  11. pdaly

    New to the website here. Learning as quickly as I can.

    Somewhat on topic:
    Ambac Financial Group up 24.47% today.
    Per link on the NY Times
    http://markets.on.nytimes.com/research/markets/usmarkets/usmarkets.asp
    “Ambac Financial Group, Inc. (Ambac) is a primarily a holding company. The Company, through its subsidiaries, provides financial guarantees and financial services to clients in both the public and private sectors worldwide. Ambac’s activities are divided into two business segments: Financial Guarantee and Financial Services. ”

    Also MGIC Investment Corp up 7.94% today
    “MGIC Investment Corporation is a holding company. Through its wholly owned subsidiaries, the Company provides private mortgage insurance in the United States. ”

    Not sure on which side of the mortgage insurance market they operate, but I’m betting, based on what nakedcapitalism.com is highlighting, however, that mortgage insurance companies on either side are going to be needing lots of money for payouts.
    So I’m not sure why their share prices are not FALLING.
    Or are those investors several days behind the foreclosure fraud story?

    1. Nathanael

      Those are both penny stocks now, just like BoA and Citi and Goldman. High percentage fluctuations are typical for penny stocks, because only wild speculators get involved in them.

    2. Darby Shaw

      I believe it is because the bond insurers such as those stand to benefit tremendously from the coming slew of put backs.

      From marketwatch:

      “Last week, bond insurers such as Ambac and MBIA saw their shares surge after a report from Manal Mehta and Branch Hill Capital claimed these insurers may be well positioned to benefit from put backs or rescissions related to the mortgage bond fallout. Bond insurers have been requesting that banks buy back pools of mortgages littered with home loans that violate the warranties banks made when selling mortgage-backed securities. Mehta argues that put backs in the magnitude of $2 billion to $3 billion could double the stock price of a bond insurer such as MBIA.”

  12. killben

    Yves,

    “We know how valid those assumptions proved to be” ..

    It has worked out very well for the Banks. After all they are back to Living Life King size!

    So probably the regulators are expecting an encore.

  13. attempter

    There’s no reason to differentiate the sdministration from the OCC and other regulators. That Obama left Dugan in place, for example, is strong evidence of his criminal intent (and Republican leanings, since Dugan was a pure Bush hack appointee who couldn’t by any stretch of the imagination be represented as “bipartisan” or “postpartisan” or whatever sort of idiocy the Obama cult is supposed to be about) right from the start.

    It’s still hard to fathom how most Americans still don’t recognize the banks as organized crime plain and simple, and government hacks who side with the gangsters as just the scum of the earth.

  14. Another Gordon

    What does it take to impeach the President? Condoning by action and inaction pervasive racketeering perhaps? Clinton was impeached for a lot less.

  15. ep3

    duh.

    i guarantee the obama administration has forced the resuming of foreclosures by the various banks. All in an effort to “calm the markets”.

  16. Anonymous Jones

    “Her certainty made me more afraid, not less.”

    I get this feeling often when encountering others’ certainty. Unless I know (or suspect) the person is bluffing as part of a larger strategy, anyone who cannot acknowledge the risks that are part of any complex system is useless to me.

    There’s another word for this kind of certainty: “delusion.”

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