Matt Stoller: Comptroller of the Currency Orders National Banks to Cover Up Foreclosure Scandal

By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is: Cross posted from New Deal 2.0

Acting OCC head John Walsh is standing in the way of information that could help desperate homeowners.

I was rereading some testimony by Mark Kaufman, the Maryland Commissioner of Financial Regulation, on mortgage servicer behavior. He testified this month before the House Oversight Committee on something quite scandalous.

Together with banking commissioners in four other states, our Office of Financial Regulation joined twelve state Attorneys General in the State Foreclosure Prevention Working Group launched under the leadership of Iowa Attorney General Tom Miller in 2007. This group sought to work collaboratively with the mortgage servicing industry and other parties to identify solutions to the myriad of problems we were seeing in addressing the crisis. The group gathered data submitted voluntarily from the largest subprime servicers and published five reports during 2008 to 2010 providing analysis on foreclosure issues and the servicing response. Unfortunately, this data and the related dialogue fell short of its potential as the Office of the Comptroller of the Currency forbade national banks from providing loss mitigation data to the states.

Subprime servicers were willing to hand over data. But national banks were ordered not to provide data on loss mitigation to investigators. It gets worse. Kaufman notes that in Maryland, loan modifications often led to homeowners paying a higher monthly amount after getting their loan modified. When a homeowner asked for help, they got a higher bill. In essence, this is the financial equivalent of having the fire department try to put out a blazing inferno with gasoline.

The Office of the Comptroller of the Currency measured and publicized only redefault rates on modifications, which were predictably high, while doing nothing to capture the increased payments that our data suggested often lay beneath. It took almost a full year and requests from Congressional representatives including Congressman Cummings before the Comptroller would examine the impact of modifications on the borrower’s underlying payment obligation. Once measured, modification terms began to improve materially and redefaults began to fall.

A redefault is basically the ultimate failure and scam. It means that instead of foreclosing immediately, or modifying a loan so that it was a workable payment structure, the bank strung out the homeowner until they drained all their savings, and then foreclosed.

Well, it looks a lot like the Office of the Comptroller of the Currency knowingly prevented the release of information that would have led to lower redefault rates.

I think it’s pretty obvious that we need a lot more information on what happened before any sort of behavioral change will take place. The OCC is an institution in need of drastic change. The good news it that the Obama White House can make this happen, without Congress. Bill Black noted this last year, when he suggested Obama appoint Jamie Galbraith to head it (this would have to be a recess appointment, but so what).

It would be a positive surprise if the administration fired acting Comptroller John Walsh and brought in someone interested in doing something about the crashing housing market.

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  1. MyLessThanPrimeBeef

    In one of today’s links, the Aussies are trying to let their housing market crash.

  2. tpinlb

    Jamie Galbraith would be an exceptional appointment. Of course hell would have to freeze over before Obama would appoint someone who might actually go after the banker fraud. Look at how the administration has ignored and marginalized the excellent work of Phil Angelides’ Financial Crisis Inquiry Commission.

  3. monday1929

    With all due respect Yves, why should anything be done about the crashing housing market? It is one of the few markets seeking a realistic level.

    1. Rabid Cranky Troll

      The economy is in an unbalanced, unsustainable state.

      The fundamental reason is too much wealth at the hands of the rich, not enough at the hands of people who actually consume.

      To fix this, there must be wealth transfer from the rich to the poor. The “Libertarian” solution, letting the Big Banks fail, would have accomplished this. It would have wiped out a lot of the wealth in the hands of the super rich.

      But letting the housing market “seek its realistic level” while at the same time propping up and insulating Big Finance from the ill effects of this, is essentially a recipe for further wealth transform from the poor and middle class, to the rich.

      1. Tao Jonesing

        Not bingo.

        The modern “libertarian” solution is the neoliberal solution, which is bailouts. Hayek, Mises and Friedman pulled a classic bait and switch on you tards, and you libertarian fools fell for it, in spite of how smart you think you are. Idiots.

        Too bad there’s no intellectual consumer protection agency.

        1. F. Beard

          Hayek, Mises and Friedman pulled a classic bait and switch on you tards, and you libertarian fools fell for it, in spite of how smart you think you are. Idiots. Tao Jonesing

          Hayek suggested alternative private currencies so he may have been a true libertarian. However Mises and Friedman both believed in a single government enforced monopoly money supply (gold and fiat, respectively) so that would make them fascists.

          Yes, libertarians have been and are being fooled but that does not mean the philosophy is wrong. It isn’t.

          1. Nathanael

            Hayek may have been a true libertarian, but he was also an economic idiot — he thought buying a new overcoat would increase unemployment, in a famous and documented incident — which kind of renders him useless.

            The true libertarian philosophy is anarchist *socialism* — the very word “libertarian” was coined by anarchist socialists because “anarchism” was banned in France.

            The modern “right-wing” libertarians have been fooled badly and comprehensively. A genuine libertarian would be busily organizing cooperatives and credit unions.

          2. Anonymous Jones

            First of all, it’s not a “philosophy.”

            Second of all, most libertarians I know can’t even agree on the basics of the libertarian belief system.

            Finally, it can neither be universally “wrong”
            nor universally “right.” Those are not applicable concepts to the issue.

            Unbelievable how stupid and delusional people are…

      2. monday1929

        I am all for helping out deserving victims, and I was one of the first to call for Treason trials for bankers and Raters. I was just addressing that last line in the esteemed YS posting.
        The effort to sustain unsustainable asset values is destructive.

  4. Fred Orth

    It is profoundly sad that I rather expected this treatment of the homeowners. I am glad that you have posted this reality and I agree with your future course of action.

  5. White Sam

    When we think Banks, what do we think? Some douche appointed at an agency? Or perhaps the plastic colored sign of Anytown, USA’s plywood TBTF branch? It’s much more then these, it’s networking. distributed data and largely out of sight. What you see on the surface is simply a front, like agencies, like much of the press, and so on..

  6. Dave of Maryland

    The good news it that the Obama White House can make this happen

    This was an April Fool’s joke?

  7. Francois T

    “It would be a positive surprise if the administration fired acting Comptroller John Walsh and brought in someone interested in doing something about the crashing housing market.”

    It would also be a positive surprise if Fox News would close their doors, but that ain’t happening, is it?

    This is the Obama administration we’re talking about here. An administration headed by a Constitutional scholar expert in violating civil rights, the War Powers Act and unable to bring himself to even mention the widespread homeowners distress and very high unemployment in his most recent SOTU.

    THe OCC ought to be abolished, pure and simple; they’ve ALWAYS stand in the way of the people and ALWAYS stand at the ready to bend over for the banking cartel.

  8. Slade Smith

    A redefault is basically the ultimate failure and scam. It means that instead of foreclosing immediately, or modifying a loan so that it was a workable payment structure, the bank strung out the homeowner until they drained all their savings, and then foreclosed.

    All a redefault means is that the borrower defaulted after a modification stemming from a prior default. We’re talking about folks who are likely walking an economic tightrope– it is hardly surprising that some would not be able to keep up with payments even after a modification stemming from their initial default.

    If they had savings when they first defaulted, that would would mean that their first default was a strategic default. If the borrower wanted to walk away in an attempt to preserve those savings, they could have simply not pursued a modification, or quit making payments at any time.

    And remember– the homeowner is still getting to live in the house during this period. They were getting something in return for their “drained savings”– namely, housing. Any homeowner who has made a monthly mortgage or rent payment should be familiar with the concept that housing costs money.

    All bank malfeasance aside– and there is plenty of it to go around– the general case is that a redefault is simply a homeowner who got a modification and could not make the payments unfortunately. You can make payments “workable” till the cows come home, but for folks who are under financial stress, it might not take but one unexpected expense to cause a redefault.

    1. Griff

      Why all “bank malfeasance aside” ?
      You wrote:

      > The ‘la di da borrower was able to get away with’

      Go f#$K yourself, thanks

    2. monday1929

      You are missing the point that the modification resulted in a HIGHER payment, practically assuring a re-default. And, the more important fact that pertinent info was blocked from release.

      (I missed the fact that Yves did not write this post.)

  9. Tom Crowl

    “When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.”
    -Frederic Bastiat (1801-1850), French economist

    If once [the people] become inattentive to the public affairs, you and I, and Congress and Assemblies, Judges and Governors, shall all become wolves. It seems to be the law of our general nature, in spite of individual exceptions.“ – Thomas Jefferson

    There is a time when the operation of the machine becomes so odious, makes you so sick at heart, that you can’t take part; you can’t even passively take part, and you’ve got to put your bodies upon the gears and upon the wheels, upon the levers, upon all the apparatus, and you’ve got to make it stop. And you’ve got to indicate to the people who run it, to the people who own it, that unless you’re free, the machine will be prevented from working at all.
    Mario Savio

    The thing so maddening on so many levels is that this is all so predictable and could be handled so much better…

    And I don’t think anyone really understands money… I’m not saying I’ve got it figured out, but just taking a fresh look at the foundations could be worthwhile and maybe fun. What could happen? I could be wrong? Well ‘wrong’ seems to be a prevalent condition so I’m taking the chance.

    Decision Technologies: Currencies and the Social Contract

    1. DownSouth

      “When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.”
      -Frederic Bastiat (1801-1850), French economist

      And a science that rationalizes it.

  10. Tom Crowl

    For what I mean by a “decision” technology:

    Two other decision technologies besides money are:
    1. Any kind of torture technique or device
    2. Advertising both in its physical technology of delivery as well as the design of its content… (ever wonder why all the men are wimps in Progressive Auto Insurance ads but real “manly men” in luxury car commercials? That’s design! Unfortunate design in my opinion but that also is another essay.)

    And no that doesn’t mean that money is torture nor is advertising (okay, insert joke here).

    But they share some unique characteristics.

    1. All three tap into fundamental ‘lizard brain’ drives… and have real, measurable and immediate neurobiological effects

    2. they are all ‘social’ technologies… ( on a desert island by yourself a hammer is still useful for its designed purpose… money, torture devices and ads aren’t; they are only usable with others.)

    3. They are ALL very imperfect and problematic substitutes for what were originally a part of P2P transactions within small groups and not reliant on technology for their exercise.

    4. And most importantly… they are expressly designed and intended to drive decision from one to another… (decision = an idea + an action)

    As technologies they have inherent pathologies… some of them legacies of their origins, some of them magnified by other technologies that have arisen in the meantime as well as scale generally. Its easy enough to recognize the problems in torture but they’re there in the other techs as well. And each is idiosyncratic in its pathologies…

    Further the pathologies in money especially have been accentuated because of the inherently complex/chaotic nature of the financial system. And the speed and scale which has accompanied recent ‘financial innovations’ expressly DESIGNED to confuse…

    I’m simply trying to take a fresh look at some issues. I’m very reality based but in searching for new paradigms… which are necessary… it just might be worth at least trying a look at some fundamentals. Frankly I feel the line of thought produces some good ideas… well beyond this particular financial innovation I’m pushing.

    Sure its always been recognized that money is a ‘motivator’… but I just think its worthwhile to look a little more deeply into just what that means and how it relates to the decisions a society makes.

    We need to take a look at our ‘decision technologies’…

    Like the need to re-introduce at least a bit of sortition in all kinds of governance! (google it)

    1. Toby

      Good work Tom, here and generally. I share your passion to look at the guts of the machine and define a new way of ‘doing’ society.

      My battle to understand money, only necessary because of the deliberate obfuscation all around it, leads me to believe it is first and foremost a medium of top-down control. It needn’t be, but it is. A hierarchy needs an ‘elite’ at its top by definition, and an ‘elite’ work in their and the hierarchy’s interest when they protect and sustain the status quo, again, by definition. Money is wonderfully useful to this end.

      Although it is flat out impossible to measure value, money, in the myth of it, seems to do just this. ‘The System,’ via money, bestows or withholds value, or praise, or reward, is in effect the giver and taker of life via money. Money is, psychologically speaking, the Hand of God, the Invisible Hand. Money in effect controls value-assessments, a far more important function than distributing goods and services via the price mechanism, or ‘storing’ value, which is an impossibility for a measure. Centimeters cannot store length, just as they cannot inflate or deflate. Length is not relative the way value is. Value lies in the eye of the beholder.

      A democratic money, not debt-based, global, with no usury, in a more egalitarian system, with the Internet (or similar) as its core infrastructure, would build a very different culture, one I think the momentum of change is pushing us towards. It seems from this position to most people that they have to give something precious up; the glitter and bling of consumerism for the dull, muddy world of sustainability. There are also multiple layers of propaganda, public relations and advertising to unlearn and unravel, so the task is no easy one.

      Anyway, take this rambling as a thank you from me for your good efforts. I know how hard it is to spell out why we need to question the fundamentals. Sound bites can’t do it, and super-long posts can’t be long enough. Damned if we do, damned if we don’t!

  11. David Apgar

    The saint we needed and the devil we got

    The OCC might have saved us from the mortgage crisis. When Republicans in Congress wanted to take as much control of the economy as possible from the Clinton White House in 1999 they let the Federal Reserve draft the Gramm-Leach-Bliley banking reform. This is the bill that effectively put mortgage lending out of reach of the OCC examiners who traditionally reviewed a third of the loans every national bank made every few years.

    The so-called reform empowered the Fed to keep OCC examiners — the only ones among all of the regulators who regularly reviewed significant pools of big banks’ actual loan files — from looking at the operations of those banks’ nonbank subsidiaries. You’d never believe that the major banks promptly moved their edgier mortgage operations into nonbank subsidiaries — and out of view of OCC examiners.

    That’s right — Congress essentially halted US supervision of major bank mortgage operations in 1999. It took just eight years for those chickens to come home to roost.

    The OCC’s low-to-ground supervisory practices have also been its undoing, however. The agency simply gets too close to the institutions it regulates. Matt’s example is sobering. Here is another.

    One of my most public-spirited colleagues on the OCC’s Policy Committee in 1994 (on which I served as a senior political appointee with a financial institutions background from then-wonky Lehman Brothers) was General Counsel Julie Williams. So it was natural years later to turn to her when I unearthed compelling evidence of illegal tying whereby banks refused to extend critical lines of credit to nonfinancial companies unless those companies agreed to include the banks in lucrative bond offerings regardless of the banks’ expertise.

    By 2003, a year of extraordinarily tight credit, I was running the country’s largest executive network of corporate treasurers — the banks’ principal corporate customers — for the Corporate Executive Board. Literally dozens of these treasurers attested privately to explicit and blatant examples of tying from every major bank except to my recollection J.P.Morgan. But they were afraid to go public individually for fear that the banks would simply choke off critical lines of credit.

    I took sanitized citations from this mass of evidence to Julie Williams in late 2003 or early 2004. She had to allow the meeting as I had served at a senior level in the agency.

    Julie’s smart. She understood both the import and the reliability of what I had to say. And the complete lack of an agenda on my part. And here’s her response.

    “Regardless of what you say I state categorically that there is no tying in the national banks.”

    The OCC might have saved us from the mortgage crisis because it does its job (or at least used to) in reviewing loan portfolios. But its proximity to the banks it regulates seems to corrupt some of the actions of even its best people. Julie Williams’ statement to me was preposterous. She must at some point in her career have simply given up on transparency.

    And that’s the kind of thing that will lead to the next crisis.

    1. Nathanael

      Is there a reason why these major corporations didn’t organize a giant credit union so that they could provide lines of credit to *each other*, and to hell with the major banks? That’s what *I* would have done.

  12. Randy

    1.) The banks didn’t loan their own money, so no harm when you don’t pay it.

    2.)Ask the bank/lender for the CUSIP number associated with the “alledged loan”. I bet they start listening to you.

    3.) Foreclosures are a fraud. How can a bank foreclose on something they never owned in the first place.

  13. ashley

    Call the OCC TODAY april 1st
    Ask that chief John Walsh step down for covering up foreclosure fraud.

  14. jedimom

    Obama works for the TBTF. They kept Hillary out of the POTUS seat b/c she was not going to prop them up and she wouldnt have fallen for their WORLD WILL END!!! BS since she knew from her 8 yrs as Big Dawg coPOTUS just what would and would not collapse if she let the 19 primary broker dealers fail.

    We will get no help from Obama or the next GOP POTUS.

    I await ’16 and Hillary, the only person with the knowledge and guts to end the TBTF.

  15. Hal Horvath

    I wish everyone would get past the old idea, circa 2008, that we have to “do something about the crashing housing _____” (fill in the blank: market, prices, industry, etc.).

    If we could let house prices really crash good and hard, then more houses would get down to that pleasant hard-numbers area of about 2 time household income for median families. That is, in the neighborhood of $120K to $130K.

    Then you’d see a very pleasant recovery.

    Otherwise, I found this an excellent post.

  16. viking

    the OCC is an extention of TBTF. I went three rounds with them trying to get Wells to cough up info on the owners of my securitized loan. After six months, a form letter that says they have no authority to force Wells to disclose proprietary information. All in direct violation of TILA. They don’t care. The ‘cops’ work for the cartel, just like in Mexico.

  17. Susan Truxes

    So just thinking back to the fall of 2008. Is it true that Hank Paulson told the Banking Committee that if they didn’t fork over the TARP money that there would be blood in the streets and the government would have to declare martial law? Does this mean that the AG-Bank deal is more of the same (answer yes) because TARP, as its name implies, covered up the mess, the crux of which was the entire mortgage securitization fraud worth purported trillions. Doesn’t this really say it all. The AG-Bank settlement will be a pious shroud. Somebody is holding a gun to the AGs’ heads. What is to be done? We can’t turn the clock back to 1998 and prevent the LTC and Asian debacle which was caused by way too much “money” chasing bubbles. We can’t turn back the clock and somehow make US mortgage bonds legal – that is, legal investment vehicles for pouring all that money and then some into something of intrinsic value (housing). So now what? A new exchange for air and water!

  18. F. Beard

    Unbelievable how stupid and delusional people are… Anonymous Jones

    Insulting little cuss, aren’t you?

    Show us your own philosophy, why don’t you? Let me guess, some form of discredited socialism that requires perfect people to run it except there are none?

    Keep your insults to yourself. Speaking of delusional, it was the Progressives who got us in this mess by thinking they could make a deal with the Devil. We see how that has worked out.

  19. Kenneth Rechtstein

    As long as the Zion Talmudic Mafia that has hijacked the USA is in power and owns the banks, there is no hope that things will change.

    What is needed is REVOKING the FEDERAL RESERVE ACT of 1913, passing the attributions and privileges of the FEDERAL RESERVE to the a TRUE US NATIONAL BANK, whose assets will be OWNED by the PEOPLE, separating Commercial Banking’ from ‘Investment Banking’, a ‘Reform of the Home Mortgage System’ taking as model the Danish one and PROSECUTING the FRAUDSTERS from WAILING WALL STREET and the FED-TREASURY Dept…

    Anything short of above is/will be knowingly and with consent ENSLAVING the American People and putting it at the mercy of the whims of the Pimping Rogue State of Israel and its dual citizens embedded in the USA responsible for the PNAC FRAUD that lead to 9/11 and the catastrophic wars in Afghanistan and Iraq (not to exclude the ongoing one against Libya) and all the ‘CRISIS’ since the vile and coward assassination of the Kennedy brothers, commandeered by Israel, same as Lavon Affair-Attack on USS LIBERTY-USS COLE-US Marine Barracks in Beirut-Lockerbie PANAM 103-Berin Disco-Pollard Affair-Stolen Plutonium from Numec, etc., etc….

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