Housing Wire has confirmed what American Banker and the New York Times had indicated was underway, namely, that the formerly joint state/federal effort to deal with foreclosure abuses (still undefined beyond robosigning and improper affidavits) are now separate initiatives. We think that’s a good thing, since the state and federal law issues were so different that it made the idea of a grand global settlement seem a tad deranged, particularly on the fast timetable the Obama crowd was pushing for. As a reader with securities law regulatory experience noted via e-mail:
Whoever was leading this charge for the Feds totally miscalculated. The fundamental failure was to separate the past from the future. The CFPB is about getting the systems right in the future so that securitization can work without all the fraud and self-dealing. The foreclosure mess is a state battle about fraud on the courts in foreclosure actions and other state real estate matters such as the effect of MERs. To the extent that fiasco bankrupts some banks, then it may become a Fed (FDIC) issue at that time, but not until.
As we’ve noted, we also think the 50 state effort is misguided, given how far apart many of the AGs are. Our hope is that enough of the one who like doing their job (as in prosecuting misconduct) defect and pursue their own actions.
The Housing Wire piece did fill in one part that had been a bit of a mystery: who besides the OCC was behind the laughably weak cease and desist order which is in reality a fig leaf for the fact that no meaningful Federal actions will be taken? It turns out the other chief bank enablers, Federal Reserve and the Office of Thrift Supervision (who covered themselves in glory as the supervisor of AIG’s holding company) also joined this action. That means the intended-to-be-tougher action that was thwarted was led by the FDIC, with the CFPB providing analytical support (the CFPB can’t take direct action, it can only be brought in by other principals) and perhaps HUD (note the DOJ also participated in the talks, but that may have been a function of regulatory protocol).
The other interesting aspect is that Tom Miller keeps changing his story as far as state AG investigations are concerned. He keeps maintaining that the states are investigating in some sort of orchestrated fashion, when the few reports I am getting from people in contact with the AGs says they are being largely kept in the dark by Miller and the ones who are moving ahead seem to be doing so independently. But we pointed out last week, Miller has a rather footloose relationship with the truth:
You can’t settle what you haven’t investigated. The fact that Tom Miller has suddenly mentioned to an obscure mortgage industry rag that state banking regulators probed Ally is unpersuasive. First, Miller has a record for being less than truthful; he promised criminal investigations in no uncertain terms and has been walking that back ever since. Second, his own staff and various state attorneys general have effectively said there has been no investigation (as in they’ve at most gotten voluminous but undigested responses to subpoenas). You’d think state AGs would be aware of what their own state banking regulators were up to on a hot topic like foreclosure fraud. Third, I guarantee whatever thin “investigation” has taken place has overlooked the most important issue, and one that lay at the heart of the 2003 FTC/HUD examination of and settlement with rogue servicer Fairbanks: junk fees and misapplication of payments that push borrowers who’d otherwise be viable into foreclosure.
Bottom line: the idea that the Federal regulators were ever serious about fixing servicing was revealed to be a joke last fall when they announced a patently phony investigation to try to pretend otherwise. This latest regulatory theater production is more of the new, post crisis normal in DC