Gretchen Morgenson yesterday criticized the states attorneys general for their proposed foreclosure fraud settlement, writing that it’s a slapdash rush that lets the banks off the hook without really finding out what they did.
She makes an excellent point that’s not made often enough: The real value of investigations lies not just in the recovery of money, but in the information generated about what happened:
While some might argue that a rapid approach will help borrowers, it is apt to benefit the banks far more. Hurrying to strike a deal means less time to devote to understanding how pernicious the foreclosure practices were at the nation’s largest institutions. How can you determine appropriate penalties for troubling practices when you haven’t conducted a full-fledged investigation?…
… being able to produce reams of deposition testimony from bank employees and documents turned over under subpoena would give those negotiating for consumers and mortgage investors far more leverage than they’d have working with a series of talking points.
As Morgenson shows with this eye-opening scoop, this investigation sure hasn’t done much in the way of investigating:
Two people who have been briefed on the discussions, but who asked for anonymity because the deal was not final, told me last week that no witnesses had been interviewed and that the coalition had sent out just one request for documents — and it has not yet been answered.
So the attorneys general don’t really know what happened here—how bad it was or how high up the chain of command it reached. Which is perhaps why they can, presumably with a straight face, write things like this in their settlement proposal:
Mr. Miller’s list of remedies is helpful in showing just how dysfunctional and abusive the loan servicing business has become. Consider this proposed requirement: “Affidavits and sworn statements shall not contain information that is false or unsubstantiated.” And how’s this for revolutionary: “Loan servicers shall promptly accept and apply borrower payments.” (When they don’t, late fees magically appear.) And, get this: Loan servicers should also track the resolution of customer complaints.
You don’t say!
What a farce.
There’s more interesting reporting here, including that the settlement would actually hand a huge giveaway to the banks by treating second mortgages equal to first mortgages, and “turning upside down centuries-old law,” as Morgenson puts it. Banks have much heavier exposure to second mortgages. And it’s unclear if the settlement would preclude further suits by the states and even consumers.
It’s a good thing we have a few folks like Morgenson keeping a close eye on this.
Yves Smith of Naked Capitalism has had an essential role in reporting the foreclosure fraud story, too. She points out this action by New York banking commissioner Richard H. Neiman a few months ago:
If the attorneys general had such a such a good overview prior to the eruption of the robo-signing scandal, why did New York state banking commissioner Richard Neiman implement regulation last October to make clear that New York’s business conduct rules for servicers also covered ones exempt from registering with the state (such as ones regulated by the Office of the Comptroller of the Currency)
This is the first I’ve heard of that, but it looks like a good way to get around the OCC’s preemption policies. Is it? Could be a worth a story.
Smith also points out that Neiman wrote this in a letter to the Washington Post regarding Dana Milbank’s first-person column about his bank nightmare:
We need national standards to govern mortgage servicer conduct now. The Consumer Financial Protection Bureau should put in place such rules as an early priority. For every columnist affected, tens of thousands of people are suffering who do not have an outlet on the opinion pages to voice their frustration. They do not find it funny, either.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum. Tags: Banks, Foreclosure, Fraud, Gretchen Morgenson, Yves Smith