Will Congress Look Into The Relationship Between Banks And Their Regulators?
What will Darrell Issa (R-Calif.), Chairman of the House Oversight Committee, do?
Ranking Member Rep. Elijah Cummings (D-Md.) has asked him to hold a hearing into the Federal Reserve and Office of the Comptroller of the Currency (OCC)'s handling of the Independent Foreclosure Review (IFR).
Twelve mortgage servicers agreed to do these reviews, to determine if they were acting properly when foreclosing and, to the extent they weren't, to find out who they hurt and what the damage was. Then homeowners could be compensated.
However, in January 2013 the bank regulators abruptly ended the reviews and entered new agreements with the companies. As a result, the banks sent out a bunch of checks, most of which were for hundreds of dollars.
If the Chairman decides to hold the hearing, Americans will find out why.
Why Were The Investigations Ended Prematurely?
As Rep. Cumming's April 24th letter requesting the hearing explains, when the Independent Foreclosure Reviews were stopped, consultants had begun to identify high rates of errors and high rates of resulting financial harm, but the work was nowhere near done.
Given those important but preliminary results, the letter asks: why was the review terminated prematurely? How did the Federal Reserve and the OCC decide how much harmed homeowners would be paid? Why did the Federal Reserve and the OCC say consumers would get more money by terminating the settlement, instead of finishing it?
If the hearing is held, an awful lot of dirt about lousy servicing, wrongful foreclosures and other bad practices could come out, adding to the big banks' mortgage woes. In addition, it could expose a very cozy relationship between the banks and their regulators. Why were the reviews shut down after the consultants had started to find real problems with the banks actions?
Was Ending the Reviews a Favor to the Banks?
Other parts of the government have been confirmed to be overly banker-friendly. When the bailout (TARP)'s homeowner relief provisions were designed, they were mostly about helping the banks. The point was to "foam the runway" so the banks could process the volume of foreclosures; not to actually prevent foreclosure.
Similarly, the Center for Public Integrity recently issued a report that showed the deep relationships between the banking industry and some members of Congress. The 11 Republicans and Democrats that the report dubs the "Banking Caucus" allow bank lobbyists help draft legislation, and even write questions for lawmakers to ask at hearings. They also help build support for the lobbyists' priorities.
So what would a hearing that focused on the Federal Reserve and OCC's decision to silence the "Independent Foreclosure Review" process reveal?
The Mortgage Mess That Could Be Exposed
As Ginnie Mae recently discovered, mortgage loan files are a mess. And as the settlement between 49 states, the Consumer Financial Protection Bureau (CFPB) and Ocwen Financial Corporation (NYSE: OCN) showed, mortgage servicing practices are still bad, two years after the National Mortgage Settlement was supposed to fix them.
Those twin problems are what underlies the problems the IFR was uncovering. As Yves Smith at Naked Capitalism reported the reviewers discovered the mortgage documents and servicing records were a disastrous mess.
What Happens Next
The hearing was requested on April 24th. As of now Becca Watkin, communications director for House Oversight Committee Chairman Issa, would only say that "The Committee has received and is reviewing the Ranking Member's request." If Chairman Issa rejects the request, Rep. Cummings can hold a "minority forum" and could issue a report -- but neither is a substitute for the Committee's subpoena power.
Taxpayers can only hope Chairman Issa says yes. Everyone has the right to know whether or not the banks regulators are independent watchdogs, or are like the Department of Homeland Security's recent Acting Inspector General, Charles Edwards.
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