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The Charismatic Blonde Women and the Consent Decree

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DDay reported on OCC’s attempt to preempt a foreclosure settlement on Monday. Today, Yves Smith has a long post giving the consent decrees the banks are trying to roll out in lieu of a real foreclosure settlement the disdain they deserve.

Wow, the Obama administration has openly negotiated against itself on behalf of the banks. I don’t think I’ve ever seen anything so craven heretofore.

[snip]

The part I am puzzled by is who is behind this rearguard action. It clearly guts the Federal part of the settlement negotiations. If you pull out your supposed big gun (ex having done a real exam to find real problems, and it’s weaker than your negotiating demands, you’ve just demonstrated you have no threat. Now obviously, a much more aggressive cease and desist order could have been presented; it’s blindingly obvious that the only reason for putting this one forward was not to pressure the banks, as American Banker incorrectly argued, but to undermine the AGs and whatever banking/housing regulators stood with them (HUD and the DoJ were parties to the first face to face talks).

So the only part that I’d still love to know was who exactly is behind the C&D order? Is it just the OCC?

But what I’d like to know is why, coincident with the roll-out of this Potemkin resolution to the foreclosure problem, someone told Reuters that the Administration was considering Jennifer Granholm and/or Sarah Raskin to head the Consumer Finance Protection Board.

The White House is considering Federal Reserve Governor Sarah Raskin and former Michigan Gov. Jennifer Granholm to head a new agency charged with protecting consumers of financial products, a source aware of the process said Tuesday.

You see, as Yves reminds us, one part of the whole AG settlement that this consent decree seems intended to replace was that Tom Miller, Iowa’s Attorney General, would get the CFPB position as his reward for shepherding through such a crappy settlement.

So now, with the consent decrees the apparent new plan to appear to address foreclosures without penalizing the banksters, the Administration rolls out the claim that it is considering Granholm and Raskin?

And the report is all the more weird given that Granholm was previously floated for the position in late March, at which point she declined to be considered and–the next day–accepted a position with Pew. This morning, in response to the Reuters story, Granholm tweeted,

This story says I’m under consideration for the CFPB job. I have declined to be considered for this post. I’m happy in my new roles at Pew, Berkeley and Dow. And, by the way, while I don’t know Raskin and she may be great, I think nominating Elizabeth Warren is a fight worth waging.

See, best as I can guess (and this is a guess), by pulling the plug on the AG settlement, the Administration lost its best case for appointing someone not named Elizabeth Warren to assume the CFPB position. Whereas they might have been able to claim (falsely) that Miller had achieved this great progressive settlement for homeowners, now they’ve decided to stick with the status quo rather than even a bad settlement. Which leaves them with the increasingly urgent problem of who heads the CFPB when it goes live in July.

And so they float a report that the one blond woman who is as much of a rock star as Warren is might get the position? Do they think Democrats can’t tell the difference between charismatic blonde women (or that progressives would confuse the down-to-earth but centrist Granholm for Warren)?

It’s like they’ve got a Craigslist posting up somewhere:

Wanted: blonde woman with great people skills and rock star looks to serve as figurehead for a position purported to exercise real power to protect American consumers, but which will instead be asked to serve up Timmeh Geithner coffee and complete deference. Democratic affiliation a plus but not necessary.

The John Walsh-Liz Warren-Investors & Homeowners Cage Fight

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I noted the other day that the Administration was floating a ridiculously small $20 billion Get out of Jail Free plan to excuse the banksters fort their foreclosure fraud. Apparently, the banksters think that $20 billion is just a “crazy figure” that will never be imposed. The actual homeowners affected by the banksters’ crime, however, believe it is “chump change.” From a press release from the CrimeShouldn’tPay effort:

“We need more than just another slap on the wrist.  Home prices have plummeted by $9 trillion over the last four years because of the massive fraud that the big banks perpetrated on the American people. $20 billion is chump change, especially when you divide that amongst the nation’s 14 largest banks,” says Gina Gates from San Jose, CA who lost her home fraudulently to JP Morgan Chase.  “This cannot be more ‘business as usual’ for the nation’s biggest banks – break the law, make hundreds of billions of dollars doing so, and then pay a small percentage of their bounty in fines while leaving everyone else suffering the consequence of their actions. No, this time, the punishment must fit the crime. The big banks must pay commensurate to the pain and suffering they’ve caused so many people.”

But the truth behind the figure is–as Shahien Nasiripour reports–actually that Elizabeth Warren and Office of the Comptroller of the Currency, headed by John Walsh, are fighting over what an appropriate remedy might be. Warren, along with the FDIC and FHA, believes a still-too-paltry $25-$30 billion penalty is in order.

Officials at the Federal Deposit Insurance Corporation, the Federal Housing Administration, and those now creating a fledgling consumer financial protection bureau are inclined to seek as much as $30 billion in fines, making those funds available to provide relief to borrowers at risk of losing their homes.

[snip]

Elizabeth Warren of the Consumer Financial Protection Bureau has floated a figure of about $25 billion for a unified settlement, according to people familiar with the situation.

But OCC–which has a long history of protecting banksters from actual regulation–wants just a $5 billion penalty with no principal reductions.

The Office of the Comptroller of the Currency, which oversees the nation’s largest banks, intends to pursue its own settlement with lenders, a track distinct from the talks conducted by its federal counterparts, the sources said. The OCC, eager to protect major banks from expensive fines, is seeking to limit the terms to $5 billion, while also ensuring that lenders retain wide latitude in how to administer relief for homeowners, the sources said.

[snip]

Housing experts assert that mortgage companies have been largely unwilling to shrink principal balances on first mortgages, because they understand that that this would trigger huge losses on the second mortgages they own themselves.

The OCC is opposing a settlement that would entail large-scale write-downs of mortgages precisely because of concerns about this very scenario, the sources said.

Problem is, the OCC, as the banskters’ primary regulator enabler, has control of the key documents demonstrating the banksters’ fraud.

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Michael Barr–Liaison on Foreclosure Fraud Investigation–Leaves Treasury

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Just one week ago, Iowa’s Attorney General Tom Miller told Chris Dodd that Assistant Secretary of the Treasury for Financial Institutions Michael Barr was the key person from Treasury working with the Attorneys General investigation into foreclosure fraud.

Miller: We haven’t had any contact with the [Financial Stability Oversight Council]. We have had repeated contact with the Department of the Treasury, with Assistant Secretary Michael Barr and his staff. We’ve developed a terrific ongoing relationship with them. We talk about these issues and try and help and support each other on these issues. So we’ve had a lot of discussions with Treasury but not with that particular Council.

That’s funny. Because Barr is leaving Treasury. Imminently.

Diana Farrell, deputy director of President Barack Obama’s National Economic Council, and Assistant Treasury Secretary Michael Barr are leaving the administration, adding to the turnover in the ranks of the White House economic team that worked on the government’s response to the worst financial crisis in more than 70 years.

Farrell will leave by the end of the year and Barr’s last day at Treasury will be Dec. 3. Both played key roles in shaping Obama’s financial regulatory overhaul plan, which was signed into law in July.

[snip]

Treasury spokesman Steve Adamske said Barr would continue his academic career at the University of Michigan in Ann Arbor.

(Note, Barr is not currently listed as teaching next semester.)

In addition to working with the Attorneys General “investigating” the banksters’ foreclosure fraud, Barr had been considered a leading candidate–after Elizabeth Warren–to lead the Consumer Finance Protection Board and/or the Office of the Comptroller of the Currency (the agency that regulates the big banks) and (as the Bloomberg piece makes clear) had a key role in Dodd-Frank.

As you recall, the same day that Tom Miller told Dodd he was working closely with Barr, at almost the moment when Miller said the investigation would take months, sources that sounded an awful lot like the banks were suggesting a deal on the “settlement” ending the “investigation” was close. But even that article didn’t seem to suggest it’d be done by December 3.

Also note, the Financial Stability Oversight Council–the entity set up by Dodd-Frank to stave off systemic crises–meets on Tuesday; they promise to address efforts so far on the foreclosure fraud problem.

The group will provide an update on what various agencies are doing to investigate widespread paperwork problems that have called into question millions of foreclosures across the country, as well as how regulators are coordinating with the Justice Department, state attorneys general and other officials scrutinizing the mess.

Mind you, I don’t know what Barr’s departure means. But I find it notable that–after recently being floated for key positions going forward and given his role in efforts to respond to the foreclosure mess–he is leaving now.

If Voluntary Moratoria Mean Banks Are Solving the Problem, What about Wells Fargo?

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Elizabeth Warren, presumably laying the foundation for an Administration deal with banks to not unwind the entire securitization paperwork problem in exchange for loan modifications, points to banks’ voluntary foreclosure moratoria as proof the banksters are trying to solve this problem (presumably meaning the foreclosure fraud, but not the larger problems).

She additionally stated that major servicers’ voluntary foreclosure freezes mean two things. First, this problem “is big, and it is serious,” and second, the voluntary moratoria represent evidence that “the issuers themselves are trying to get this problem solved,” she said.

But only three of the top five servicers have issued moratoria of any sort (and some of those are limited to judicial states). Citi (with 6.3% of the market) and Wells Fargo (with 16.9%) have not issued moratoria at all.

And yesterday, an FT story reported that contrary to Wells’ claims, it too engages in foreclosure fraud.

In a sworn deposition on March 9 seen by the FT, Xee Moua, identified in court documents as a vice-president of loan documentation for Wells, said she signed as many as 500 foreclosure-related papers a day on behalf of the bank.

Ms Moua, who was deposed as part of a foreclosure lawsuit in Palm Beach County, Florida, said that the only information she verified was whether her name and title appeared correctly, according to the document.

Asked whether she checked the accuracy of the principal and interest that Wells claimed the borrower owed – a crucial step in banks’ legal actions to repossess homes – Ms Moua said: “I do not.”

Now, I’m all in favor of loan modifications. But Administration talk about deals for loan mods is far too early, not least because all the banks haven’t issued moratoria (not to mention the fact that banks with moratoria seem to be continuing the foreclosures).The banks aren’t yet ready to solve the problem.

One of Obama’s signature traits is conceding on the most critical issues at the start of any negotiation, thereby preventing him from crafting a really useful deal. I fear the Administration is about to do the same with foreclosure fraud, too.

Did Servicers Commit Fraud So Banksters Could Get Big Bonuses?

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When I asked yesterday about the relationship between the stress tests and the servicers’ foreclosure fraud, I had a hunch that the banksters might have been committing that fraud so as to be able to show financial viability so as to be able to repay TARP funds so as to escape the oversight of the government. I wondered whether the stress tests were not just a means by which the government should have exercised some control over the servicers that they already knew to be having problems, but were also one reason the servicers were pushing for the most profitable outcomes (including choosing to foreclose rather than modify loans).

Rortybomb, who knows a lot more about how this stuff worked than I do, provides these damning details:

For what it is worth, I’m sure those conducting the stress test knew that this conflict existed and knew that it was very profitable to the banks. Servicing is considered a “hedge”, because as the origination business dries up foreclosures will increase and servicing income would go up, something Countrywide and others loved to talk about.

Let’s go to a Countrywide Earnings call from Q3 2007:

Now, we are frequently asked what the impact on our servicing costs and earnings will be from increased delinquencies and lost mitigation efforts, and what happens to costs. And what we point out is, as I will now, is that increased operating expenses in times like this tend to be fully offset by increases in ancillary income in our servicing operation, greater fee income from items like late charges, and importantly from in-sourced vendor functions that represent part of our diversification strategy, a counter-cyclical diversification strategy such as our businesses involved in foreclosure trustee and default title services and property inspection services.

The servicing operation will “fully offset” lost income from increased delinquencies and lack of origination business. This is by design. It’s tough to find good counter-cyclical strategies, but this appears to be one. If you were both TBTF and really in need of cash, could you squeeze this a bit further, say by violating the rule of law?

[snip]

Someone enterprising on the hill could ask how the servicing income was incorporated into the stress test and how predictive it was in the adverse scenario case. Things like this make it even more important that the government takes a strong hand in rooting out foreclosure fraud.  We cannot allow an impression to form that we collectively looked the other way at issues of foreclosure abuse, issues well documented since before the stress test, because this business line is one of the few profitable things available to TBTF firms.  TBTF firms that needed cash, were (and are) backstopped by taxpayers and wanted to get out of TARP to issue bonuses.   Nobody gets to be above the law, regardless of how systemically important they are or whatever numbers needed to be hit on the stress test.

In other words, going back to 2007, mortgage companies were upfront in claiming that their servicer-related profits served to offset their loan losses. That’s not to say they would have argued that in their stress test results (again, I’m not expert on this, but I’m not even sure that the stress tests looked at the servicer income). But it does say that to prove viability–to make a half-credible claim they weren’t insolvent and to evade restrictions on bonuses and political giving–they had an incentive to suggest their servicer income was enough to offset a significant chunk of their loan losses. That not only gave them a huge incentive to keep servicer costs low (by doing things like hiring WalMart greeters and hair stylists to serve as robo-signers), but it also increased the incentive to increase profits as a servicer by refusing to modify loans.

So I’d go further than Rortybomb in calling for some enterprising Hill person to look into this. Given that we know Timmeh Geither, campaigner against injustice, was officially warned and knew about this conflict, I’d like to know how much he knew about this hedge. The Administration now says it was helpless to stop this kind of fraud, yet it chose not to use at least two sources of leverage (cramdown and stress tests) to control it. Is that because they knew the servicer fraud was an important part of extend anad pretend?

Remember the Stress Tests?

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The other day, I noted that Administration claims that they were helpless to affect what they now depict as loan servicers’ “sloppiness” but what really amounts to fraud ignores their decision to stop pushing for cramdown–and with it, leverage over the loan servicers.

I think (though I’m less sure of this) they’re ignoring one other source of leverage they once had over the servicers: the stress tests.

First, remember that the top servicers also happen to be the biggest banks. Here is Reuters’ list of the top loan servicers.

  • Bank of America (19.9%)
  • Wells Fargo (16.9%)
  • JPMorgan Chase (12.6%)
  • Citi (6.3%)
  • GMAC (3.2%)
  • US Bancorp (1.8%)
  • SunTrust (1.6%)
  • PHH Mortgage (1.4%)
  • OneWest (IndyMac) (1.4%)
  • PNC Financial Services (1.4%)

And here is the list the nineteen banks that had to undergo stress tests in 2009.

  • American Express
  • Bank of America
  • BB&T
  • Bank of New York Mellon
  • Capital One
  • Citigroup
  • Fifth Third
  • GMAC
  • Goldman Sachs
  • JP Morgan Chase
  • Key Corp
  • MetLife
  • Morgan Stanley
  • PNC Financial
  • Regions
  • State Street
  • SunTrust
  • U.S. Bancorp
  • Wells Fargo

So all of the top mortgage servicers–Bank of America, Wells, JP Morgan Chase, Citi, and even GMAC–had to undergo a stress test last year to prove their viability before the government would allow them to repay TARP funds and therefore operate without that government leverage–which was threatened to include limits on executive pay, lobbying, and government oversight of major actions–over their business. Significantly, all but JPMC were found to require additional capital.

Now, I’m not sure what I make of this. The stress tests were no great analytical tool in the first place. Moreover, the stress tests focused on whether the banks could withstand loan defaults given worsening economic conditions, not whether they could withstand financial obligations incurred because their servicing business amounted to sloppiness fraud.

But in letters between Liz Warren (as head of the TARP oversight board) and Tim Geithner in January and February 2009 discussed foreclosure modification, stress tests, and accountability for the use of TARP funds (Geithner made very specific promises about foreclosure modifications and refinancing which Treasury has failed to meet). And those discussions–and the stress tests–took place as COP reported on the problems with servicer incentives, servicer staffing and oversight, and the lack of regulation of servicers more generally (the COP report came out March 6, 2009; the stress test results were announced May 7, 2009). So at the same time as the Administration was officially learning of problems with servicers, it was also giving those servicers’ bank holding companies a dubious clean bill of health. And with it, beginning to let go of one of the biggest pieces of leverage the government had over those servicers.

Beyond that, I’m not sure what to think of any relationship between the stress tests and the servicer part of these banks’ business. Rortybomb has an important post examining how this foreclosure crisis may go systemic. If it does, these same banks that eighteen months ago promised the government they could withstand whatever the market would bring will be claiming no one could have foreseen that they’d be held liable for their fraudulent servicing practices. Ideally, we would have identified this as a systemic risk eighteen months ago, and based on that refused to let the big servicers out of their obligations (which would have provided the needed incentive for the servicers not only to treat homeowners well, but to modify loans). Had the stress tests included a real look at these banks’ servicing business, these banks might not have been declared healthy.

The (Liz) Warren Commission and Financial Reform

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A lot of hope was placed on the back of Elizabeth Warren and the financial reform act passed by Congress at the behest of the Administration formally known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. Concurrent with belittling the liberal Democratic activist base as ungrateful whiners, the Administration and Democratic leadership has touted Liz Warren and Dodd-Frank as prime examples of accomplishments that should thrill and satisfy the base. But are those “accomplishments” really all that and should they mollify Democrats, at least on financial reform issues? The initial returns indicate no.

First, the ability of Dodd-Frank to do the job intended as to rapacious financial institutions is highly debatable at best, and that is being generous. It is already established the bill did not clamp down sufficiently on the reckless casino style trading in derivatives and synthetic financial products, and may even have opened a new portal for abuse by the Wall Street Masters of the Universe high frequency traders.

Gretchen Morgenson in today’s New York Times lays out beautifully the bigger picture on the lack of reform in the “reform”:

THE government is pulling a sheet over TARP, the Troubled Asset Relief Program created during the panic of 2008 to bail out the nation’s financial institutions. With the program’s expiration on Sunday, we can expect to hear lots of claims from the folks at the Treasury that it was a great success.

Such assertions would be no surprise from a political class justifiably concerned about possible taxpayer unhappiness, the continuing economic turmoil and the midterm elections. But if we have learned anything during this crisis, it is that the proclamations emanating from the Washington spin machine must be taken with an extra-hefty grain of salt.

Consider the claims made last summer that the Dodd-Frank financial reform act reduces the threats that large, interconnected banks pose to taxpayers and the economy when the banks are deemed too big to fail. Indeed, as regulators hammer out the rules governing derivatives transactions, it’s evident that the law has created a new set of institutions that will almost certainly be deemed too important to fail if they ever get into trouble. And that means there won’t really be an effective way to keep those firms from taking big, profitable, short-term risks that are dumped on the taxpayers when the bets fail.

Our roster of bailout candidates includes the clearinghouses, created under Dodd-Frank, that are meant to increase the oversight of derivatives trading. Because most derivatives transactions are expected to go through these clearinghouses, they will be “systemically important” under the law. As such, Dodd-Frank specifically provides that “in unusual or exigent circumstances,” the Federal Reserve may provide such entities with a financial backstop, including borrowing privileges.

Remember this: Financial backstop is just another term for a taxpayer bailout. And the major banks and brokerage firms are the members of the clearinghouses, so a backstop would essentially be for them.

According to the Bank for International Settlements, the entire derivatives market had a gross credit exposure of $3.5 trillion at the end of 2009. Obviously, even a small fraction of that amount could represent a sizable call on the taxpayers if a clearinghouse hit the skids.

So much for eradicating too-big-to-fail.

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Elizabeth Warren’s Soapbox

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Two weeks ago, I suggested Obama would do well to hire the woman who wrote the book on the struggles of the middle class.

Today, he did that.

This afternoon, I suggested that the White House needed to get their newest employee out on teevee, talking to the middle class.

For the White House, not only do they need to fulfill whatever promises they made to Warren. Just as importantly, though, if they don’t actually use the fact that they finally have someone who can speak for and to the middle class (without the kind of gaffes that Joe Biden inevitably makes) to their advantage they will be really hurting themselves. Is Warren booked for the Sunday shows this weekend? If not, why not?

Either the White House or Warren herself made sure she did the round of news shows to talk about her appointment.

As I said earlier, it pays to be cautious about such things.

But–as Rachel Maddow pointed out–at the very least the White House now has a person who can and will, relentlessly, speak about the concerns and challenges of the middle class.

And that–all by itself–is a vast improvement on what the Administration had yesterday.

Congratulations and Good Luck to Elizabeth Warren

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I’m cautiously optimistic with the dual appointment of Elizabeth Warren to be Assistant to the President to work at Treasury to set up the Consumer Financial Protection Board.

Frankly, no one knows what this appointment will mean in practice except perhaps Obama, Warren, and Timmeh Geithner. And no one knows how well Warren will negotiate the inevitable bureaucratic battles ahead, particularly with whoever replaces Rahm.

But I’m optimistic for two reasons. First, I have a lot of trust in Warren herself. She’s proven her ability to surprise her opponents in bureaucratic battles thus far. I also suspect (though don’t know for a fact) that she negotiated the Assistant to the President position as protection against anything Timmeh and Larry Summers might try. She seems to have demanded certain things with this nomination. And gotten them. And–as DDay linked earlier–she has expressed confidence that this is a win.

The President asked me, and I enthusiastically agreed, to serve as an Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau. He has also asked me to take on the job to get the new CFPB started—right now. The President and I are committed to the same vision on CFPB, and I am confident that I will have the tools I need to get the job done. [my emphasis]

So given the respect I have for Warren, I take her at her word that she will have the power to make of CFPB what it needs to be.

The other reason I’m cautiously optimistic is because the Chamber of Commerce is screaming like a stuck pig over these developments. Which, in my book, is generally a sign that something good has happened.

All that said, the appointment of Warren just means that both the White House and activists have more work to do. For the White House, not only do they need to fulfill whatever promises they made to Warren. Just as importantly, though, if they don’t actually use the fact that they finally have someone who can speak for and to the middle class (without the kind of gaffes that Joe Biden inevitably makes) to their advantage they will be really hurting themselves. Is Warren booked for the Sunday shows this weekend? If not, why not?

As for the rest of us, one of the reasons I think Warren was successful in negotiating what she sees as a successful resolution to this position is because her broad support was very clear to the White House. A wide group of people made it clear that Warren was the only acceptable candidate for this position.

If we get complacent, it’ll be a lot harder for Warren to do what she’d like to do with the position.

Progressives finally won something from this Administration. Maybe. But we’re only going to be able to keep it if we continue to make noise.

As the White House Dithers on Warren, 525,000 Homes Have Been Foreclosed On

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TPM captures the current state of play of the rumors that the White House will appoint Elizabeth Warren as interim head of the Consumer Finance Protection Bureau:

Reports coming in that President Obama will name Elizabeth Warren as interim director of the consumer protection bureau created by the new financial regulatory law.

Late Update: Maybe not so fast. Fox was one of the outlets originally reporting this and has now retracted that report, saying they may have “misheard” White House spokesperson Bill Burton on board Air Force One. Reuters says Burton simply confirmed that Warren is “obviously in the mix.”

Later Update: The pool report from Air Force One reads as follows:

on Warren:no announcements but soon. no confirmation of interim appointment. essentially, nothing new

The Boy Who Cried Wolf Update: White House releases statement knocking down the reports:

Elizabeth Warren has been a stalwart voice for American consumers and families and she was the architect of the idea that became the Consumer Financial Protection Bureau. The President will have more to say about the agency and its mission soon.

Kicking Dead Horse Update: White House pool reporter sends supplement to pool report: “For emphasis: Burton did not say anything new about Warren.”

Now, when Obama was asked whether he was going to appoint Warren last week, in addition to talking about what a close friend Warren is of his, he also asserted that it has “only been a couple of months” since the CFPB was created (starting at 22:15).

Now, the idea for this agency was Elizabeth Warren’s.  She’s a dear friend of mine.  She’s somebody I’ve known since I was in law school.  And I have been in conversations with her.  She is a tremendous advocate for this idea.  It’s only been a couple of months, and this is a big task standing up this entire agency, so I’ll have an announcement soon about how we’re going to move forward. And I think what’s fair to say is, is that I have had conversations with Elizabeth over the course of these — over these last couple of months. But I’m not going to make an official announcement until it’s ready. [my emphasis]

That suggests the Administration feels little urgency about getting someone at Treasury who will speak for the needs of consumers as the rest of the agency caters to the needs of the banksters.

I wonder whether the roughly 525,000 homeowners who have lost their homes to foreclosure since the Financial Reform bill was signed think that there’s no urgency to having a consumer advocate at Treasury?