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Just in Time To Undercut Eric Schneiderman, the (Ongoing) HUD Investigation!

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American Banker has an article suggesting that Tom Miller will be able to use the results of HUD’s investigations into servicing problems to craft a settlement with the banks.

The state attorneys general have a secret weapon in their negotiations with the largest mortgage servicers: the results of a HUD investigation into the banks’ robo-signing practices.

But by all appearances, this is an attempt on the part of IA Attorney General Tom Miller to undercut claims that the Attorneys General need to do more investigation. The article–which relies almost entirely on Miller’s own staff–concludes that this report will “fill in a major gap” in what the Attorneys General know (that is, real data about how bad the robo-signing problem is).

The Department of Housing and Urban Development has completed an investigation begun last year of foreclosure robo-signing and given state officials the results, a spokesman for Iowa Attorney General Tom Miller says.

A full government investigation would fill in a major gap in state officials’ information as they negotiate with the servicers: the attorneys general have not known the full scope of the banks’ robo-signing practices, or how many homeowners have been affected by their paperwork lapses.

[snip]

“One of our federal partners, HUD, has conducted a thorough investigation of robo-signing,” says Geoff Greenwood, a spokesman for Miller. “HUD has shared that investigation with our executive committee.”

The states and their “federal partners,” including HUD, “have the information we need concerning the banks’ robo-signing activities, and this is key to the strength of our understanding and our negotiating position,” he says. [my emphasis]

There’s something funny about Tom Miller’s flack’s claims that the HUD investigation fills in what the Attorneys General didn’t already have: the one thing that HUD would say about it is that it wasn’t finished.

A HUD spokesman would not discuss any investigation, except to say its probes into robo-signing are ongoing. [my emphasis]

Maybe the claim HUD’s probe is complete is just a mis-paraphrase of Greenwood’s comments; such a claim doesn’t show up in his direct quotes. But if the investigation is not done–and HUD says it’s ongoing–then how does the incomplete study give the AGs what they need?

In any case, I find it particularly neat that the AGs’ Executive Committee got this incomplete complete study after Eric Schneiderman got booted from it.

The Timing of the Schneiderman Attack

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I find this article odd for the way it mentions nothing of Bank of America’s attempts to game the legal system to stay in business, much less Tom Miller, Shaun Donovan, and Kathryn Wylde’s increasing attacks on Eric Schneiderman. Because his conclusion: that BoA may go under and if it does it may take the economy with it, explains why everyone just intensified their attacks on Schneiderman.

The article, by Tom Leonard, purports to weigh the prospect of economic chaos. On the plus side, Leonard looks at prospects China might not be as bad as some people have been thinking, the promise of QE3, and news that small banks may be returning to health. On the negative, he notes that manufacturing and housing continue to decline.

But none of that matters, Leonard suggests, as much as the fate of Bank of America.

But the most perplexing economic risk factor of all may be the case of the embattled Bank of America, which found itself at the center of a swirl of rumors on Tuesday. How Bank of America fares in the days to come could tell us more about the future of the U.S. economy than any other single factor.

And on that count, Leonard writes, we have reason to worry. He looks at Bank of America’s desperate attempts yesterday to refute the analysis of Henry Blodget, who said BoA is probably worth $100 to $200 billion less than it claims to be–potentially, that is, insolvent.

A big part of Blodget’s analysis rests on this Zero Hedge argument (though I saw the graphic at Ritholtz’s site first), which in turn notes that the key analyst–who happens to be a former Merrill Lynch employee–who thinks BoA can get away with just $8-11 billion to clean up what it will owe investors for the shitpile it (and Countrywide) sold them basically just took BoA’s estimates about the quality of the shitpile rather than looking at the underlying files. Zero Hedge quotes from a filing the Federal Home Loan Banks filed last month in NY (the bold is ZH’s; the screaming red highlighting is mine):

To get from $61.3 billion to a “reasonable” settlement range of $8.8 to $11 billion, Mr. Lin made two more assumptions. He assumed that only 36% of loans that go into default will have breached Countrywide’s representations and warranties about the quality of its underwriting. That assumption is difficult to understand. Mr. Lin did not do any independent analysis of this assumption. Instead, he simply adopted Bank of America’s estimates of this percentage, which in turn appear to have been based on a completely different portfolio of loans that were subject to the underwriting standards imposed by Fannie Mae and Freddie Mac. Moreover, Mr. Lin’s assumption is inconsistent with widely publicized reports by professional loan auditors that even Countrywide loans that are merely delinquent (that is, behind on payments but not yet in default) have a “breach rate” of well over 60% and often as high as 90%.

So to recap: Leonard says we should be worried because if this analysis is correct–if BoA is actually insolvent–it’ll take the economy down.

Now, I’ll set aside for the moment the underlying analysis Leonard does–his take that BoA’s continued existence is more important than the manufacturing decline and continued housing depression. And I recognize that he posted this last night before the news that Eric Schneiderman got kicked out of Tom Miller’s tree house broke widely.

But even without last night’s news, you can’t separate the ongoing pressure on Schneiderman from the underlying issue–whether the analysis which BoA used, which depended on their own internal review of completely incomparable files, to declare themselves solvent is valid.

Because what Schneiderman is insisting on doing, both in the $8.5 billion proposed securitization settlement and the $20 billion proposed servicing settlement, is to try to look at the files.

Schneiderman is insisting on doing the analysis that BoA’s handpicked analyst didn’t do.

Now what do you suppose it means that BoA’s surrogates have gotten so angry and panicked and, well, dickish, as Schneiderman continues to insist on actually looking at BoA’s books before making a settlement with them? And do you really think it’s a coinkydink that increasing numbers of Wall Street vultures are raising doubts about what’s in those books at precisely the time Obama’s surrogates are increasing pressure on Schneiderman to drop the legal efforts to do so?

I think the timing tells us everything we need to know about the quality of BoA’s analysis. The only question, really, is whether they’ll be able to abuse the legal system so as to continue to hide that reality.

Update: Schneiderman just sent out email vowing to continue:

You might have been following the latest developments related to the national settlement of the mortgage probe, including this story in today’s Huffington Post about our tough fight for a comprehensive resolution to this crisis.

Let me tell you directly: I am deeply committed to pursuing a full investigation into the misconduct that led to the collapse of America’s housing market, and to seeking a resolution that gives homeowners meaningful relief, allows the housing market to begin to recover, and gets our economy moving again.

Our ongoing investigation into the housing crisis cannot be shut down to accommodate efforts to settle quickly and give banks and others broad immunity from further legal action. If you have any thoughts or concerns about this critical issue, please contact me at 1-800-771-7755, or send a message via Facebook or Twitter.

Thank you for your support,

Eric T. Schneiderman

IA AG Tom Miller: Playing “Survivor” with Homeowners’ Futures

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You may have heard that the Obama Administration and IA Attorney General are playing a giant game of Survivor with the homes of struggling Americans as the grand prize: they’ve kicked NY AG Eric Schneiderman off the island.

The New York Attorney General’s office was removed from a group of state attorneys general that is working on a nationwide foreclosure settlement with U.S. banks, according to a state official.

New York Attorney General Eric Schneiderman, who has raised concern about terms of a possible deal, was removed from the executive committee of state attorneys general, according to an e-mail today from Iowa Assistant Attorney General Patrick Madigan.

Only they made a key mistake in their little game of Survivor.

Update: I obviously misread IA Asst AG Patrick Madigan and IL AG Lisa Madigan. Meaning Miller’s the one making this public, not AG Madigan.

Well then I guess he’s just being a dick.

Update: Wow, in the longer version of the Bloomberg story, Miller gets even more dickish:

“New York has actively worked to undermine the very same multistate group that it had spent the previous nine months working very closely with,” Miller said. For a member of the executive committee, that “simply doesn’t make sense, is unprecedented and is unacceptable,” Miller said.

[And I removed my earlier screwup.]

“A Public Service,” My Fannie

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I wanted to juxtapose two stories about Fannie Mae. The first, from this WaPo story reporting that the Administration has decided to keep some kind of federal entity guaranteeing mortgages. The story itself is interesting–as are Dean Baker’s post criticizing the underlying decision.

What I found particularly interesting, though, were the comments from the usual suspects about the role they perceive Fannie and Freddie as playing.

Two top Obama advisers, HUD Secretary Shaun Donovan and Treasury Secretary Timothy F. Geithner, think the government should maintain an outsize role in the housing market, administration officials said.

Donovan thinks federal support for housing fulfills a public service, while Geithner has been focused on the need for the government to have a way to keep the mortgage market operating during a financial crisis.

Other advisers, however, opposed a continued government role over the long run. Austan Goolsbee, who this month left his job as chairman of Obama’s Council of Economic Advisers, argued that the federal role in housing distorts the free market. By subsidizing mortgage investments, he argued, the government drives capital away from other types of investments — for example, those in companies developing environmentally friendly technology. He also warned that the government is putting enormous sums of taxpayer money on the line while conveying little actual benefit to home buyers.

In a meeting with the president, Goolsbee said that the government had finally brought Fannie and Freddie’s excesses to heel by taking over the companies and that it would be a mistake to let them loose in the market again, said a person familiar with the meeting. Goolsbee likened the companies to a villain held in a special prison who shouldn’t be freed just because he promises to help the poor, the source recounted.

Lawrence H. Summers, who was director of the National Economic Council until early this year, argued that, over the long term, it didn’t make sense to have a government-backed agency providing guarantees to the mortgage market but that Fannie and Freddie still play a crucial role.

“My position was that we needed to maximize activity in the short run to support the housing market,” Summers said in an interview. “Discussions of scaling down Fannie and Freddie were vastly premature under the circumstances of a collapsing housing market.” [my emphasis]

Compare those comments–particularly those favoring the GSEs from Donovan and TurboTaxTimmeh–with the description of the way Fannie Mae is fleecing the taxpayers and ruining communities by pushing servicers to foreclose even though homeowners are seeking a modification, an approach that violates Fannie’s own stated policy.

The documents show Fannie Mae has told banks to foreclose on some delinquent homeowners — those more than a year behind — even as the banks were trying to help borrowers save their houses, a violation of Fannie’s own policy.

Fannie Mae has publicly maintained that homeowners would not lose their houses while negotiating changes to mortgages under the federal Home Affordable Modification Program, or HAMP.

The Free Press also obtained internal records revealing that the taxpayer-supported mortgage giant has told banks that it expected them to sell off a fixed percentage of foreclosed homes. In one letter sent to banks around the country last year, a Fannie vice president made clear that Fannie expected 10%-12% of homes in foreclosure to proceed to sale.

[snip]

“Fannie just wants to clean up its balance sheet and get these loans off the books while taxpayers are eating these losses,” [Valpariso University Law Professor Alan] White said, referring to the multibillion-dollar federal bailout of Fannie Mae in 2008 and the rising cost to taxpayers.

“And Treasury and the FHFA are letting them get away with it. It’s a huge waste. Wealth is being destroyed, people are losing houses needlessly, and taxpayers are losing money.”

[snip]

According to White, the Valparaiso professor, foreclosing on a home typically costs Fannie Mae far more than a successful loan modification. But, he and others say, Fannie is willing to absorb higher losses because it knows taxpayers — not Fannie Mae — will eventually reimburse the loss.

In other words, even as Donovan and Timmeh appear to have won the argument on sustaining Fannie and Freddie (or something like them), what was implicitly clear (I’ve been hearing this accusation since 2009) has been proven: that the GSEs have been using their government backing to stiff taxpayers and ruin communities. (Kudos to Goolsbee who got it mostly right on this one: the taxpayer backing is providing little of value to taxpayers.)

It’s as if none of these folks overseeing Fannie know how badly it is screwing American communities. Or perhaps they don’t care?

DOJ IG Doesn’t List Foreclosure Fraud among Significant Performance Challenges

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A month ago, the Financial Fraud Task Force first started to get around to investigating the systemic fraud in our foreclosure system.

Federal investigators are exploring whether banks and other financial firms broke U.S. law when using fraudulent court documents to foreclose on people’s homes, according to sources familiar with the effort.

The criminal investigation, still in its early days, is focused on whether companies misled federal housing agencies that now insure a large share of U.S. home loans, and whether the firms committed wire or mail fraud in filing false paperwork.

The announcement was tied to a Shaun Donovan announcement that a HUD investigation started in May had identified problems from some mortgage servicers; HUD is a member of the Financial Fraud Task Force.

Donovan said the administration had yet to complete its review, which began in May. Thus far, though, it had found “significant difference in the performance of servicers, and in particular, information that shows us there is not compliance with FHA rules and regulations around loss mitigation.” Donovan said the findings were limited to firms that deal with FHA loans. He declined to single out servicers.

All of which would seem to suggest that HUD–and therefore the Financial Fraud Task Force–knows there’s some there there (though they deny it is systemic).

Which is why I find it rather troubling that, two months after it became clear foreclosure mills and servicers are engaging in rampant fraud, DOJ’s Inspector General Glenn Fine does not specify it among the significant performance challenges for the year (Financial Crimes generally places seventh on his list of issues, after IT planning and violent crime, the latter of which is falling).

7 Financial Crimes and Cyber Crimes: The need to aggressively combat financial crimes and cyber crimes is an increasing challenge for the Department. Financial fraud continues to affect the economy, and the increased use of computers and the Internet in furtherance of financial crimes, as well as the international scope of these criminal activities, has exacerbated the challenge of cyber crime.

In November 2009, a presidential Executive Order created the Financial Fraud Enforcement Task Force (Task Force). The Department described the Task Force as the “cornerstone” of its work in the financial fraud area. Led by the Department, the Task Force combines the work of several agencies to focus on mortgage crime, securities fraud, American Recovery and Reinvestment Act (Recovery Act) and rescue fraud, and financial discrimination.

In connection with the Task Force the Department launched Operation Stolen Dreams, a multi-agency initiative designed to combat mortgage fraud. In June 2010 the Department reported that this operation involved the prosecution of 1,215 criminal defendants nationwide who allegedly were responsible for more than $2.3 billion in losses. The Department also reported that the operation recovered more than $147 million through 191 civil enforcement actions.

The Department and the Task Force are also focusing investigative resources on securities fraud as well as on Recovery Act fraud and fraud in other rescue funds. Among other things, the Department is providing training to federal grantees and contractors on ways to prevent and detect such fraud.

Note that Operation Stolen Dreams is focused on the small-scale thugs that pumped up housing prices. That’s apparently a priority. But Fine, at least, seems to think an investigation into the GMACs and BoAs, the David Sterns and Lender Processing Services, is not a priority.

He may well be right in that DOJ doesn’t consider this a top challenge. So while counterterrorism is number one–based partly on two unsuccessful attacks launched by losers in the last year–the wholescale assault on our economy is apparently not even part of number seven.

Richard Shelby’s Selective Investigation

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Let me make a rare statement: I agree with just about everything Richard Shelby said in his call for an investigation of mortgage servicers.

The Federal Banking Regulators should immediately review the mortgage servicing and foreclosure activities of Ally Financial, JP Morgan Chase and Bank of America. The regulators should determine exactly what occurred at these institutions and make those findings available to the Banking Committee without delay.

Furthermore, because it appears that the regulators have failed yet again to properly supervise the entities under their jurisdiction, the Committee should immediately commence a separate, independent investigation into these allegations. It is the Committee’s fundamental responsibility to conduct oversight of the banking regulatory agencies and the firms under their jurisdiction.

With the recent passage of the Dodd-Frank Act wherein the financial regulators were granted even broader powers, I am highly troubled that once again our federal regulators appear to be asleep at the switch.

But I am rather curious about one thing. Just days after Goldman Sachs announced that its servicing arm, Litton Loan Servicing, was suspending foreclosures in some states, why aren’t they–or the other big servicers, Citi and Wells Fargo, on Shelby’s list?

Mind you, given HUD Secretary Shaun Donovan’s announcement that the government has been investigating FHA servicers since May and had already identified problems from some servicers (but had apparently done nothing about those problems), maybe Shelby has reason to pick on just three of the servicers.

But Shelby’s choice of targets sure does bear watching.

“The Federal Government Is Moving Comprehensively and Quickly”

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Something has been nagging me about this HuffPo description of HUD Secretary Shaun Donovan’s briefing on the foreclosure crisis the other day. It’s the revelation that, in a review started in May, the government had found that foreclosure servicers are not complying with FHA requirements that servicers attempt to modify loans before they foreclose on them.

Donovan said the administration had yet to complete its review, which began in May. Thus far, though, it had found “significant difference in the performance of servicers, and in particular, information that shows us there is not compliance with FHA rules and regulations around loss mitigation.” Donovan said the findings were limited to firms that deal with FHA loans. He declined to single out servicers. Other HUD officials likewise declined, despite repeated requests.

When it came to the larger issue of what some legal experts describe as a fundamentally-flawed and fraud-ridden mortgage market — fraudulently-underwritten loans that passed through a maze of institutions that failed to properly maintain basic paperwork or follow legal procedures in bundling, securitizing and ultimately selling those mortgages to investors — Donovan said that, thus far, all is well.

“The primary issue that’s been the focus of the moratoria is, is the foreclosure process being followed correctly? Are affidavits being filed correctly, and are notarizations and other things being done correctly? That is one set of issues,” he said. “A second set of issues — and we think this is very important — that we look more broadly at, ‘Are servicers taking steps to help keep people in their homes?'”

The lesser, third issue that has been raised, Donovan said, is whether the process underlying the securitization of mortgages is “in question.”

“So that’s the point that I’m trying to make, is that the issues that we are finding … that we’re focused on are, ‘Are there particular servicers that are not following these processes?'”

Donovan added that “we have not found any evidence at this point of systemic issues in the underlying legal or other documents that have been reviewed.”

Keeping in mind that this review started five months ago, watch this video of Donovan from Wednesday. In it, Donovan seems intent on declaring the overall system of mortgage finance–including MERS–to be sound, even while he reveals that the review showed some servicers were not making the required effort to modify loans before foreclosing on people.

This is not a systematic issue, according to Donovan, but some servicers that he declines to name (as he did in the briefing HuffPo describes) are not following processes to keep people in their homes. Oh, and “the Federal government is moving comprehensively and quickly to ensure that servicers are complying with the law and that they are taking the actions they’re required to take and they should take to keep people in their homes.”

Well over a million homes have been foreclosed on since the government began its review of the foreclosure process. At some point in that time, the government determined that certain servicers were not complying with federal rules about modifications.

So why are we just hearing about it now after those million families have lost their homes?

I appreciate that the government–by refusing to call this systemic fraud systemic–acquires new leverage over servicers to actually do something about their refusal to modify loans. But why have we heard nary a peep out of the government about this before now? And why is the government refusing to make public which deadbeat banks are breaking the rules on loan modifications?

Fidelity National’s Role in the Cover-Up

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I’ve got a slightly different take than DDay on the news that Fidelity just established a policy requiring lenders to warrant all foreclosure sales going forward.

Fidelity National Financial Inc., the largest U.S. title insurer by market share, will require lenders to sign a warranty assuring their paperwork is sound before backing sales of foreclosed homes.

An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida- based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said.

DDay argues that Fidelity National is basically asking for a guarantee that it won’t have to pay off any claims on title problems.

I’m sure the health insurance market would love a clause that forced the maternity ward to sign a warranty that the baby they birthed into the world will be healthy their entire life, or else they pay up. I do understand the title insurers’ complaint, and I’m glad they’re forcing the issue with the lenders, but I can’t help but find it a little weird. If the banks are paying on the insurance, I’m not sure we need a title insurance industry.

Now, I’m not an expert. I’m just someone who has been considering whether she should still be looking to buy a house in this market. But as I understand title insurance the biggest part of the service they offer–what you’re paying them for–is not risk going forward, but rather a competent and thorough search for any outstanding title problems. Here’s one explanation:

Because title insurance protects against what may have happened in the past, most of the expense incurred by title companies or their agents is in loss reduction. They look to reduce losses by finding and fixing defects before the policy is issued, in much the same way as firms providing elevator or boiler insurance. These types of insurance are very different from life, property or mortgage insurance, which protect against losses from future events over which the insurers have no control.

So I take this move not as an effort to avoid paying any claims. I take it as an admission from Fidelity National that it cannot or will not adequately do that main part of its job: review the documents on a house and make sure the documents say what they appear to say. Instead of doing the forensics required to check that documentation (lawyers challenging foreclosures have proven fraud by showing notary stamps post-date the purported signing of the notarized document, comparing signatures to prove some are forgeries, and pointing to allonges not attached to the actual note, among other things) on every sale, they’re simply demanding that banks claim they don’t need to do that work.

Note, too, that Fidelity National instituted this policy (as distinct from the agreement it signed with Bank of America on the day BoA halted foreclosures) in consultation with Fannie and Freddie. That is, in consultation with government owned entities holding a majority of the mortgages out there.

So the government and Fidelity National have gotten together and said, “rather than actually check for fraud we’ve got abundant evidence exists not just in foreclosures being processed now, but in foreclosures already sold and–significantly–in performing loans that were securitized at the height of the boom, let’s just have the banks sign off on any foreclosures going forward.” As a particularly nice touch, they’re describing this fraud not as fraud, but “incompetent or erroneous affidavit testimony or documentation.”

From the standpoint of an industry and a government hoping to prevent people from learning about the extent to which our property system has been tainted by the banksters, that might be shrewd. After all, the most common time for real people to challenge bank conduct here is when they are foreclosed on or when they buy a house–when they are involved in a legal transaction. We only came to understand the true extent of foreclosure fraud after foreclosure and bankruptcy lawyers had dealt with such volume of cases that they came to learn the tricks of the servicers and even reviewed enough documents to have solid evidence of notary and robosigner fraud. By getting indemnity from the banks, Fidelity National (and our government acting through Fannie and Freddie) will ensure that one entity at least will continue to offer lenders title insurance, helping them unload those properties that may or may not have fraudulent title, but will never look closely at the documentation to see if there has been fraud. Fannie and Freddie just worked with Fidelity National to ensure that 38% (Fidelity National’s market share) of the 25% of all homes that are sold that are foreclosures will never have their title examined closely. 9.5% of homes will be sold without the thorough paperwork review that everyone knows should be done at this point, thereby ensuring not only that the market will continue to move, but also that banks always have a way to sell a house without the title insurer doing its job, but instead relying only on the bank’s say-so for the most likely title problem.

But the thing is, they may well get away with it (or, at the very least, minimize bank losses). Read more →

Obama Admin: Look Forward! Even in the Face of Obvious Corporate Fraud!

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I’m not surprised by this–but I simply don’t understand how the Obama Administration can claim they haven’t found anything fundamentally flawed (though that could be HuffPo’s formulation) when thousands of people have been thrown out of their homes based on documents whose signers falsely attested to those documents.

U.S. Housing and Urban Development Secretary Shaun Donovan said Wednesday that the Obama administration will attempt to protect homeowners and police the kind of paperwork fraud that led the nation’s largest banks to temporarily halt foreclosures this month, but added that the administration had yet to find anything fundamentally flawed in how large banks securitized home loans or how they foreclosed on them.

“Where any homeowner has been defrauded or denied the basic protections or rights they have under law, we will take actions to make sure the banks make them whole, and their rights will be protected and defended,” Donovan said at a Washington press briefing. “First and foremost, we are committed to accountability, so that everyone in the mortgage process — banks, mortgage servicers and other institutions — is following the law. If they have not followed the law, it’s our responsibility to make sure they’re held accountable.”

He added, however, that the administration is focused on ensuring future compliance, rather than on looking back to make sure homeowners and investors weren’t harmed during the reckless boom years. The administration is “committed to forcing institutions to change the way that they conduct business,” Obama’s top housing official said, “to make sure these problems don’t happen again.”

When people were suckered into inflated mortgages, it wasn’t good enough for them to “make sure [those] problems don’t happen again.” They lost their homes, their credit ratings, and their savings.

But I guess that’s their own fault for being a mere human rather than a corporate person.

HUD Secretary Donovan: Banks Should Fix Problems Caused by their Law Breaking

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Check out the following passage in HUD Secretary Shaun Donovan’s statement opposing a moratorium on foreclosures:

No one should lose their home as a result of a bank mistake. No one. That is why the Obama Administration has a comprehensive review of the situation underway and will respond with the full force of the law where problems are found. The Financial Fraud Enforcement Task Force that President Obama established last November has made this issue priority number one. Bringing together more than 20 federal agencies, 94 US Attorney’s Offices and dozens of state and local partners to form the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud, the Task Force is examining this issue and the Attorney General has said publicly that if it finds any wrongdoing the members of the task force will take the appropriate action. The Federal Housing Administration and Federal Housing Finance Agency have launched reviews to make sure servicers are in full compliance with the law. The Office of the Comptroller of the Currency has directed seven of the nation’s largest servicers to review their foreclosure processes, fix the processing problems and determine whether there is specific harm that has been caused in individual cases.

The message all these institutions are sending is the same: banks must follow the law — and those that haven’t should immediately fix what is wrong. [my emphasis]

Donovan offers a list of government agencies which have regulatory and legal authority to penalize the banks, but ultimately says that the banks themselves will be directed to police themselves.

The message these regulatory and law enforcement agencies are sending, Donovan says, is that the banks that haven’t followed the law should immediately fix what is wrong. Not, “the banks that haven’t followed the law should be prosecuted.” But “the banks that haven’t followed the law should make it right on their own.”

And while Donovan brags that the Financial Fraud Enforcement Task Force has been on the job for almost a year, it has done nothing about the multiple bank employees who have given sworn dispositions admitting to committing fraud on courts.

But that’s not all that surprising. After all, Donovan is also propagating the myth that this systemic fraud is just bank “mistakes.”

The rest of Donovan’s statement is no better. It tries to personalize the harm that hypothetically would result from a moratorium. But the examples make no sense and all basically assume that banks owning properties lead to declining property values; if that’s the case, then let’s crack down on deadbeat bank landlords. And it certainly misunderstands how a generalized problem with titles–the Administration’s refusal to address the underlying problem–will affect the housing market a lot more than a delay to address to address that underlying problem.

It all appears to be further indication that the Administration hopes that by letting the banks fix this themselves, the problems caused and covered up by the banks’ crimes will just go away.