In a closed meeting last week, the agencies told Warren and Rep. Elijah Cummings that they could not provide documents Warren and Cummings requested about the specific violations by mortgage servicers, or the results of the reviews, because doing so would violate company “trade secrets” (apparently ripping off your customers and stripping their assets is now a valuable trade secret). Practically any other senator would not get much attention from being denied documents by a federal regulator.
But Warren, with a grass-roots army of enthusiastic supporters and a yen to deliver on her early promise, makes headlines crossing the street. And the foreclosure review debacle represented an excellent test case to expose the corrupt dealing between banks and the regulators who are supposed to curb their excesses, and also to pit Wall Street denizens getting rich off these crimes against ordinary victims who lost their homes. You couldn’t tee up a better issue for Warren, or a better entryway for traditional media to report it.
Last Thursday’s hearing on the reviews, the first congressional hearing on foreclosure fraud in over a year, provided the perfect set piece. Warren, along with Jack Reed, Sherrod Brown and other Senate Democrats, pounded the regulators for protecting the banks and ignoring homeowners suffering from illegal foreclosures. Warren highlighted that nobody will ever learn the precise extent of harm suffered at the hands of banks, and that without a true accounting, adequately compensating homeowners would be impossible. Brown focused on the role of the third-party consultants who operate as shadow regulators, performing work when the agencies lack capacity, but without any independence from the banks.
This drove more coverage about this topic than I’ve seen in a long time. Practically every major news outlet reported on the hearings, and it led prime-time nightly newscasts. None of it would have happened if OCC and the Fed simply finished the foreclosure reviews, flawed though they may have been, and quietly released the results at the end. Instead, the coverup, along with the crime, powered the headlines. And it led members of Congress to dig into questions previously left unaddressed through the financial crisis.
Even OCC admitted that additional legislation would be needed to ensure the integrity of third-party consultants. Rep. Maxine Waters, the ranking member of the House Financial Services Committee, introduced legislation that would mandate public disclosure of any agreements between banking regulators and financial firms that employ independent consultants. Under the legislation, the government would pay third-party consultants, rather than banks. And individuals harmed by a consultant’s shoddy work would be able to sue that consultant for damages. These rules could finally lead regulators to stop outsourcing their responsibilities and end the third-party gravy train.
Sen. Warren urged OCC and the Fed to deliver information about foreclosure abuse to individuals, for use in private lawsuits against banks. This would increase the banks’ seemingly never-ending legal exposure for their role in the housing bubble collapse. Additional information about the reviews could lead to strengthened regulatory efforts to clean up the awful mortgage servicing industry. And the whole debacle adds fuel to Sherrod Brown’s bipartisan movement to break up the banks, with the idea that financial institutions which are too big to regulate are simply too big to exist.
At last Thursday’s hearing, OCC deputy chief counsel Daniel Stipano said about the reviews, “If we had to do it over again, we would take a different approach.” It was the understatement of the year. If there’s going to be justice for foreclosure victims who had their homes stolen, you can trace it back to this botched settlement, and the movement on Capitol Hill it inspired. State and federal regulators have promulgated untold settlements to sweep foreclosure fraud under the rug. Only this one actually led politicians and the public to pick up that rug and examine the dirt underneath.
H/t Thomas Soldan.