There is nothing wrong with reforming the servicing process, in and of itself. It’s just that you’ll never be able to do that without showing clearly that criminal sanctions on the servicers themselves, reaching all the way to the top, are the appropriate response to criminal behavior. I know we don’t really have a rule of law in this country at a certain level of income, but if we did, you would simply have to apply it in cases where banks bilked people out of their homes through servicer-driven defaults, or where they charged outrageous rates for forced-place insurance to jack up their own fees, or where they broke into occupied homes not even in default and changed the locks. These are simply criminal actions; you’d have to be willfully blind to consider them “inherently civil.”
What Miller’s talking about is fine as far as it goes. The proposed resolution would ban dual-track, where servicers negotiate on a loan modification and seek foreclosure at the same time. It would create a general fund for foreclosure victims who were wrongfully evicted. It would seek to reform the loan modification process by mandating workouts with borrowers who have a certain ability to pay, including introducing principal reductions as a remedy. I don’t have a problem with any of this. But without criminal probes, it’s not really backed up by anything. Why would there be follow-through on the part of the servicers if they can just renegotiate a future settlement? We’ve seen in previous settlement cases that the servicers just don’t follow the guidelines, leading Attorneys General or regulators to sue again. There’s only one way off the merry go-round, and that’s with criminal sanctions.
As one of Yves Smith’s commeters points out, you already have grand juries impaneled to investigate the criminal fraud from foreclosure mills, who the servicers basically hired. Civil actions at this point are basically inadequate.
Needless to say, this is compounded by Miller promising the exact opposite approach to advocates just weeks ago. The AG investigation, if this is the track, could end up creating some nice newspaper articles, but result in nothing close to an actual reform to servicer abuse. Keep in mind that Miller’s name was floated to be the first head of the Consumer Financial Protection Bureau. I suspect that making nice with an Administration averse to “looking backward” could have something to do with this.
In the wake of many highly-publicized stories about rampant fraud perpetrated by banks in foreclosure proceedings, the Federal Reserve has decided to support stronger regulations under financial reform President Obama signed into law last summer.
The FDIC has been pushing hard to ensure that new regulations on the mortgage bond market include clear instructions for how banks handle mortgages-- and under what circumstances they can evict delinquent borrowers. The bank divisions that collect payments from borrowers and implement the foreclosure process-- known as "mortgage servicers"-- have been plagued by rampant problems with fraudulent documentation. This fraud has resulted in everything from illegal fees charged to borrowers to improper evictions.
The Fed had opposed using the mortgage bond rules to crack down on foreclosure abuses, despite pressure from the FDIC. But FDIC General Counsel Michael Krimminger recently told the Fed his agency would not support any new mortgage bond regulations that do not include strong rules forbidding foreclosure abuses. Krimminger told HuffPost that other regulatory agencies are "moving in our direction on the issue."
Krimminger would not specify which agencies were coming around. But a separate source close to the discussions told HuffPost that the Fed has come on board, with systemic risk watchdogs at the central bank sympathetic to Krimminger's position.
It doesn't do much to help existing victims of foreclosure fraud, nothing short of sending some bankers to jail would. But this is an important step in creating accountability for banks and protections for borrowers.
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