While the foreclosure crisis has brought devastation to millions of Americans, for a few Washington insiders it’s proved quite lucrative.
One of the most recent to cash in is Eugene Ludwig, former comptroller of the currency in the administration of his one-time Yale Law School pal, former President Bill Clinton.
While it’s supposed to regulate banks, the comptroller of the currency’s office has consistently suffered from a reputation for being too compliant to those it is supposed to oversee.
Ludwig, after his government service, formed a private global financial consulting and lobbying firm named Promontory Financial, working directly for banks and other financial firms. The company’s roster is filled with a mix of veterans of financial regulatory agencies, top banks and the law firms that represent them.
Ludwig, to say the least, has done well serving the financial industry. According to Washingtonian magazine, Ludwig owns one of the most expensive homes in Washington, a 13,000 square foot, 5-bedroom stone and shingle estate just down the street from the Spanish ambassador’s residence.
Lately, Ludwig’s firm has found itself in the middle of the Obama administration’s latest botched attempt to sort out the foreclosure fraud scandal.
Announced with great fanfare in 2011, the review of bank foreclosures in the wake of robo-signing scandal was supposed to be led by the current Office of the Controller of the Currency and the Federal Reserve.
Because the government doesn’t have the resources to scrutinize the banks itself, under the terms of the investigation, the banks hired consultants including Ludwig’s Promontory and accounting giants PwC (formerly PriceWaterhouseCooper) and Deloitte to examine individual foreclosures to determine which ones contained fraud in the process.
The investigation was troubled from the start. Homeowners’ advocates questioned how consulting firms like Promontory, with close long-standing financial ties to the banks, could do any kind of objective analysis of their foreclosures.
But that was just the beginning. Not only were the consultants often relying on the banks’ own evaluations of their foreclosures to make determinations about the validity of foreclosures, outreach was inadequate, the investigations were poorly designed and overly cumbersome and took much longer than expected. Meanwhile the consultants’ fees skyrocketed.
“This was never a well thought out process,” the National Consumer Law Center's Diane Thompson told American Banker in November. “The [lack of] independence is just one aspect of its crappiness.”
Finally, in December, the authorities ditched the entire investigation and announced an $8.5 billion settlement with the banks, with $3.3 billion in direct payments spread around between homeowners who claimed to have been the victims of fraudulent foreclosures, and promises to complete more loan modifications.
Ludwig’s firm and the other consultants didn’t suffer financially, however. They walked away from the debacle splitting a whopping $2 billion in fees.
But the stink from the settlement has attracted some attention, prompting the New York Times to scrutinize Promontory and other financial consulting firms’ role in facilitating bank misbehavior, not just in the foreclosure scandal, but in other unsavory bank business, such as drug money laundering, as well.
Several congresspeople, including Elizabeth Warren, D-Mass., Carolyn Maloney, D-New York, and Rep. Maxine Waters, D-Los Angeles, top Democrat on the House Banking Committee, are now seeking investigations into the foreclosure review and the consultants role.
The foreclosure review highlights a sad fact: more than four years after the financial collapse should have taught us the fallacy of deregulation, we’re still relying on bankers, and their former colleagues on the other side of the revolving door, to crack down on themselves.