Who would squawk about giving California homeowners a little more protection against bankers, who have paid billions to settle charges of outright fraud in the foreclosure process?
Well, bankers of course.
You expect bankers to fight back when state officials take steps to rein in their illegal and improper practices.
That’s not a surprise.
Even though we bailed out the banks to help them survive, we have grown accustomed to their absolute devotion to their own interests at the expense of everybody else.
But why would an Obama administration federal regulator step in to interfere in a state’s business – on the banks’ behalf?
That’s what’s happened in California, where a proposal for a “homeowners’ bill of rights” by the state’s attorney general, Kamala Harris, has faced tough opposition from the bankers.
You would think that the Obama administration, if it were going to take a side, would want to be on the side of the state’s homeowners, not to mention Harris, who has been a co-chair of the president’s campaign and one of his strongest allies.
After all, President Obama, in his populist campaign mode, has paid strong lip service to homeowners and holding banks accountable. But that’s not what happened.
Instead, the general counsel of the Federal Home Financing Administration, Alfred Pollard, weighed in with a condescending letter to Democratic legislators fighting for the homeowners measure, warning that the legislation would “restrict mortgage credit and hamper necessary home seizures.”
Harris’s proposal sounds dramatic enough, a collection of six bills calling itself a “bill of rights.” But it’s actually a modest set of common-sense protections: for example, establishing civil penalties if banks continue their illegal practice of robo-signing in the foreclosure process, giving homeowners the right to challenge a foreclosure in court if banks don’t follow proper procedure, and prohibiting so-called “double-tracking,” in which banks foreclose while they’re negotiating a loan modification with the homeowner.
Banks have already promised to stop having their employees forge other people’s signatures on documents or verify that documents are accurate when in fact they haven’t even read them. The banks got off with barely a wrist slap for robo-signing and other foreclosure fraud in the recent “settlement” with state attorneys general and the feds. The settlement only costs the big banks $5 billion out of pocket while they negotiated another $20 billion in credits for taking a variety of remedial actions, some of which the banks were doing anyway – even without getting credit.
You might think that Pollard and his FHFA colleagues, who are responsible for overseeing Fannie Mae and Freddie Mac, might be more circumspect in lecturing others about screwing up the housing market.
During the housing bubble, Fannie and Freddie, which were originally set up by the government to support the housing market but went private in 1968, adopted all the bad behavior of the big banks, cooking its books, taking too much risk, throwing around their political muscle through lobbying and political contributions to stave off questions about their business shenanigans.
Then the government placed them in conservatorship, under the supervision of FHFA. Since the financial collapse, the agencies have not exactly put much muscle into helping homeowners facing foreclosure. The head of FHFA, a Bush Administration holdover named Ed DeMarco, has been particularly insistent that helping homeowners avoid foreclosure through principal reduction would be bad for taxpayers. But it turns out that in 2010, according to internal documents, Fannie Mae was about to launch a principal reduction program that its research showed said would save not only homes, as well as taxpayers hundreds of millions of dollars, before it was abruptly cancelled.
The principal reduction program was based on a model of “shared equity,” in which if the value of the home later rose, a homeowner would share any gains with the bank.
While the recent foreclosure fraud settlement with the big banks commits them to do some principal reduction, that agreement specifically excludes Fannie Mae and Freddie Mac.
A couple of Democratic congressman, Elijah Cummings of Maryland and John Tierney of Massachusetts, have written to DeMarco demanding an explanation.
“Based on the documents we have obtained, it appears that the shared equity principal reduction pilot program should have been implemented years ago, and the failure to do so may have resulted in unnecessary losses to U.S. taxpayers,” Cummings and Tierney wrote. “This was not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae's own data and analyses.”
Even for an administration that has been kowtowing to the banks from day one, FHFA’s failures, and its lame venture into California’s legislative process, represent a new low.
For a start, California legislators should ignore Pollard and his FHFA’s cronies lame advice. Even better, the president should pitch him and FHFA’s entire leadership out of the administration and replace them with people who know how to support the housing market, not just bankers.