Naked Capitalism – Cease and Desist Orders as Regulatory Theater in Mortgage Settlement Negotiations

I must confess to being puzzled last week by an American Banker article that claimed that Federal banking regulators were looking to send out cease and desist letters to serviers as a way to light a fire under banks who were dragging their feet at the now somewhat infamous so called settlement negotiations among 50 state attorneys general, various Federal regulators, the Department of Justice, and the major banks/servicers.

Now on the surface, this sounds sensible. The banks are not cooperating, so pull out a big gun and if needed, use it on them. But American Banker provided a link to the form of the cease and desist order and it looks remarkably weak. Its requirements are far less demanding than those set forth in the famed 27 page settlement draft that was presented by the AGs and the Federal authorities to the banks.

It’s important to stress that a threat of action that is weaker than what you are demanding in a settlement makes no sense in a negotiating context. It’s like offering to settle a lawsuit for $500,000 when the case only asks for $250,000 in damages. No one would accept the settlement, they’d either fight in court or accept a default judgment.

Now some of my correspondents were of the view that a cease and desist order was a serious matter, so this might create a frisson in the press if this comes to pass. But this is simply not a very serious cease and desist order. Adam Levitin, who replied by e-mail and then amplified his view in a post, confirmed my instincts:

You can check out the rest here…

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4closureFraud.org

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Servicing Fraud Cease & Desist Orders from Regulators