When the media discusses how banks have ridden like a steamroller over borrowers and investors, the typical response is a combination of minimization and distancing: that the offense wasn’t such a big deal and that it was a mistake. Recall the PR barrage in the wake of the robosigning scandal: its was “sloppiness,” “paperwork errors”. Servicers kept claiming, despite overwhelming evidence of bad faith and the institutionalization of impermissible practices, that there was really nothing wrong with how they were operating. Remember it was important for them to take that position, because if they were to admit that the bank knew it was engaging in widespread abuses with management knowledge and approval, it would be admitting to fraud.
Two major government settlements later, this position is looking awfully strained. And the Fed, in stonewalling Elizabeth Warren’s and Elijah Cumming’s efforts to get more information about the Independent Foreclosure Reviews, presented the bad practices as servicer policies, which means that they were deliberate, hence, fraudulent.
By way of background: Warren and Cummings have been asking the OCC and Fed for some time for more information about what happened in the foreclosure reviews. Out of fourteen information requests they made in a January letter, they got only one question answered in full, and mere partial responses to three other questions. They requested, and got, a meeting yesterday. They issued a letter Wednesday that described what transpired. Key sections:
Two years ago this week, your offices issued a public report announcing that you determined that 14 mortgage servicing companies were engaging in “violations of applicable federal and state law.” You found that these abuses have “widespread consequences for the national housing market and borrowers.” You also explicitly referenced instances of abuse, including illegal foreclosures against our nation’s men and women in uniform who are protected by the Servicemembers Civil Relief Act (SCRA)….
We have requested information about the process used to conduct this review and the extent to which violations of law were found….
At the meeting yesterday, Federal Reserve staff argued that the documents relating to widespread legal violations are the “trade secrets” of mortgage servicing companies. In addition, staff from the Office of the Comptroller of the Currency (OCC) argued that these documents should be withheld from Members of Congress because producing them could be interpreted as a waiver of their authority to prevent disclosure to the public of confidential supervisory bank examination information.