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OCC Going Rogue, Pursuing Own Foreclosure Settlement With Banks

After my reporting revealed that state Attorneys General would have a difficult time agreeing to an Administration-led settlement over mortgage servicer practices, I began wondering whether any industry-wide agreement could be made at all. It turns out that the one federal regulator not on board with the settlement term sheet and the call for mass principal reductions, the Office of the Comptroller of the Currency, is seeking their own settlement apart from the federal/state response.

The main regulator for the largest U.S. banks is preparing to break from state authorities and settle with lenders over their foreclosure practices, according to a source familiar with the process, dashing hopes for a comprehensive settlement […]

The Office of the Comptroller of the Currency, impatient with infighting over the structure and shape of a coordinated settlement, is preparing to move on its own set of fines and business-practice fixes for banks, according to a source, who was not authorized to speak publicly.

The OCC’s settlement could come in the next couple weeks, the source said.

Such a settlement would likely be smaller in scope than a deal envisioned by other U.S. authorities forcing banks to pay about $20 billion — which would be used in part to help struggling homeowners — and to agree to reduce loan balances to keep borrowers in homes.

I wouldn’t necessarily call this good news. The OCC is so in bed with the banks they regulate that they might as well be called the Office of Bank Advocacy. Any settlement coming from them won’t be worth a damn, especially not to homeowners. I doubt there would be any fines or forced modifications at all coming from that document. OCC acting director John Walsh has said publicly that their investigation didn’t turn up many wrongful foreclosures. At most, the OCC approach will “force” the banks to terms they’ve already agreed to. Not only that, but the banks can then claim that they paid their debt to society, making them unlikely to accept any terms arising from other investigations.

The article makes the case that the largest banks would still be open to lawsuits from investors and borrowers, as well as state regulatory bodies, if this went through. First of all, even a global settlement could not possibly indemnify the banks from individual lawsuits from homeowners and investors. And second, the OCC could have some powers of pre-emption to supersede state law in this area, though I’d have to check on that one.

Multiple settlements, if one didn’t pre-empt the other, could work out OK, on the other hand, if it allows the state AGs to focus on some other kind of punishment separate from whatever OCC comes up with. Not only that, but it would extend the time and increase the litigation risk to the banks. Who knows, individual AGs may even take on an actual investigation with depositions and discovery and everything if they cannot reach a coordinated settlement.

But it’s not the greatest development, from where I sit. Though it’s not surprising.

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David Dayen

David Dayen

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