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Treasury’s Failure on Bank Accountability, and Nevada’s Success

A few days ago, I tweeted about an interview Felix Salmon did last year with Michael Barr, who at that time still worked at the Treasury Department, on the foreclosure issue. In that interview, Barr touted the inter-agency review being done on the entire mortgage market, and he vowed that “we’re holding the banks accountable to fix it.” Pressed on a timetable, Barr assured Salmon there would be “flow improvement over the course of the next year,” and that “If a year from now nothing has changed, that would be a reasonable criticism.”

I noted that it was a year on, and Salmon responded that he would look into it (the Treasury Department does a very good job of not returning my phone calls, so I figured this would be the way to go). Salmon did indeed follow up, and he correctly indicated that nothing of value had changed. The inter-agency review was a pathetic sideshow, the OCC consent decree meaningless, HAMP a thankfully irrelevant joke, and the desired settlement elusive.

Well, here we are, a year later, and so it’s time to check in and see what has been achieved. I asked Treasury, and they sent me the November Housing Scorecard, which is mainly notable for the fact that JP Morgan Chase “was found to be in need of substantial improvement under the program” and will no longer get servicer incentives from Treasury. They also sent me written testimony from October about how HAMP is coming along. (Slowly.)

What they didn’t point me to — because it doesn’t exist — was any kind of settlement between the attorneys general and the banks. This time last year, it looked almost certain that such a settlement was going to happen; now, with Massachusetts going its own way and California proving unwilling to give in very much, the chances of seeing any settlement at all are diminishing by the day. Realistically, if we don’t see something in the next few weeks, the chances of getting a big settlement will be very small indeed.

I actually find it positive that no settlement has been reached, because the driving forces behind the settlement – the Treasury Department, DoJ and HUD – did no meaningful investigation that would dictate the amounts needed for a reasonable settlement. In fact, to the extent that anything has happened on foreclosure fraud over the past year, it has come from the only entities willing to do their jobs and follow the law: a handful of state Attorneys General doing the investigations and handing out the indictments that others won’t. Beau Biden, Eric Schneiderman, Martha Coakley and Kamala Harris, among others, have pointed the way forward for legitimate accountability for banks involved in systematically stealing homes. And Catherine Cortez Masto, the Attorney General of Nevada, needs to be singled out for special praise. Because thanks to the law she helped push in the state, criminalizing wrongful and fraudulent foreclosures, evictions have slowed to a crawl:

Assembly Bill 284, which took effect in October, requires those foreclosing on a home to file an affidavit proving they have the right to bring the action — and it increases civil and criminal penalties for using fraudulent documents in a foreclosure.

The new law was an attempt “to close any loopholes that a criminal element likes to find,” Nevada Atty. Gen. Catherine Cortez Masto said. But it also has forced banks and other companies in the foreclosure business to back off, at least temporarily […]

Market researcher RealtyTrac announced a 75% drop in the number of Nevada homes entering foreclosure in October, even as those numbers surged elsewhere in the country…

Combined with this is Masto’s indictment of two employees of document processor LPS on 606 counts of robo-signing and fraudulent document filing with county recorders. So one of the biggest foreclosure states in the country, one that doesn’t even have a judicial process for foreclosures, has effectively stopped them and forced the banks to engage in them legally, simply by following the law. That was the solution all along. That’s what accountability looks like.

Salmon laments that Treasury hasn’t delivered on their promises, saying that the banks have won the fight. I celebrate Treasury’s failure because victory would have looked pretty much the same. The victory here lies in the fact that some Attorneys General refused to go along with Treasury, and that they have set about holding the banks accountable themselves.

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David Dayen

David Dayen