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Donovan: The Foreclosure Fraud Settlement Is Strong Because of the OCC Settlement

I’ve been amused by the consistent pushback from HUD’s Shaun Donovan, who has made himself into a leading figure just by his ubiquitousness, as it relates to the foreclosure fraud settlement. Donovan has been the point person to rebut criticism of the settlement, and he is back again today in CNN.

The settlement, which hasn’t been released or even decided as far as we know, raised so many questions that Donovan has had to divvy up his rebuttal in parts. His subject today is the $2,000 for foreclosure victims, which is pretty indefensible. In fact, Donovan doesn’t really try to defend it. “Some have questioned whether $2,000 is enough redress for families who lost their homes improperly. The answer is obviously no.” He then adds that the money is best seen as a measure of accountability for both foreclosure fraud and servicer abuse, like improper fees or an inability to inform borrowers of options when they fell into delinquency.

Moving away from that inadequate $2,000, Donovan says that there are other ways for individuals to get the restitution they deserve:

For families who suffered much deeper harm — who may have been improperly foreclosed on and lost their homes and could therefore be owed hundreds of thousands of dollars in damages — the settlement preserves their ability to get justice in two key ways.

First, it recognizes that the federal banking regulators have established a process through which these families can receive help by requesting a review of their file. If a borrower can document that they were improperly foreclosed on, they can receive every cent of the compensation they are entitled to through that process.

Second, the agreement preserves the right of homeowners to take their servicer to court. Indeed, if banks or other financial institutions broke the law or treated the families they served unfairly, they should pay the price — and with this settlement they will.

OK, so in the first place, Donovan is talking about the OCC (Office of the Comptroller of the Currency) consent orders. He doesn’t mention that they are a sham. The foreclosure reviews will be overseen by “independent” consultants chosen by and paid by the banks. What I wrote in November still holds:

This is part of the consent order between banks and the Office of the Comptroller of the Currency, known around these parts as the Office of Bank Advocacy. And they just aren’t to be trusted as a legitimate regulator. The servicer reforms in the consent decree consist mainly of the servicers being told to follow current guidelines. And these foreclosure reviews are a joke. The third party, “independent” reviewers? They’re hired by the banks. And they’re bringing in entry-level functionaries, the equivalent of robo-signers, to do the reviews. Let’s just say I don’t expect them to be exactly rigorous. And that’s even worse, because at the end of the process, the banks will be able to say that an independent review cleared them of wrongful foreclosures. And a federal regulator backed them up on it!

Keep in mind that the OCC has already said publicly that basically nobody was wrongly foreclosed upon (OCC Acting Director John Walsh based this on a sampling of a whopping 2,800 foreclosure files). So I don’t expect a process they created with the banks to dispute that very much.

The second thing that Donovan says is that homeowners still have a private right of action. I’m trying to figure out how a settlement with regulators could ever take that private right of action away. So this isn’t worth really saluting. But furthermore, if private rights of action were so important, someone tell me why we have a law enforcement apparatus? Obviously the answer is that law enforcement at the state and federal level have far more resources from which to draw. A private individual at risk of foreclosure will strain to keep up with the fusillade of white-shoe lawyers the banks will fire at them.

The answer is that $2,000 is totally inadequate, and so are the alternatives, especially when you’re talking about a sustained criminal enterprise. I know we’re told that this is just the beginning of a larger effort for accountability – we promise! – but I’ll give Simon Johnson the last word on that:

Among the fundamental principles of any functioning justice system is the following: Don’t lie to a judge or falsify documents submitted to a court, or you will go to jail. Breaking an oath to tell the truth is perjury, and lying in official documents is both perjury and fraud. These are serious criminal offenses, but apparently not if you are at the heart of America’s financial system. On the contrary, key individuals there appear to be well compensated for their crimes […]

Indeed, at stake in the mortgage settlement are fundamental and systemic breaches of the rule of law – perjury and fraud on an economy-wide scale. The Justice Department has, without question, all of the power that it needs to prosecute these alleged crimes fully. And yet America’s top law-enforcement officials have consistently – and now completely – backed off.

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David Dayen

David Dayen