Last night, the Associated Press reported on new depositions regarding the “robo-signers”: bank employees who signed thousands of mortgage foreclosure documents without reading them or verifying any information. According to the depositions, “financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in ‘foreclosure expert’ jobs with no formal training.” One bank employee reportedly said “I don’t know the ins and outs of the loan, I just sign documents.”
The still unknown extent of these problems has led a handful of banks to voluntarily freeze foreclosures, as they look to see exactly how many foreclosures they’ve initiated that were improper or based on fraudulent documents. And already stories have emerged of banks foreclosing on homes without the proper paperwork (in some cases, when the homeowners never even took out a mortgage).
But could these problems have been avoided? Elizabeth Warren, who is heading the newly created Consumer Financial Protection Bureau (CFPB), thinks so, saying “had a similar agency been in place three years ago” this problem could have been nipped in the bud. “Little problems are a lot easier to fix than great big problems,” Warren said.
As Annie Lowery pointed out, the CFPB “has the mandate to oversee and write rules for mortgage servicers, though it is not staffed or set up yet.” Having one agency in charge of this will be a distinct improvement, as right now at least four agencies have some jurisdiction over mortgage servicers, as Andy Kroll pointed out:
This lackluster and balkanized oversight of the servicing industry helps to explain why companies passed off bogus paperwork and allegedly committed fraud on the court for as long as they did…This is where a consumer protection bureau dedicated to proactively safeguarding American consumers comes into play. Odds are, the kinds of assembly line-like foreclosure processes that’ve landed banks in hot water would never have lasted so long nor grown to such size (one Chase employee, or “robo signer,” describes 18,000 legal filings passing through her department every month) with an independent consumer watchdog in place.
“Moving forward with the regulations under the Consumer Finance Protection Bureau makes a lot of sense. This is a reminder of why those kinds of rules are necessary,” said Harvard Business School Professor Nicolas Retsinas. But if Republicans have their way, the CFPB is going to have a hard time getting off the ground.
House Republicans on the House Financial Services Committee have already made clear their intention to deny the agency funding. Rep. Jeb Hensarling (R-TX) has announced his intention to defund the agency entirely, as he believes it “assaults the liberties of the consumer.”
Now, come July 2011, these problems will be alleviated, as the CFPB transfers to the Federal Reserve and has an independent source of funding from the Fed budget, which is not subject to Congressional approval. But in the meantime, the agency needs to staff up and start moving. If the CFPB staff needs to spend the next eight and a half months in a funding fight with Congress — as opposed to filling the critical and obvious gaps in the regulatory system — it will take that much more time for the agency to catch up with the finance industry’s shenanigans.