The Consumer Financial Protection Bureau’s First Big Sellout – OpEd
By Mike Whitney
So now we know why the banks fought tooth-and-nail to prevent Elizabeth Warren from heading the Consumer Financial Protection Bureau (CFPB). It’s because they were already planning their next big coup and didn’t want Warren in a position where she could make waves.
Here’s the story from the Wall Street Journal:
“Federal regulators are considering giving mortgage lenders protection from certain lawsuits…
The potential move, which would be a partial victory for mortgage lenders, is part of a broader effort to write new rules for the U.S. housing market in the wake of the mortgage meltdown. The proposal for the first time would establish a basic national standard for loans, known as a ‘qualified mortgage.’ (“Home Loans May Get Shield”, Wall Street Journal)
Why is this an issue? Have the banks suddenly forgotten how to write mortgages? Of course not. Historically, the ratio of defaulting mortgages has been very small, around 2%, mainly because the banks thoroughly investigate applicants before lending them money.
So, why do they want the government to clarify something they already know? Do they really want more “onerous regulation”?
More from the WSJ:
“As part of its deliberation, the Consumer Financial Protection Bureau is considering providing a full legal shield for high-quality loans that qualify, mandating that judges rule in lenders’ favor if consumers contest foreclosures, these people say….
The shield against lawsuits would be a welcome move for mortgage lenders. Seven major U.S. banks have spent more than $76 billion on mortgage-related costs and litigation since 2008, according to Credit Suisse Group.
Ahhh, so that’s it. The banks want blanket legal protection when they boot people out of their homes. Nice. They want the CFPB to stipulate what’s meant by “qualified mortgage” so they can twist its meaning like a pretzel and not be challenged in court. Of course, consumer groups don’t like the idea of immunity– the so-called “safe harbor” provision–because they think that it will pave the way to more reckless and predatory lending. But mealy-mouth CFPB director, Richard Cordray, disagrees. As he told the Senate Banking Committee last month,
“It doesn’t do anybody any good for us to develop an elaborate set of protections if nobody’s going to then lend money to consumers….We absolutely don’t want to make a judgment that’s going to freeze up or further constrict credit in the mortgage market.”
Huh? I thought Cordray was the head of the CONSUMER Financial Protection Bureau? So why is defending the banks’ position? The banks don’t need more defenders. They own the whole bloody system already.
More from the WSJ:
“Lawsuits aren’t the only worry for mortgage lenders. Banks have also kept underwriting standards tight in recent years due to uncertainty about whether they’ll be forced to buy back loans made in the housing boom.
This is ridiculous. No one has been picking on the poor-abused bankers. The banks have merely been asked to repurchase the crappy mortgages they made that exhibit “substantive underwriting and documentation deficiencies”. That’s all. Similarly, if they lent money to people who clearly didn’t have the ability to repay the debt, then the borrower should be able to plead his case before a judge. That’s fair, isn’t it? Only the banks don’t want “fair”; they want immunity. And Cordray wants to help them get it.
Again from the WSJ:
“By law, the new mortgage rule will exclude exotic varieties of loans that fed the housing boom—such as ‘option’ adjustable-rate mortgages that allow the amount owed to increase even when borrowers makes payments, and ‘interest-only’ loans, which don’t require principal payments for several years.
Don’t kid yourself; if the banks get their qualified mortgage-safe harbor provision, we’ll see a whole new regime of “no doc”, “no down”, “E-Z-Pay”, “liar’s loans” that will send profits into the stratosphere and inflate another monster housing bubble faster than you can say Alan Greenspan.
Keep in mind, the big banks are already making record profits on their loan book. Take a look at this clip from the Los Angeles Times:
“JPMorgan Chase & Co. and Wells Fargo & Co., the nation’s largest home lenders, each reported double-digit quarterly earnings growth Friday. The big jump in profit was thanks largely to a surge in their mortgage businesses, fueled by low interest rates and waves of refinancing.
At Wells Fargo, mortgage business revenue rose 55% to $2.8 billion during the third quarter from $1.8 billion in the year-earlier period. …JPMorgan’s mortgage business posted a 71% increase to $2.4 billion from $1.4 billion last year. This led the bank to beat expectations with an overall profit of $5.7 billion.” (“Banks see a housing rebound”, Los Angeles Times)
Not bad, eh, and yet they’re still whining about legal immunity. Go figure?
Did you catch this in the LA Times:
“The U.S. attorney in Manhattan has accused Wells Fargo of defrauding a government-backed mortgage insurance program, in another major civil case brought in the wake of the housing bust and financial crisis.
The mortgage-fraud suit, filed by U.S. attorney Preet Bharara, seeks “hundreds of millions of dollars” in damages for claims the U.S. Department of Housing and Urban Development has paid for defaulted loans “wrongfully certified” by Wells Fargo.
The suit alleges the San Francisco banking giant falsely certified loans insured by the government’s Federal Housing Administration.
‘As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,’ Bharara said in a statement.
Adding ‘accelerant to a fire,’ Bharara said, was Wells Fargo’s bonus system that rewarded employees based on the number of loans it approved.
The lawsuit alleges the bank failed to properly underwrite more than 100,000 loans it certified to be eligible for FHA insurance. When Wells Fargo discovered problems with the loans, it failed to notify HUD, which administers the FHA program, as required, the suit said. The action alleges more than 10 years of misconduct.
“The extremely poor quality of Wells Fargo’s loans was a function of management’s nearly singular focus on increasing the volume of FHA originations — and the bank’s profits — rather than on the quality of the loans being originated,” Bharara’s office said in a statement.(“Feds hit Wells Fargo with mortgage-fraud suit”, Los Angeles Times)
There you have it; another heartwarming story about our good friends, the bankers, always looking out for the public’s interest.
The banks don’t need full legal immunity. What they need is tough-minded regulators breathing down their necks 24-7, ready to slap them into leg irons and drag them off to the hoosegow for the slightest infraction. That’s what they really need.
But, then, you already knew that.