Administration accused of bypassing Congress in negotiating deal with banks
Thursday, March 10, 2011
Republican lawmakers on Wednesday accused the Obama administration of trying to make an end run around Congress as it negotiates a large settlement with banks involved in shoddy foreclosure practices.
In a letter to Treasury Secretary Timothy F. Geithner, Republicans criticized the scope of a 27-page draft term sheet that was recently submitted to five of the nation's largest banks by state attorneys general and a handful of federal agencies, including the Justice Department and the new Consumer Financial Protection Bureau.
"The settlement agreement not only legislates new standards and practices for the servicing industry, it also resuscitates programs and policies that have not worked or that Congress has explicitly rejected," the letter said. It was signed by nearly half a dozen Republicans, including Rep. Scott Garrett (N.J.), the lead sponsor.
The term sheet, which attempts to overhaul mortgage servicing practices, is part of broader settlement discussions that came under attack Wednesday by Sen. Richard C. Shelby (Ala.), who said the administration is politicizing the negotiations.
Shelby, the Senate banking committee's ranking Republican, requested that the banking panel look into the discussions and asked that the administration refrain from entering into a settlement until Congress examines the matter.
"This proposed settlement appears to be an attempt to advance the administration's political agenda, rather than an effort to help homeowners who were harmed by a servicer's actual conduct," he said at a Senate hearing on Wednesday.
The broad global settlement attempts to deal with the extensive foreclosure problems - including flawed or fraudulent paperwork and questions about improper or incomplete loan transfers - that surfaced in September and prompted some of the nation's largest banks to temporarily halt foreclosures.
Although the administration has not publicly commented on the specifics, sources familiar with the negotiations have chronicled some of the details under consideration, including a push to fine the banks $20 billion or more and force them to modify troubled mortgages.
Under serious discussion is a proposal that would require banks to reduce the principal on loans of "underwater" borrowers - those who owe more on their mortgages than their homes are worth. House Republicans balked at the idea, arguing that Congress has rejected similar efforts that would have enabled bankruptcy judges to allow principal reductions.
They also questioned why the administration is considering forcing banks to use the fines to help such borrowers when the foreclosure paperwork errors that led to the settlement talks were unrelated to underwater loans. They asked Geithner to explain the legal basis "for using funds collected in an enforcement action to benefit parties who have not been harmed by the purported wrongdoing."
Shelby singled out as problematic news reports about the role of the Consumer Financial Protection Bureau in these discussions. The bureau, led by Elizabeth Warren, has not officially opened its doors. But sources familiar with the matter say Warren is involved in negotiations with the banks.
"What is occurring appears to be nothing less than a regulatory shakedown by the new Bureau for Consumer Financial Protection, the FDIC, the Fed, certain attorneys general, and the administration," Shelby said.
House Republicans also took issue with the bureau's role. Without mentioning Warren, their letter asked Geithner to explain why an official from an agency that lacks regulatory or enforcement authority is part of the negotiations.
A spokeswoman for the bureau declined to comment.
The Republicans are echoing the view of many in the banking industry. On Wednesday, the Independent Community Bankers of America said in a statement that some of the proposals are a backdoor form of regulation and that they probably will "cause additional upheaval and confusion."
To highlight their differences, House Republicans singled out part of the administration's proposal that would improve its main foreclosure-prevention effort: the Home Affordable Modification Program. The initiative is far from reaching its initial goal of helping 3 million to 4 million borrowers. Next week, the House is expected to vote on a Republican-led bill that would kill the program.