The headlines, press conferences and presidential praise that accompanied the February announcement of a $25 billion legal settlement over egregious foreclosure practices have long since subsided.
But for one veteran banking regulator in a newly leased, 18th-floor office in downtown Raleigh, N.C., the work is only beginning. He recently resigned as North Carolina’s banking commissioner to become the “monitor” overseeing the landmark agreement between government officials and five of the nation’s largest banks.
“I thought there was some potential good that could come out of it, for the mortgage industry and the economy,” Joseph Smith Jr., 62, said in a recent interview.
Smith’s primary role over the next several years will be to ensure that banks — Wells Fargo, Citigroup, JPMorgan Chase, Bank of America and Ally Financial — live up to their end of the deal by overhauling their troubled mortgage servicing operations and following through with the billions in aid they agreed to give struggling homeowners.
A 16-page section of the court-approved settlement outlines Smith’s legal powers, his responsibilities and the information banks must provide to him on a regular basis. But the document leaves him plenty of discretion in deciding how to actually police the mortgage-related activities of the banks.
“I have no reason to believe right now that I won’t have enough resources,” Smith said. “The big challenge is to do this work in a way that justifies public confidence in the whole process.”
Smith spent many years as a corporate and banking lawyer in New York, Connecticut and North Carolina, including nearly a decade as general counsel for Centura Bank. He was appointed North Carolina banking commissioner in 2002, overseeing state-chartered banks and other lenders.
In that role, he helped strengthen the state’s anti-predatory lending law, in part by ordering North Carolina’s largest payday lender to cease operating in the state after finding it had broken the law by charging exorbitant interest rates on its short-term loans.
The following year, he hired the president of the nonprofit Center for Responsible Lending, which had been highly critical of some financial industry practices, as his deputy commissioner and point man on mortgage issues and consumer finance. In early 2008, Smith teamed with the state attorney general to promote a toll-free help line for troubled homeowners and committed hundreds of thousands of dollars into funding foreclosure prevention counselors.
President Obama nominated Smith in November 2010 to lead the Federal Housing Finance Agency, which oversees government-backed mortgage giants Fannie Mae and Freddie Mac. But after Senate Republicans held up his confirmation, Smith withdrew his name and was reappointed to another term as bank commissioner last year.
It wasn’t long until North Carolina Attorney General Roy Cooper, who was part of the team of attorneys general and federal officials negotiating the foreclosure settlement, came calling about the monitor job.
“Everyone knew we had to have someone who understood the banking business. [And] we wanted someone who had a strong record of looking out for consumers,” Cooper said. “A lot of people had different ideas about who it might be. When Joe’s name came up, there seemed to be a consensus.”
That consensus stemmed not only because of his experience in the banking industry and as a regulator, but also because of Smith’s reputation as being both evenhanded and open-minded.
“He’s pretty remarkable in that he’s widely supported by Republicans and Democrats, at least at the state level, and by both the industry and consumer groups,” said Mike Calhoun, the Center for Responsible Lending president. “He’s a straight shooter. He has a lot of expertise. He’s non-political. He’s not trying to advance any agenda. Those attributes have served him well.”
Iowa Attorney General Tom Miller (D), the top state official involved in the settlement negotiations, said banks had objected to the establishment of a monitor but were unanimous in accepting Smith. “The banks think that he’s going to be fair,” Miller said.
A spokeswoman for Ally Financial said the company “looks forward to working with Mr. Smith.” The other four banks either declined to comment or did not respond to a request for comment.
Smith said he was reluctant to take the job at first — “It wasn’t like I was looking for work,” he said — but soon grew intrigued by what he saw as an opportunity to oversee potentially meaningful reforms in the mortgage industry.
He started by forming a nonprofit corporation, the Office of Mortgage Settlement Oversight. He leases the downtown Raleigh office space from Poyner Spruill, the law firm where he once served as a partner, but uses a separate keyed entrance and e-mail and document-retention system.
Smith has retained a handful of outside experts, including an Atlanta-based forensic accountant and attorney Josh Stein, a North Carolina state senator who previously served as head of the attorney general’s consumer protection division. He has begun scoping out accounting firms and other professionals who eventually will help evaluate the information that banks are required to provide and to produce reports of his own that make sense of that data.
Smith said he plans to keep his own staff small and contract out a significant share of the work. Because much of the relevant data will come from the self-monitoring work of the banks themselves, Smith said he plans to contract only with firms that can demonstrate a combination of independence from the banks and a capacity to handle the workload.
“What I’m really interested in is assuring that the bank servicing procedures are really reformed, are reconstructed in a way that prevents what led to all this from happening again,” Smith said. He hopes to help create “a mortgage industry that’s efficient but also fair, and that it treats distressed borrowers in a way that prevents unnecessary foreclosures.”
The banks agreed to provide an initial $3.75 million budget through June — Smith’s salary is $375,000, triple what he made as head of the state banking commission — and he plans to submit a more comprehensive budget later this spring.
Those familiar with the settlement agree that Smith has a daunting task ahead. But they insist that between state attorneys general, consumer groups, housing counselors, legal aid attorneys and others watching closely on the ground, Smith will have eyes and ears in every corner of the country.
“All of us that worked on this are heavily invested in this working . . . we’re going to be watching,” Miller said. “He’ll know if there’s a problem.”