Wednesday, November 17, 2010


Senate Hearing on Foreclosure Mess Goes Badly for Banks

It’s become conventional wisdom to denounce Congressmen as know-nothings who routinely harass businessmen by hauling them before investigations and asking them uninformed questions.
Tuesday, we saw a refreshing and badly needed contrast to that stereotype in the form of a comparatively short (less than three hour) hearing by the Senate Banking Committee on the foreclosure/securitization crisis. The senators were informed, engaged, and well versed in most of the issues. The rushed timetable also helped, for instead of having the witnesses read their prepared testimony, each had to give a shorter summary, which gave the hearings a sense of urgency and meant most of the hearing time was spent on questions from the committee members.
What was striking was the contrast between the representatives of the banking industry, namely Barbara Desoer of Bank of America, David Lowman of Chase, and R.K. Arnold of MERS, versus the critics, who were Tom Miller, the Iowa attorney general, Adam Levitin, Georgetown law professor, and Diane E. Thompson of the National Consumer Law Center.
I strongly recommend you watch the hearings, they were very instructive and even entertaining at points (several Senators gave long form reports of how badly their constituents were being treated by banks). Even Richard Shelby had his moments. Shelby used to be in the title insurance business and roughed up R.K. Arnold, who looked like a rabbit in the headlights. Or you can read the liveblogs at FireDogLake by David Dayen and emptywheel
The financial services industry members offered not merely tired bromides, but repeated flat out lies: we always try to save borrowers; we don’t foreclose on people who aren’t delinquent; we don’t make money from foreclosing (no joke, the Chase guy said that); we never consider out second liens in our foreclosure decisions (huh? only true on a case by case basis, utter bunk at the institutional level); we don’t have any conflicts (double huh, every business has to make tradeoffs); yes, we make mistakes, but we correct them as soon as we learn about them (yeah, right). And this palaver did elicit reactions. Early on, when Lowman claimed that Chase was committed to working with homeowners, he was called a lair by a member of the audience from the audience. The session had to be halted while the offending truth-teller was removed. And the other witnesses often felt compelled to take the floor after a particularly egregious bank remark, as Levitin did on the claim that banks don’t make money from foreclosing, and offered evidence to the contrary.
Some highlights of the session:
Thompson did a very effective job of debunking the “deadbeat borrower” meme, and her written testimony contains an extensive discussion of servicer-driven foreclosures and abuses with numerous examples. Senator Johans tried to minimize the impact of her account by asking her how many people were being foreclosed upon who hadn’t failed to pay (note Thompson had examples of that too). Thompson was not diverted, and stressed that she as an attorney only fought foreclosures when she thought the borrower should not have been foreclosed upon, and intimated that her views were not unusual among legal services types. After a lengthy exchange, she estimated that 10% of her cases had been where the borrower had never been late (!) and another 50% were the result of improper servicing fees being charged (the balance were people who were in mod programs where the foreclosure was not halted).
Levitin endorsed the failure to convey-New York trust theory that has been discussed at length on Naked Capitalism. He made it clear that there are unanswered questions of fact and law, and the worst case scenario was dire indeed. He also stressed that the problem was not the law but failure to comply.
Dodd comported himself well and gave a very good introductory speech, and in particular, stressed that this was precisely the sort of issue that the Financial Stability Oversight Counsel needed to address.
There was consensus from virtually everyone who spoke save the two bank representatives about the merits of principal mods for viable borrowers, as well as having banks initiate mod discussions before proceeding to foreclosure, and having an expedited foreclosure process for borrowers who are clearly not viable.
It is remarkable to see how much the bank representatives stick to their talking points and do everything they can to not discuss contradictory evidence. It wasn’t convincing in this session, and I imagine it will start wearing thin on the wider public. The one bit of bad news about these hearings is how little media attention they’ve garnered: no mention on the business page of the New York Times, while the weak American Securitization Forum paper is featured in Dealbook. But these issues are not below the radar for the public, as the degree of engagement by the senators attests.

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