Federal Reserve, OCC fight new foreclosure regulations

Written by Biloxi

While the FDIC is trying to crack down on mortgage servicers' abusive power, other federal agencies are not on the same page. Now, the Federal Reserve and the Office of Comptroller of Currency (OCC) are resisting rules to crack down on the bank abuses which is sparking an inter-agency feud with the FDIC and the Treasury Department. These new rules include cracking down on banks that charge illegal fees and carry out improper foreclosures. These new regulations target the mortgage servicers. Federal Reserve and OCC argues that risk retention to help ensure high quality risk management practices and servicing standards  is not the place the for new servicing standards. FDIC argues that regulators need to act now to fix the problems in the bank servicing industry. This is not the first time that the federal agency, OCC, have failed to protect borrowers from bank abuse practices. In 2008, former New York Governor Eliot Spitzer warned OCC about predatory lending practices by mortgage lenders in his states as well as other states.

In a Washington Post op-ed on February 14, 2008, Mr. Spitzer wrote that the government did nothing to protect the homeowners against the bank predatory lending practices. OCC, the federal agency to ensure the fiscal soundness of national banks, enforced new rules to protect the banks. Here is an excerpt:

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.



In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.



But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.



Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

Mr. Spitzer, as the former New York Governor and former New York Attorney General not only warned federal regulators of the bank abuses but also the state regulators.

Three years ago, state regulators began to ask the big banks on details of their foreclosure operations due to suspicion of unnecessary foreclosed homes. Big banks denied the state regulators request. So, state regulators reached out to the federal regulators for help. What was the results? Denied. From Washington Post:

When two banks – J.P. Morgan Chase and Wells Fargo – declined to cooperate, the state officials asked the banks’ federal regulator for help, according to a letter they[state regulators] sent. But the Office of the Comptroller of the Currency, which oversees national banks, denied the states’ request, saying the firms should answer only to inquiries from federal officials. In a response to state officials, John Dugan, comptroller at the time, wrote that his agency was already planning to collect foreclosure information and that any additional monitoring risked “confusing matters.”




But even as it closed the door on state oversight, the OCC chose itself not to scrutinize the foreclosure operations of the largest national banks, forgoing any examination of their procedures and paperwork. Instead, the agency relied on the banks’ in-house assessments. These provided no hint of the problems to come until they had tripped the nation’s housing market, agency officials later acknowledged.

And of course, Mr. Dugan is not longer the OCC head. John Walsh replaced Mr. Dugan as OCC head this year. When the federal regulators including OCC testified in November to the House Committee concerning the bank abuses in the foreclosure mess, federal regulators said that they learned of the problems with the banks from news reports but are now actively reviewing banks' work and accusations of bank foreclosure fraud and plan to issue their findings next month. Bank regulators said banks could face fines or criminal referrals and will be held accountable. I will believe that when I see it.

For many years, state regulators, watchdogs, advocates, and others warn the federal regulators of bank abuses in predatory lending practices and foreclosure problems. Yet, the federal agency that ensures the fiscal soundness of national banks has failed to address continued bank abuses in an honest way. Now, it is up to the new OCC head to make things right and has to decide whether the federal regulators will align itself with the banks that are victimizing the consumers or with the consumers that were victims of the bank abuse practices. If Wall Street wins and Main Street loses again, the federal regulators continue the same path in the definition of insanity: Doing the same thing over again expecting different results.