FDIC Former Chair Sheila Bair: Mortgage Industry ‘Didn’t Think Borrowers Were Worth Helping’

Outgoing Federal Deposit Insurance Corporation Chairwoman Sheila C. Bair's revealing exit interview by the New York Times' Joe Nocera [1] has generated plenty of buzz. But while the interview provided a comprehensive look at Bair's role from 2006 to 2011, what caught our attention was her characterization of the foreclosure crisis.

Bair said that the mortgage's industry's reluctance to provide mortgage modifications stems in part from the industry's "disdain for borrowers [2]."

"I think some of it was that they didn't think borrowers were worth helping," she said.

While Bair said that President Barack Obama's "heart is in the right place," she criticized his economic team for taking controversial steps to aid banks while, in Nocera's words, being "utterly unwilling to take any political heat to help homeowners."

(snip)

In Bair's account, the Treasury's prioritization of the well-being of financial institutions over the well-being of homeowners has hobbled the government's foreclosure response since the beginning of the crisis. As we reported in February, Geithner's Treasury undermined a 2009 attempt to put more pressure on servicers to modify mortgages [5].

Bair told Nocera that when she went to the Treasury in 2007 to encourage them to put pressure on mortgage servicers, she received little response. The government, she said, "thought maybe I was overstating the problem and that it wasn't going to be that big a deal." Instead, Bair gained a reputation as "difficult." [16]

In her recent Washington Post op-ed, Bair wrote:

Government efforts to promote modifications ... have gradually moved in the right direction but have remained behind the curve. At the height of the crisis in the fall of 2008, when fear over where the bottom was ruled the markets, policymakers were supremely focused on the short-term priority of preventing the failure of the nation's largest financial companies. Government assistance to financial institutions took a variety of forms, amounting to a total commitment of almost $14 trillion by the spring of 2009. While those actions were necessary to prevent an even bigger economic catastrophe, we still have not addressed the No. 1 cause of both the crisis and the subpar recovery we are in: a stubborn refusal to deal head-on with past-due and underwater mortgages.

Read on.