I think I am in love. With a Federal Reserve Governor.

Have a read of this speech from Fed Governor Sarah Bloom Raskin, titled Creating and Implementing an Enforcement Response to the Foreclosure Crisis.

“More fundamentally, a failure by regulators to enforce the laws and regulations as strong antidotes to financial misconduct and unsafe and unsound practices by the institutions they regulate establishes de facto acquiescence to the dominant norms of the financial marketplace. At that point, our laws become the resting place for unfair practices and broad disrespect for the law generally.”

She quotes Shakespeare as to why we need to support the law, why enforcement against rogue banks is crucial to society.

Now, it should not be a big deal that a central banker believes in the rule of law. (Hey, that J.D. from Harvard Law wasn’t a waste of time after all!). Perhaps it even is an indictment of the past decade that its even noteworthy.

But Goddamit, its a start. It is an improvement over the lawlessness, the refusal to prosecute bank crimes, lawlessness, perjury, as this administration and its banker toady Treasury Secretary have unfortunately made into official policy.

Go read the speech.


Tell the Fed to fire Kathryn Wylde (September 7th, 2011)

Category: Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “Profound and Pervasive Misconduct in Mortgage Servicing”

  1. Julia Chestnut says:

    It’s come to the point where we all need to stand up and defend the law. Sad, but true. The powers have decided that the law is expendable and other concerns are more paramount than that fundamental rule: equality before the law. They are wrong, but they will destroy society in the process of putting the question to the test.

  2. Stuart says:

    But is anybody that can, going to do anything about it. I’ll believe in the nation’s future again when I see all of them, hell, even some of them, wearing orange jump suits behind bars. SFA is going to happen.

  3. Pantmaker says:

    “A house! a house! my kingdom for a house!”

  4. louis says:

    “We need some money to survive, we made some bad bets”

    “Ok, but we need you to take a haircut on these shitty loans, we are going to write them down and you will be allowed to survive.”


  5. AHodge says:

    cool-she joins a few other lonely voices at the fed
    including regional presidents fisher and rosengren–the latter smart and reasonable tho a housing fan
    and the quieter but on top Yellen

    but basically agree this executive branch is a shakespearean crows perch metropolis for finance
    Dont forget the SEC now in the bizarre position of fighting the law and Rakoff etc
    enforcement has turned on its head from the century long executive branch fight for reform
    now the courts lead and the executive stalls
    back then reform and prosecution were frustrated by the courts
    Teddy and the other roosevelt, even Herbert Hoover were stopped by the courts
    Hoover– astoundingly– had a last minute conversion
    said to his Fed chief Meyer
    QUOTE We tried everything on behalf of the bankers. But they fought us, havent tried to cooperate, havent even told us the truth. They are without ability and without character UNQUOTE
    he also wrote his attorney general
    ” if Pecora findings are true, they have done more damage than Al Capone…. The faith of the american people requires these men land in jail.”
    Hoovers last days justice dept criminally indicted National City CEO Mitchell, but the courts sprang him.
    he later paid a $ 1 mio civil fine.
    this is all p190-191 of Hellhound of Wall St a helluva book

  6. Sechel says:

    Let’s get Sarah Raskin in a room with Willia Dudley who advocates secured 1st lien mortgage holders take principal losses ahead of unsecured and subordinated junior liens held by banks.

  7. b_thunder says:

    It’s only talk. Talk is cheap. Especially an abstract talk such as “…a failure by regulators to enforce the laws.” What laws? What regulators/ We need names! Is she willing to name the Fed and Greenspan as major cultrits in this lawlessness? Nope, she doesn’t.

    The Fed (under Greenspan) could have prevented the majority of the crimes that we find out about now. What is she doing to reform the Fed, to make sure that the Fed is going to REGULATE at least those banks that it legally was supposed to regulate? Answer: nothing.

    But on paper her statements do look “promising.” But it’s only paper. Geithner and US AG Holder have completely different view on “things”, and they’re not going to be influenced by some speech of some professor…

  8. Rick Caird says:

    It seems to surprise some people that rules which are not enforced are not observed.

  9. SEG says:

    On a normal day if you shop lift you can go to jail. But when everyone is breaking the law, like a riot, they pick the shelves clean and nobody or some token individual goes to jail.

    Government regulators stood idle when all this was happening. Heck Barney Frank and others threw fuel on the fire by demanding 3% down payment on loans.

    You can not put everyone in jail even if there are boat loads of people who deserve it.

    Do not expect anything but a lot of talk, especially in an election year.

  10. gkm says:

    Yes Timmy the horse IS out of the barn and some lady proposes they put it back in instead of proposing the alternative.

  11. gkm says:

    In a less snide tone, do you really think that a regulator who says “financial institutions need to understand that they are responsible for assessing the effects their actions will have on consumers and the country as a whole, and factor those considerations into their business decisions” really understands that these institutions did and will the next time as well?

    Pretend inferiority and encourage his arrogance. – Sun Tzu

  12. drewburn says:

    Nice. And I agree wholeheartedly. gkm doesn’t seem to appreciate the simple, elegant concept of simply enforcing the laws that are on the books, let alone pressing the new requirements of Dodd/Frank. The concept is extraordinarily simple: enforce the law and do so with proportionate punishment.

    And, uh, you CAN put everyone in jail. (Maybe we have to let out of jail some of the poor folks who were incarcerated simply for possession marijuana, but I’d rather have the bankers in jail frankly.)

    Go girl (Fed Gov Raskin.)

  13. Jim67545 says:

    Awhile ago here I had injected that the regulators had also played a role in the housing debacle. This was offered in a thread having to do with who was responsible.

    The regulators of banks are primarily concerned with preventing a situation which might lead to a bank failure and claim on FDIC insurance. They are also concerned with enforcing laws but those laws tend to be associated with Fair Housing, Consumer Compliance and such, not laws like proper signing of court papers relating to foreclosure.

    Based on my experience and observation, the problem was that the regulators were simply blind to the risks associated with the modern secondary mortgage market. Since they did not see the risks they did not examine for those risks. I would wager that now that they see the risks they are examining for them.

    As I’ve mentioned here before, the bank exams which I experienced stopped at asking how many unsold mortgages were still on the bank’s books. If the warehoused loans were at an expected level (10 days of flow) that was the end of the subject. They were totally unconcerned about the quality or legality of these mortgages because, in their thinking, they were originated to secondary market standards (quite an assumption) and once they are sold off all risk passes away from the originator to the next owner of the instrument. Only in the last few years, when buy-backs became more prevalent did they begin to ask about buy-backs.

    Similarly, if the institution serviced (retained mortgages) the mortgages it sold, the regulators were previously unconcerned because they did not see the legal, financial or reputational risk associated with servicing other people’s loans. They always inquired about litigation (against the bank) because they were sensitized to this from past experience.

    So, did the regulators see the problem developing but fail to incorporate that in their examination procedures? If not, should they have seen it developing? Unfortunately, like so many aspects of this mess probably the response would be “whodaknown?” I thought the Fed Governor’s comments were overly gentle. Had the regulators thought through the ramifications of the secondary market, plugged in human nature (which they had sufficient experience to anticipate) and mentally walked it through to its possible conclusion they could have acted preemptively rather than after the horse was out of the barn and long gone.

  14. victor says:

    BUFFETT: referred to a March 30, 2007, report from the regulator of Fannie Mae that “gave a green light on asset values” claimed by the huge mortgage operation.

    BUFFETT: it’s really an incredible case study in regulation because something called OFHEO was set up in 1992 by Congress, and the sole job of OFHEO was to watch over Fannie and Freddie, someone to watch over them. And they were there to evaluate the soundness and the accounting and all of that. Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that’s $65 million a year, and all they have to do is look at two companies. I mean, you know, I look at more than two companies.

    BUFFETT: And they sat there, made reports to the Congress, you can get them on the Internet, every year. And, in fact, they reported to Sarbanes and Oxley every year. And they went–wrote 100 page reports, and they said, ‘We’ve looked at these people and their standards are fine and their directors are fine and everything was fine.’ And then all of a sudden you had two of the greatest accounting misstatements in history. You had all kinds of management malfeasance, and it all came out. And, of course, the classic thing was that after it all came out, OFHEO wrote a 350–340 page report examining what went wrong, and they blamed the management, they blamed the directors, they blamed the audit committee. They didn’t have a word in there about themselves, and they’re the ones that 200 people were going to work every day with just two companies to think about. It just shows the problems of regulation.

    QUICK: That sounds like an argument against regulation, though. Is that what you’re saying?

    BUFFETT: It’s an argument explaining–it’s an argument that managing complex financial institutions where the management wants to deceive you can be very, very difficult.

    Now just think about it. Management deceives? But why? I say, they have no fear of retribution.

  15. Home mortgages home property mortgage foreclosures harm the speed of an economic restoration,” Raskin said, and “the severe wrong doings that has been open in the home loan maintenance sector” should “be dealt with through increased public administration of the law as part of the overarching effort to improve our broken areas and local areas.

  16. leslie@mavinlending.ca says:

    As a Canadian reading the Governor’s speech about mortgage originators, I applaud her. Although we are highly regulated in Ontario, Canada, it does not make the business of mortgaging more difficult. In fact, it’s the contrary. Transparency has its benefits. Especially when your mortgagor understands the contract to which he or she has entered into. While indeed, we mortgage brokers are the last in the chain of mortgage product development, there is no reason why we cannot be looked at as the first in the chain given we are the individuals or representatives the borrower/mortgagor is acquainted with. Governor Bloom dives much deeper into the matter than can be controlled on the front lines between the mortgage originator/broker and the borrower/client in addressing policy change and exercising of penalties. All this writer knows is that mortgage brokers in the US as well as bank employed mortgage originators should be and could responsible for re-establishing trust in the profession.

    Transparency and disclosure is a brilliant and accessible tool when developing solid mortgage investment and borrowing strategies. It flows both ways and accordingly benefits both ends.

    I am an average mortgage broker in Ontario, but I feel that some of us could be a positive influence for our American counterparts.

    Leslie Fallaise – Mavin Lending Services Ltd. – Ontario Canada