You've almost got to admire lawmakers like Sen. Richard Shelby -- they don't even bother hiding the strings Wall Street pulls to make their mouths move. The Alabama Republican and financial industry crony is attacking a settlement proposed by state and federal officials that would help homeowners avoid foreclosure by requiring big banks to fund loan modifications:
"Under the guise of helping homeowners hurt by improper foreclosures, regulators are attempting to extract a staggering payment of nearly $30 billion for unspecified conduct," Shelby said Wednesday afternoon. "The $30 billion would most likely fund a slate of housing programs long sought by the [Obama] administration, but previously rejected by Congress."Shelby also disparaged the foreclosure plan as a "regulatory shakedown" aimed at advancing the White House's "political agenda." Other Republicans are piling on. Financial Services Committee Chairman Spencer Bachus, R.-Ala., and Rep. Scott Garrett, R,-N.J., sent a letter to Treasury Secretary Tim Geithner accusing the administration and state attorneys general of "attempting to legislate through litigation." They also claim the settlement would weaken the financial system and object to the new Consumer Financial Protection Bureau, which is overseen by bank critic Elizabeth Warren, playing a role in monitoring loan modifications.
Not surprisingly, such comments follow bank complaints about the settlement, under which they would have to give principal reductions to some homeowners who are "underwater" on their mortgages. Bank of America CEO Brian Moynihan (BAC) earlier this week said the deal would be unfair to non-delinquent borrowers:
There's a core problem that if you start to help certain people and don't help other people. Our duty is to have a fair modification process.Except that the foreclosure settlement requires nothing of the sort. Georgetown University law professor Adam Levitin notes that the pact would still let banks decide which homeowners are eligible for modification (which could be a problem in preventing foreclosures). B of A's real beef? That it may have to write down upwards of $5 billion in loans and open the door to performing modifications for all underwater borrowers rather than only for people who have defaulted.
Divide and conquer
Keep in mind that Moynihan on Tuesday predicted that the company could have pre-tax earnings of $35 billion to $40 billion within three years. Now balance that bold assertion with data showing that B of A, which only exists today because American taxpayers rescued it, has the worst loan modification record in the industry. Felix Salmon writes:
Bank of America is far too big to fail, and as such it benefits greatly from an implicit government guarantee. The least it can do in return is treat its borrowers fairly.Nice thought. Of course, it's expressly because B of A is too big to fail that it doesn't have to treat borrowers fairly.
Wall Street's game-plan here is obvious -- stir public opposition to the settlement by playing homeowners against each other. Then they jerk their puppets on Capitol Hill into action, while seeking to exploit tension among state and federal authorities that would be party to the settlement.
The Obama administration has been shockingly ineffectual in halting unnecessary foreclosures, allowing the financial industry to do as it pleases and deferring to state legal officials in investigating widespread cases of "robo-signing." Here's a chance for the White House to finally show some leadership on this issue and ensure this deal gets done.
- Open Wide: Why Banks Should Take Their Medicine on Foreclosures
- Why Struggling Ban of America Customers Are Out of Luck
- House Poor: How Home Foreclosures Cost Taxpayers a Bundle
- Why Obama's New Foreclosure Plan Raises More Questions Than It Answers
- Foreclosure Express: Why the Feds Let Banks Get Away With Murder