Thursday, March 3, 2011

Penalties for mortgage mess still being sorted out

I'm not surprised, but I'm still dejected that federal regulators can't come to a consensus on how, and how much, to punish lenders who botched the mortgages they issued.

The Office of the Comptroller of the Currency apparently feels that only a few people have been hurt by lenders' botched paperwork and failure to follow the rules.
The acting comptroller of the currency, John Walsh, testified last week that while there were widespread problems with documentation and oversight of law firms and other crucial links in the foreclosure chain, only a “small number of foreclosure sales should not have proceeded.”
"Only a handful of people are known to have been sickened by the bad meat from the factory, so we shouldn't worry too much about the filth and excessive speed of the processing line."

Look, I'll agree that using whatever fines are assessed against culpable lenders to help out struggling borrowers is a bad idea. (It has been floated in policy circles as a way to combat the sluggish housing market and to reduce the number of foreclosures. It's also an idea that faces "fierce opposition from the banks.") It connects two problems that are logically independent and should remain separate from one another: the deliberate or careless failure by lenders to follow proper procedure when processing mortgages, and the fact that a borrower can't keep up with the required mortgage payments. In the absence of evidence that the lender knew the borrower wouldn't be able to keep up with payments, not keeping up with payments is deeply regrettable but it's not the lender's fault. (I have no doubt that some lenders did lend to people the lenders knew wouldn't be able to repay, but proving that is a tough job.)

However, the idea of glossing over the lenders' failure to comply with the law is offensive. Lenders are the ones foreclosing on homeowners using the full force of the law: it's elementary justice that those lenders should be held fully responsible for following the law themselves. The Office of the Comptroller of the Currency is simply flat-out wrong in attempting to paper over their misdeeds. Since, according to the Times article, jail time for anyone involved is off the table, it's time to hit lenders in the only other way they'll understand: we need to soak them, and soak them well.

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