A Fighting Chance (31 page)

I figured it this way: Every day the wind would blow over this agency from one direction. We would hear the voices of those who were organized, those who had money, and those who were powerful. If we weren’t careful, their point of view would eventually seep into every crack and crevice in the place. We needed a strong wind from the other direction. We needed to create an agency that would be transparent about our mission, our goals, and the work we were doing—so that the public could call us out if we fell short.

I hoped—and I still hope—that the agency would be a place where the mission was part of the air that every employee breathed every day: We exist to serve the people.

One-Page Mortgage

In spring 2011, we had another breakthrough when Pat McCoy and a number of other staffers sat behind a one-way mirror in a test lab just outside Baltimore. Pat—who was a professor at the University of Connecticut and had written a book called
The Subprime Virus
(what a title!)—was now leading the agency’s mortgage policy division.

The backstory on how Pat and her team came to be behind the mirror that day takes a little explanation. The mortgage crisis made it clear that untold numbers of people had ended up with mortgages they didn’t understand, partly because a thicket of paperwork had been used to hide extra fees and confusing terms. Too many homeowners (like Flora) had trusted what they’d been told by their mortgage broker, and they didn’t understand until far too late that the fine print committed them to something entirely different. When their payments skyrocketed, many homeowners couldn’t afford to keep paying their mortgage and had to either refinance (and pay a gigantic fee) or give up their house.

Dodd–Frank called for rules to simplify the mortgage process, and I set an ambitious goal early on. I told Pat’s group: Let’s create a short, easy-to-read disclosure, and let’s keep it to just one page. A simple mortgage form—one that a customer could easily read and understand—could go a long way toward making homeowners safer.

People (maybe even the whole mortgage team!) thought I was crazy.
One page?
In Washington, it’s not possible to requisition a copy machine in one page. But I figured we should think big—or in this case, think short.

Our first drafts of a one-page mortgage were clunky and unreadable. Why? Federal law had long required certain disclosures that had been designed with the best of intentions—to protect consumers. But over the years, the disclosures had become a tangled mess: there were pages and pages of legal mumbo jumbo, and it was difficult for us to untangle them. The team was working hard, but they kept putting in lousy language that the law seemed to require.

It took a while, but eventually we came up with something that worked. The staff drafted and redrafted, testing versions on friends and co-workers. They consulted with design people. They modified and rejiggered.

And when they had the first draft of the form ready for public viewing, Pat’s team did something that, as far as I knew, no federal banking regulator had ever done before: The team put two competing drafts of the form on our new CFPB website and asked the public to help evaluate them. I think Pat hoped to get maybe a few hundred responses—after all, mortgage forms aren’t exactly prime-time TV. But no: we got more than
twenty-seven thousand
responses.

After we put out the draft forms, we got a lot of input from the bankers. Many of the credit unions and smaller community banks (and some of the big banks, too) sold honest, simple mortgages, and they loved the draft forms. They figured that a simple form that made it easier to comparison shop would help them compete against the slick operators.

And one other thing: The team did some real-life road testing. That’s how Pat and several other CFPB staffers ended up behind the one-way mirror, watching this man (I’ll call him Mr. Harris, to protect his privacy) who would be one of the first people to take the form for a test drive.

Pat told me Mr. Harris was an African American man in his midfifties, a little older than most of those who had volunteered for that early test drive. He had a soft voice, he was a little stocky, and he worked with his hands for a living. He already owned a home, knew how much he could afford, and was starting to think about refinancing his mortgage.

Mr. Harris was ushered into the testing room, where the interviewer greeted him. After some preliminaries, the interviewer got down to business. If this had been the real thing, Mr. Harris would have been staring at a stack of papers and loan officers saying, “Just sign here … and here … and here…”

Instead, the interviewer pushed a single page across the table and asked him to read it. According to the form, the monthly payment on the loan being offered started out at about $850, but it could eventually go up to over $1,800 a month.

Mr. Harris looked down at the paper. He paused. Wait a minute, he said—something’s wrong. My payments could go up
that
much if interest rates rise? Is that right?

The interviewer said yes. This was an adjustable rate mortgage. If interest rates stayed low, his payments would be low. But if interest rates rose, that was how much he could have to pay.

Mr. Harris thought about it for a minute, then shoved the paper back across the table. “No. I don’t want it. I can’t afford that loan.”

That’s when Pat McCoy felt like bursting into song. Hallelujah! The form had done exactly what it was supposed to do. It gave Mr. Harris clear information, so he could make a choice. Plain and simple.

Okay, it wasn’t exactly the Red Sox winning the World Series, and there was still a whole lot of work to do before this form and others would be final and lenders would be required to use them. And we knew that getting through the whole regulatory process with just one page would be tough. But we thought it was pretty exciting. We’d been under way for only a few months, and already the agency was taking concrete steps toward changes that would make a real difference for millions of families.

Who’s the Bad Guy?

By now, the consumer agency was gaining some momentum. We had launched our website, the plan for the complaint hotline was taking shape, and Holly Petraeus was ramping up her visits to military bases. Our work to develop a shorter mortgage form was getting some traction. We were on the move—literally. We had set up shop in our new, temporary headquarters in an office building several blocks away from the Treasury Building.

Finally, we were beginning to get our feet under us. I stopped waking up at three in the morning with my heart pounding. I almost started to believe I could relax a little.

Almost, but we still had a long way to go. And if I’d been a little more savvy in the ways of Washington, I probably could have sensed that trouble was coming.

In March, the first bomb landed. It was an all-out attack on the agency and on me personally. It began with a headline-grabbing accusation that we—and I—had stepped way out of line. What did we do wrong? The short story is that we stood accused of helping the US government defend consumers. Yup, that’s pretty much what it added up to.

The longer story, of course, was more complicated. Back in October 2010, the press broke the news that several giant banks had violated the law while foreclosing against homeowners. It wasn’t just a technical error here or there. The banks had flat-out lied, over and over and over. Foreclosure is a complicated process for a very good reason: The law requires safeguards to make sure that a family isn’t thrown out of their home by mistake. But it took time and resources for the banks to comply, so several of the big banks had apparently decided just to ignore many of those laws. “Robo-signing” was rampant; one loan officer famously testified that he signed off on ten thousand foreclosure documents
every month
. Documents had been falsified, and tens of thousands of families had been trapped in a nightmare of lost paperwork and endless delays that had turned their lives upside down and landed many out on the street. The stories were genuinely awful.

The foreclosure scandal quickly engulfed JPMorgan Chase, Bank of America, Citibank, and a few others—the list was a
Who’s Who
of the major banks (and a
Who’s Who
of the banks that got the biggest TARP handouts). And as with the crash, the problem was concentrated in the big banks, not the community banks and credit unions. It seemed that the little banks—the ones with small staffs and part-time legal advice—could manage to follow the law, but the big guys couldn’t be bothered. Meanwhile, the regulators who were supposed to be watching over the big banks had once again seemed not to notice or care about the abuses until the media started to stir the pot.

So many different laws had been broken and the scandal got so much press attention that a busload of government agencies began to look into suing the big banks. Before long, the media began to report that the OCC—the Office of the Comptroller of the Currency, the main agency in charge of regulating the banks—was ready with a settlement number: $5 billion. The OCC seemed to think that this was such a large figure that everyone should be a little breathless. (I couldn’t help but think of Dr. Evil in the Austin Powers movie, announcing that he would destroy the world unless he was paid
$1 million
.) Collectively, these big banks earned more than $1 billion every single day, so the settlement would amount to less than five days of revenue in payment for deliberately and repeatedly breaking the law for years. Whoop-dee-doo.

When the scandal first broke in fall 2010, the consumer agency was brand-new and didn’t yet have most of its authorities under the Dodd–Frank Act. But we were slated to have jurisdiction over mortgage servicing at big banks by the summer of 2011, and Secretary Geithner asked for my advice on the issue. I asked our team to dig in, and we examined the numbers and shared our analysis with Treasury and other regulators.

Not surprisingly, many lawmakers were pretty upset about the foreclosure scandal. One of the most vocal was Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee. Now approaching eighty, the senator was tall, with a deep voice and the confidence that twenty-five years in the US Senate seems to give some men. This was the same Senator Shelby who the summer before had thundered against any suggestion that I might head up the new consumer agency.

Shortly after the scandal exploded, Senator Shelby expressed outrage that government regulators appeared to have been “asleep at the switch” and demanded an “independent investigation.” But as the months went by, the investigation he called for never really happened.

Now, in March 2011, he was madder than ever about the scandal. But he wasn’t angry about the lack of an investigation or the ugly things done by the big banks (and make no mistake, they were ugly). Nope—he was incensed about the rumors that the banks might be asked to cough up some serious cash.

Instead of the OCC’s reported $5 billion settlement, some of the other agencies favored a number closer to $30 billion. Senator Shelby called this a “shakedown.” He laid the blame with “the new Bureau for Consumer Protection, the FDIC, the Fed, certain Attorneys General, and the Administration, led by Elizabeth Warren.”

So there it was: Senator Shelby and his fellow Republicans were furious, not with the mortgage servicers that broke the law and stole people’s homes, but with government regulators who were pushing for more accountability—and specifically with me.

In the end, Senator Shelby could do little more than fume: he still faced a Democratic majority in the Senate, which meant that he didn’t have the power to call hearings or launch investigations. So it was left to the House, which was now controlled by the Republicans, to do the banks’ dirty work.

Hearings Before Congress

By the time Senator Shelby launched his broadside, our little agency had attracted a lot of attention. We’d won the support of some powerful friends and made some powerful enemies. On March 16, I was called to appear before the House Financial Services Committee to testify about the agency. I knew I’d be asked about the foreclosure scandal, and I was sure I’d have to defend the CFPB and its mission.

This wouldn’t be my first appearance before Congress: I had testified more than half a dozen times before various committees during my days on COP. But this one felt entirely different. While at COP, I went into each hearing feeling that since my job was to serve as the eyes and the ears for Congress, the committee members genuinely wanted to find out what I knew. But this hearing wouldn’t be “Help us understand.” This would be an assault on the new agency. And this time, the response to my testimony would fall along partisan lines. The Democrats were lining up to support the agency (and me), and the Republicans were out for blood.

The CFPB was a high-profile operation, so the attacks could come from anywhere. At the agency we spent days preparing for my appearance. My staff warned me that I needed to be ready to answer questions about anything and everything. What policies were we putting in place for enforcement? What was our hiring process? How were salaries set in the federal bureaucracy? (I actually did get a question on that.) The staff put together several giant briefing books, which I read late into the night. I prepared written testimony, producing a document of more than thirty pages that provided a detailed account of our work. We had spoken often of our commitment to transparency, and we were doing our best to be an open book with the public and with Congress.

When the day of my appearance finally arrived, I took a seat at a table in a hearing room for the House of Representatives. Members of Congress sat behind a raised dais, a number of them seeming to glare down at me. C-SPAN cameras blinked from the corners, but it was the guys carrying professional cameras with big telephoto lenses who made me want to throw a blanket over my head. They are not allowed to stand up and block the views of members of Congress, so a protocol has developed where they scoot on their behinds along the floor and take photos from below the dais. I figured that all the newspapers would run flattering pictures of my nostrils the next morning.