A Fighting Chance (60 page)

Many bank executives claimed that no houses were taken in error and that the scandal really just amounted to a technical paperwork problem. Ruth Simon, Robin Sidel, and Jessica Silver-Greenberg, “Signs of Mistakes Aside, Banks Defend Foreclosures,”
Wall Street Journal
, October 20, 2010. Jamie Dimon of JPMorgan said, “We don’t think there are cases where people have been evicted … where they shouldn’t have been,” and an ex–Goldman Sachs employee dismissed the scandal as “just a clerical error” as opposed to something more “nefarious.” Jill Treanor and Julia Kollewe, “Robo-Signing Eviction Scandal Rattles Wall Street,”
Guardian
, October 14, 2010; Max Abelson, “The Foreclosure Fiasco and Wall Street’s Shrug,”
New York Observer,
October 12, 2010. One commentator published an editorial by John Carney entitled “Let’s Not Start Lionizing the Anti-Foreclosure Deadbeats,” in CNBC, October 13, 2010.

Despite the force with which these arguments were articulated, no one offered any proof to back them up. The eventual mortgage foreclosure settlements included payments to settle claims by people who had in fact been wrongfully moved out of their homes. See, e.g.,
http://www.nationalmortgagesettlement.com/
.

got the biggest TARP handouts:
The following banks and mortgage servicers were involved in the mortgage foreclosure scandal: Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, Ally/GMAC. In later settlements, Aurora, MetLife Bank, PNC, Sovereign, and SunTrust also paid substantial penalties. James O’Toole, “Banks to Pay $8.5 Billion in Foreclosure Settlement,”
CNNMoney,
January 7, 2013. All of these institutions received TARP funding, with the exception of MetLife Bank.

but the big guys couldn’t be bothered:
The culprits in the mortgage foreclosure scandal were by and large the big banks. As one community banker noted, the community banks could not afford to become “mortgage factories” like the big banks because their business model hinges on developing good relationships between the customers and the bank/banker. Matt Gutman and Bradley Blackburn, “Foreclosure Crisis: 23 States Halt Foreclosures as Officials Review Bank Practices,” ABC News, October 4, 2010; see also testimony of Jack Hopkins, president and CEO of CorTrust Bank, on behalf of Independent Community Bankers of America, August 2, 2011.
https://www.icba.org/files/ICBASites/PDFs/test080211.pdf
.

until the media started to stir the pot:
Several media outlets reported that federal regulators not only delayed responding to the mortgage foreclosure scandal, but some were pushing for “relatively modest fines.” Paul Kiel, “Despite Finding Big Problems in Mortgage Industry, Regulator’s Punishment Unclear,”
ProPublica,
February 17, 2013.

settlement number: $5 billion:
Shahien Nasiripour, “Bank Regulator Pushing for Modest Settlement with Industry over Improper Mortgage Practices,”
Huffington Post
, February 16, 2011. For more on the scandal and the regulatory response, see Sheila Bair,
Bull by the Horns
, 243–56. “Unlike the FDIC, the OCC did not want to put pressure on its big banks to come to the table and agree to something reasonable.”

$1 billion every single day:
The five banks involved in the initial scandal—Bank of America, JPMorgan, Citigroup, Ally Financial, and Wells Fargo—earned a combined total of $471 billion in revenue for 2010. This translates to about $1.3 billion per day.

Whoop-dee-doo:
What was the right number? The standard measure of damages would have been to measure how much the mortgage servicers had hurt people. When the mortgage servicers broke the law, some people lost homes that they might have been able to keep, if only they had more time to catch up on past-due payments, or if the banks had found their lost paperwork, or if they had received the loan modifications they had been promised. How many families were in this situation? What had it cost them to lose their home? What was that worth?

Others might have lost their homes eventually, but they lost the chance to have more time—guaranteed by their local laws—to look for a new place and to settle in their families. For some homeowners, all their possessions were unceremoniously—and illegally—dumped on the sidewalk. What’s the right compensation for that? The big banks had systematically and deliberately broken the law, and so many families across the country had paid the price. To know how much injury mortgage companies had caused, the agencies would have to do a very significant investigation.

There was another way to calculate the damages too. It would have been possible to determine how much money the banks had saved with every corner they had cut and every paper they had failed to file. In other words, how much did the mortgage servicers profit from breaking the law? Once that was known, the banks could have been forced to pay a multiple on that amount. By way of comparison, in a fraud prosecution, the fraudster is often required to pay three times the amount that was taken by deception, in order to deter future fraud.

It made no sense for regulators to push for a quick settlement, but that’s what several of them did.

demanded an “independent investigation”:
For Senator Shelby’s statement, see
http://www.shelby.senate.gov//files/01/33/f0133/public/index.cfm/newsreleases?ID=0447c3e6-5864-452e-ab43-2b9ec7afa684
.

favored a number closer to $30 billion:
Abigail Field, “Sizing Up a Sweeping Mortgage Settlement,”
CNNMoney,
May 20, 2011.

“led by Elizabeth Warren”:
Senator Shelby accused regulators of using “strong-arm tactics” to “politicize” the mortgage foreclosure settlement process, with “serious due process” implications. Shelby called on the Senate Banking Committee to inquire into the substance and process surrounding the proposed settlement, and he urged the Obama administration to refrain from entering into any agreement before Congress had a chance to weigh in on the details. See
http://www.shelby.senate.gov//files/01/33/f0133/public/index.cfm?p=NewsReleases&ContentRecord_id=ac820c24-1e3c-4114-a601-c8a33e2a30bc&ContentType_id=ae7a6475-a01f-4da5-aa94-0a98973de620&Group_id=876a24c9-639d-499e-8f4d-ad2b6c7cf218
.

provided a detailed account of our work:
See
http://financialservices.house.gov/media/pdf/031611warren.pdf
.

served a five-year term (not true: several others do, too):
For example, the chairman of the Federal Deposit Insurance Corporation serves a five-year term. The Comptroller of the Currency (OCC) also serves a five-year term. Federal Reserve Bank presidents serve a five-year term. The Director of the recently defunct Office of Thrift Supervision had also served a five-year term.

as if
I
had enacted the law instead of Congress itself:
Michael McAuliff, “Elizabeth Warren Called Liar at CFPB Hearing by Republicans Who Botched Facts on Agency,”
Huffington Post,
May 24, 2011.

described it when she ran the video later that day:
See
http://www.today.com/id/43170318/ns/msnbc-rachel_maddow_show/#.UnixCxbkhFI
.

overrun with tens of thousands of angry messages:
David Waldman, “Blowback for Patrick McHenry’s Nastiness to Elizabeth Warren,”
Daily Kos
, May 25, 2011.

The secretary never wavered:
Secretary Geithner testified before Congress on March 15, 2011: “… the Consumer Financial Protection Bureau, does not currently have authority to administer penalties and will, therefore, not be a party to any formal settlement with mortgage servicers. Under that same law, though, the CFPB will obtain significant authority to set standards for the mortgage servicing industry on July 21, 2011, the date when the consumer finance protections of other agencies transfer to the Bureau. For this reason—and this is very important—for this reason, the CFPB has been invited to, and I personally invited Elizabeth Warren to advise the other agencies that are part of this process on how to design appropriate servicing standards for the mortgage servicing industry.” See
http://www.gpo.gov/fdsys/pkg/CHRG-112shrg67144/html/CHRG-112shrg67144.htm
.

The agency must be substantially weakened:
On May 5, 2011, forty-four Republican senators sent a letter to President Obama asserting that they would not confirm anyone to head the Consumer Financial Protection Bureau absent structural changes to the agency. In particular, the senators wanted to change the management, funding, and rule-making apparatus of the CFPB, citing “accountability” and “democratic values” concerns. See
http://www.shelby.senate.gov//files/01/33/f0133/public/index.cfm/newsreleases?ContentRecord_id=893bc8b0-2e73-4555-8441-d51e0ccd1d17
. These proposed reforms would have severely weakened the CFPB. For example, see Jim Puzzanghera, “Senate Republicans Vow to Block Any Appointee to Head Consumer Protection Bureau,”
Los Angeles Times
, May 6, 2011. All of the Republicans then in the Senate signed the letter except Senators Lisa Murkowski, Scott Brown, and John Ensign. Brian Beutler, “Republicans Make Power Play to Gut Consumer Financial Protection Bureau,”
TPM,
May 6, 2011.

covered their costs directly or indirectly through banking fees:
For example, the Federal Reserve, the OCC, the FDIC, and the NCUA are not funded through the appropriations process in Congress. See
http://www.federalreserve.gov/faqs/about_14986.htm
;
http://www.ots.treas.gov/about/what-we-do/mission/index-about.html
;
http://www.fdic.gov/about/learn/symbol/
;
http://www.ncua.gov/News/PressKits/Docs/PressKits.pdf
.

because they didn’t like the agency he or she was due to run:
Senator Sherrod Brown said publicly: “… some time ago I asked the Senate historian has this ever happened, that a political party has blocked a nomination of someone because they didn’t like the construction of the agency? And he said, no, it’s never happened.” Senator Harry Reid echoed this: “This is the first time in Senate history a party has blocked a qualified candidate solely because they disagree with the existence of the agency that’s being created by law.” This was later confirmed as true by PolitiFact. Senate historian Donald A. Ritchie confirmed the unprecedented nature of Republicans’ attempts to block the nomination of an agency director unless there were drastic changes to the structure of that agency. The closest historical analogs the historian could provide were nineteenth-century cases of nominees being rejected because of significant policy disagreements with the president, but even those cases “did not involve a blanket blocking of nominees to a particular agency.” “Sen. Sherrod Brown Says Republicans’ Refusal to Confirm Richard Cordray to Head Consumer Protection Bureau Was Unprecedented,”
Politifact.com
, December 7, 2011.

and then, if needed, make a recess appointment:
Representatives Carolyn Maloney (D-NY), Keith Ellison (D-MN), and Brad Miller (D-NC) sent a letter to the president: “Since Republican Senators have said that no one is acceptable unless the law is weakened, we would urge you to nominate Professor Warren as the CFPB’s first Director anyway. If Republicans in the Senate indeed refuse to consider her, we request that you use your constitutional authority to make her a recess appointment.” The letter was signed by eighty-nine members of the House:
http://maloney.house.gov/press-release/89-house-members-send-letter-president-urging-elizabeth-warren-be-appointed-head
. Senator Al Franken also wrote a letter to the president urging him to make a recess appointment of me,
http://www.franken.senate.gov/?p=news&id=1547
.

keep me from becoming the head of the consumer agency:
“Republicans are preventing the Senate from completely adjourning for the Memorial Day recess. Instead, the chamber will come in for three pro-forma sessions over the next 10 days. The cursory sessions are a formality that will ensure President Obama does not make recess appointments, a prospect that was considered unlikely anyway because the recess is scheduled for only a week. Some Republicans feared that Obama would use the recess to appoint Elizabeth Warren to head the controversial Consumer Financial Protection Bureau, which will have broad powers over Wall Street.” Alexander Bolton and Josiah Ryan, “GOP Forces Senate Pro-Forma Session,”
The Hill
, May 27, 2011. See also Brian Montopoli, “Senate GOP Blocks Possible Elizabeth Warren Recess Appointment,” CBS News, May 27, 2011.

George Washington himself to be head of the consumer agency:
In a speech to the US Chamber of Commerce, Representative Spencer Bachus made the following remark about the Consumer Financial Protection Bureau and the discretion vested in the head of the agency: “If George Washington came back today, or Abraham Lincoln or Warren Buffett signed up [to head the agency], I wouldn’t give that person total discretion.” Edward Wyatt, “Warren Defends Agency at Chamber of Commerce,”
New York Times
, March 30, 2011.