Rep. Brad Miller: “Protecting Bank Solvency Has Been A Goal Of Treasury That I Do Not Share” - FDL

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Rep. Brad Miller: “Protecting bank solvency has been a goal of Treasury that I do not share”
By: David Dayen Friday November 19, 2010 7:28 am

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One of the more amusing moments of yesterday’s House Financial Services Committee hearings on foreclosure fraud was when the representatives for the loan servicers were asked why they were subsidiaries of the large financial institutions. The link between the servicers and the big banks, mainly caused by a series of mergers, leads to all kinds of conflicts of interest, because it inevitably pairs them up with the originator or trustee of the loan. The servicers had no real answer to this question. Finally, the Wells Fargo representative claimed that it was for “customer convenience,” because some customers had their mortgage and their checking accounts at the same bank.

Everyone’s jaw dropped in the hearing room.

Now Miller is out with a letter (I’ve placed it below), signed by all the top leaders of the House Financial Services Committee, that seriously ratchets up the demands on the Financial Stability Oversight Council. Among other things, it asks the FSOC to use its authority under Dodd-Frank to force the large financial institutions to divest from the loan servicers.

There is no apparent advantage in having financial companies that securitized mortgages also act as trustees or servicers, and there is an obvious conflict of interest. The uncertainty about the extent of the risk to our nation’s financial stability posed by the mortgage irregularities is largely the result of the control of critical information by financial companies at risk of insolvency from potential legal liability to mortgage investors and others. The control of critical information by financial companies with a possible motive to conceal systemic risks is incompatible with the intent of the Dodd-Frank Act, and is a grave threat to our nation’s financial stability.

In addition, the letter, signed by 11 members, including House Judiciary Committee chair John Conyers, Financial Services Committee chair Barney Frank and top members of the Financial Services Committee Maxine Waters, Luis Gutierrez and Stephen Lynch, also asks that the stress tests being held by the Federal Reserve include provisions for scenarios where the big banks must take back bad mortgages due to breaches of the pooling and servicing agreements (PSAs). They ask that the FSOC get a random sample of collateral loan files from the major servicers, so they can check it for the note, the deed of trust, and all supporting documents showing proper conveyance and recording. They want the Council to look at the servicing of mortgages where the servicer is affiliated with the firm that holds a second lien. The belief here is that the servicer is intentionally avoiding any modifications on those loans so their parent company doesn’t have to write down the second lien.

I talked with Rep. Miller late yesterday about the letter, and his views of where the foreclosure crisis is headed. A lightly edited transcript follows...

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Much More: http://news.firedoglake.com/2010/11/19/rep-brad-miller-protecting-bank-solvency-has-been-a-goal-of-treasury-that-i-do-not-share/

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