FacebookTwitterGoogle+RedditEmail

The Consumer Financial Protection Bureau’s First Big Sellout

by MIKE WHITNEY

So now we know why the banks fought tooth-and-nail to prevent Elizabeth Warren from heading the Consumer Financial Protection Bureau (CFPB). It’s because they were already planning their next big coup and didn’t want Warren in a position where she could make waves.

Here’s the story from the Wall Street Journal:

“Federal regulators are considering giving mortgage lenders protection from certain lawsuits…

The potential move, which would be a partial victory for mortgage lenders, is part of a broader effort to write new rules for the U.S. housing market in the wake of the mortgage meltdown. The proposal for the first time would establish a basic national standard for loans, known as a ‘qualified mortgage.’ (“Home Loans May Get Shield”, Wall Street Journal)

Why is this an issue? Have the banks suddenly forgotten how to write mortgages? Of course not. Historically, the ratio of defaulting mortgages has been very small, around 2%, mainly because the banks thoroughly investigate applicants before lending them money.

So, why do they want the government to clarify something they already know? Do they really want more “onerous regulation”?

More from the WSJ:

“As part of its deliberation, the Consumer Financial Protection Bureau is considering providing a full legal shield for high-quality loans that qualify, mandating that judges rule in lenders’ favor if consumers contest foreclosures, these people say….

The shield against lawsuits would be a welcome move for mortgage lenders. Seven major U.S. banks have spent more than $76 billion on mortgage-related costs and litigation since 2008, according to Credit Suisse Group.

Ahhh, so that’s it. The banks want blanket legal protection when they boot people out of their homes.  Nice.  They want the CFPB to stipulate what’s meant by “qualified mortgage” so they can twist its meaning like a pretzel and not be challenged in court. Of course, consumer groups don’t like the idea of immunity– the so-called “safe harbor” provision–because they think that it will pave the way to more reckless and predatory lending. But mealy-mouth CFPB director, Richard Cordray, disagrees. As he told the Senate Banking Committee last month,

“It doesn’t do anybody any good for us to develop an elaborate set of protections if nobody’s going to then lend money to consumers….We absolutely don’t want to make a judgment that’s going to freeze up or further constrict credit in the mortgage market.”

Huh?  I thought Cordray was the head of the CONSUMER Financial Protection Bureau? So why is defending the banks’ position?  The banks don’t need more defenders. They own the whole bloody system already.

More from the WSJ:

“Lawsuits aren’t the only worry for mortgage lenders. Banks have also kept underwriting standards tight in recent years due to uncertainty about whether they’ll be forced to buy back loans made in the housing boom.

This is ridiculous. No one has been picking on the poor-abused bankers. The banks have merely been asked to repurchase the crappy mortgages they made that exhibit “substantive underwriting and documentation deficiencies”. That’s all. Similarly, if they lent money to people who clearly didn’t have the ability to repay the debt, then the borrower should be able to plead his case before a judge. That’s fair, isn’t it? Only the banks don’t want “fair”; they want immunity. And Cordray wants to help them get it.

Again from the WSJ:

“By law, the new mortgage rule will exclude exotic varieties of loans that fed the housing boom—such as ‘option’ adjustable-rate mortgages that allow the amount owed to increase even when borrowers makes payments, and ‘interest-only’ loans, which don’t require principal payments for several years.

Don’t kid yourself; if the banks get their qualified mortgage-safe harbor provision, we’ll see a whole new regime of “no doc”, “no down”, “E-Z-Pay”, “liar’s loans” that will send profits into the stratosphere and inflate another monster housing bubble faster than you can say Alan Greenspan.

Keep in mind, the big banks are already making record profits on their loan book. Take a look at this clip from the Los Angeles Times:

“JPMorgan Chase & Co. and Wells Fargo & Co., the nation’s largest home lenders, each reported double-digit quarterly earnings growth Friday. The big jump in profit was thanks largely to a surge in their mortgage businesses, fueled by low interest rates and waves of refinancing.

At Wells Fargo, mortgage business revenue rose 55% to $2.8 billion during the third quarter from $1.8 billion in the year-earlier period. …JPMorgan’s mortgage business posted a 71% increase to $2.4 billion from $1.4 billion last year. This led the bank to beat expectations with an overall profit of $5.7 billion.” (“Banks see a housing rebound”, Los Angeles Times)

Not bad, eh, and yet they’re still whining about legal immunity. Go figure?

Did you catch this in the LA Times:

“The U.S. attorney in Manhattan has accused Wells Fargo of defrauding a government-backed mortgage insurance program, in another major civil case brought in the wake of the housing bust and financial crisis.

The mortgage-fraud suit, filed by U.S. attorney Preet Bharara, seeks “hundreds of millions of dollars” in damages for claims the U.S. Department of Housing and Urban Development has paid for defaulted loans “wrongfully certified” by Wells Fargo.

The suit alleges the San Francisco banking giant falsely certified loans insured by the government’s Federal Housing Administration.

‘As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,’ Bharara said in a statement.

Adding ‘accelerant to a fire,’ Bharara said, was Wells Fargo’s bonus system that rewarded employees based on the number of loans it approved.

The lawsuit alleges the bank failed to properly underwrite more than 100,000 loans it certified to be eligible for FHA insurance. When Wells Fargo discovered problems with the loans, it failed to notify HUD, which administers the FHA program, as required, the suit said. The action alleges more than 10 years of misconduct.

“The extremely poor quality of Wells Fargo’s loans was a function of management’s nearly singular focus on increasing the volume of FHA originations — and the bank’s profits — rather than on the quality of the loans being originated,” Bharara’s office said in a statement.(“Feds hit Wells Fargo with mortgage-fraud suit”, Los Angeles Times)

There you have it; another heartwarming story about our good friends, the bankers, always looking out for the public’s interest.

The banks don’t need full legal immunity. What they need is tough-minded regulators breathing down their necks 24-7, ready to slap them into leg irons and drag them off to the hoosegow for the slightest infraction. That’s what they really need.

But, then, you already knew that.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

March 27, 2017
Robert Hunziker
A Record-Setting Climate Going Bonkers
Frank Stricker
Why $15 an Hour Should be the Absolute Minimum Minimum Wage
Melvin Goodman
The Disappearance of Bipartisanship on the Intelligence Committees
Patrick Cockburn
ISIS’s Losses in Syria and Iraq Will Make It Difficult to Recruit
Russell Mokhiber
Single-Payer Bernie Morphs Into Public Option Dean
Gregory Barrett
Can Democracy Save Us?
Dave Lindorff
Budget Goes Military
John Heid
Disappeared on the Border: “Chase and Scatter” — to Death
Mark Weisbrot
The Troubling Financial Activities of an Ecuadorian Presidential Candidate
Robert Fisk
As ISIS’s Caliphate Shrinks, Syrian Anger Grows
Michael J. Sainato
Democratic Party Continues Shunning Popular Sanders Surrogates
Paul Bentley
Nazi Heritage: the Strange Saga of Chrystia Freeland’s Ukrainian Grandfather
Christopher Ketcham
Buddhism in the Storm
Thomas Barker
Platitudes in the Wake of London’s Terror Attack
Mike Hastie
Insane Truths: a Vietnam Vet on “Apocalypse Now, Redux”
Binoy Kampmark
Cyclone Watch in Australia
Weekend Edition
March 24, 2017
Friday - Sunday
Michael Hudson
Trump is Obama’s Legacy: Will this Break up the Democratic Party?
Eric Draitser
Donald Trump and the Triumph of White Identity Politics
Jeffrey St. Clair
Roaming Charges: Nothing Was Delivered
Andrew Levine
Ryan’s Choice
Joshua Frank
Global Coal in Freefall, Tar Sands Development Drying Up (Bad News for Keystone XL)
Anthony DiMaggio
Ditching the “Deep State”: The Rise of a New Conspiracy Theory in American Politics
Rob Urie
Boris and Natasha Visit Fantasy Island
John Wight
London and the Dreary Ritual of Terrorist Attacks
Paul Buhle
The CIA and the Intellectuals…Again
David Rosen
Why Did Trump Target Transgender Youth?
Vijay Prashad
Inventing Enemies
Ben Debney
Outrage From the Imperial Playbook
M. Shadee Malaklou
An Open Letter to Duke University’s Class of 2007, About Your Open Letter to Stephen Miller
Michael J. Sainato
Bernie Sanders’ Economic Advisor Shreds Trumponomics
Lawrence Davidson
Moral Failure at the UN
Pete Dolack
World Bank Declares Itself Above the Law
Nicola Perugini - Neve Gordon
Israel’s Human Rights Spies
Patrick Cockburn
From Paris to London: Another City, Another Attack
Ralph Nader
Reason and Justice Address Realities
Ramzy Baroud
‘Decolonizing the Mind’: Using Hollywood Celebrities to Validate Islam
Colin Todhunter
Monsanto in India: The Sacred and the Profane
Louisa Willcox
Grizzlies Under the Endangered Species Act: How Have They Fared?
Norman Pollack
Militarization of American Fascism: Trump the Usurper
Pepe Escobar
North Korea: The Real Serious Options on the Table
Brian Cloughley
“These Things Are Done”: Eavesdropping on Trump
Sheldon Richman
You Can’t Blame Trump’s Military Budget on NATO
Carol Wolman
Trump vs the People: a Psychiatrist’s Analysis
Stanley L. Cohen
The White House . . . Denial and Cover-ups
Kollibri terre Sonnenblume
Marines to Kill Desert Tortoises
FacebookTwitterGoogle+RedditEmail