Sen Shelby Calls Mortgage Deal a Shakedown

March 11, 2011 (Chris Moore)
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Sen. Richard Shelby of Alabama, the ranking Republican member of the Senate Banking Committee, calls the proposed $20 billion mortgage settlement by the Obama administration, the state attorneys general, and other federal agencies a “shakedown.”

“The proposed settlement would fundamentally alter the regulation of our banks. Yet, this would be done without Congressional involvement. Instead, it would be done by executive fiat through intimidation and threats of regulatory sanctions,” Shelby said. “The administration and our financial regulators are clearly hoping the banks will consent to these new regulations.”

The settlement offer would mandate a series of steps that the top five mortgage servicers , Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo, would have to take before they could move to a foreclosure.

In addition, five House Republicans, Rep. Scott Garrett (N.J.), Rep.. Randy Neugebauer ( Texas), Rep. Patrick McHenry ( N.C.) and Rep. Pete Sessions ( Texas) along with House Financial Services Committee Chair Rep. Spencer Bachus ( Ala.). sent a letter to Treasury Secretary Timothy Geithner portraying the settlement as an attempt to bypass the legislative process and impose new rules on the mortgage industry through litigation instead.

The letter asks Geithner to identify the legal authority for many of the actions the proposed settlement seeks, including that which allows state and federal regulators to effectively craft new rules for the mortgage servicing industry. The letter also questions the legal authority for using funds collected in an enforcement action to benefit persons not directly harmed by the behavior being penalized.

On Tuesday, Brian T. Moynihan, the chief executive of Bank of America, rejected the proposal on the grounds that the program was unworkable and unfair to borrowers who had managed to stay current on their loans.

“There’s a core problem that if you start to help certain people and don’t help other people, it’s going to be very hard to explain the difference,” said Brian T. Moynihan, the chief executive of Bank of America. “Our duty is to have a fair modification process.”

Earlier this week, CoreLogic released its Negative Equity Report showing that total negative equity in the U.S. now stands at $751 billion. We still have to question the need to throw $20 billion at a $751 billion problem in which only five mortgage servicers have to bear all of the responsibility. Politics?

Read “A drop in the bucket.”

Tags: Senate Banking Committee, government shakedown, mortgage servicers, mortgage settlement, mortgage industry, unfair, unworkable, loan modifications