Commentary

Regulators Making Moves to Force More Banks Into Mortgage Settlement

A few weeks ago we warned that the mortgage settlement might not be limited to just the five banks that signed on, but that regulators would find a way to force others into the agreement, like PNC and US Bancorp. Well, today the NY Times reports:

Federal regulators are poised to crack down on eight financial firms that are not part of the recent government settlement over home foreclosure practices involving sloppy, inaccurate or forged documents. Last week, a senior Federal Reserve official recommended fines for these additional firms, raising questions about how deep foreclosure problems run through the banking industry.

The firms cited include, non surprisingly, SunTrust Bank, U.S. Bancorp, PNC Financial Services, plus five more: MetLife, EverBank, OneWest, Goldman Sachs, and HSBC’s United States bank division. The Times story continues:

The recommendation is the culmination of an investigation begun nearly two years ago over accusations that bank representatives had been churning through hundreds of documents a day in foreclosure proceedings without reviewing them for accuracy, a practice known as robo-signing. Some see the Fed’s recommendation as an attempt to push these firms to agree to the terms of the broader mortgage settlement involving the state attorneys general and federal officials.

Count me as one of those seeing a push. More of a shove really. PNC, for example, believes that it is going to be required to sign on to the new national mortgage servicing standards and modify mortgages. But where Bank of America and JP Morgan Chase have plenty of investor mortgages to write down principal on—essentially using other people’s money for their own fines—PNC does not. From their perspective this is unfair punishment, since they’ll actually have to pay the fine.

In one sense, they are right. It isn’t fair. But there really shouldn’t be any write downs. There is a $1.5 billion settlement pool set up for the roboforeclosed and anyone whose home was wrongly seized can still bring legal suit. And if PNC and others committed the same failures they should pay into the settlement pool too. But modifying the mortgages of borrowers now, borrowers unrelated to the robosigning, is bad housing policy but extortion and not justice being served.