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This Washington Post story yesterday didn’t get as much attention as it ought to have.
Zachary Goldfarb reports on yet another breakdown in financial regulation at the federal level—one that’s all the worse because state regulators were pushing for action and got told to butt out.
In this instance it was state regulators pushing the Office of the Comptroller of the Currency to do something about banks’ sketchy foreclosure operations.
Good ol’ do-nothing John Dugan, former comptroller of the currency, is involved here:
When two banks – J.P. Morgan Chase and Wells Fargo – declined to cooperate, the state officials asked the banks’ federal regulator for help, according to a letter they sent. But the Office of the Comptroller of the Currency, which oversees national banks, denied the states’ request, saying the firms should answer only to inquiries from federal officials. In a response to state officials, John Dugan, comptroller at the time, wrote that his agency was already planning to collect foreclosure information and that any additional monitoring risked “confusing matters.”
But even as it closed the door on state oversight, the OCC chose itself not to scrutinize the foreclosure operations of the largest national banks, forgoing any examination of their procedures and paperwork. Instead, the agency relied on the banks’ in-house assessments. These provided no hint of the problems to come until they had tripped the nation’s housing market, agency officials later acknowledged.
Recall, it was state regulators and legislators who aggressively tried to crack down on predatory lending in the early part of the last decade but were thwarted by folks like Dugan’s predecessor at the OCC, John D. Hawke, who in a sort of states-rights Bizarro world asserted that nationally chartered banks couldn’t be regulated by state authorities.
And we have, again self-regulation, taken to its logical end. As if it wasn’t good enough for the banks to have their former lobbyist ensconced in the regulators’ chair, they got Dugan to outsource any actual oversight here to them. Great idea!
The upshot: A foreclosure scandal that has affected who knows how many homeowners and deprived many, many of due process. And:
Two weeks ago, for the first time, the OCC began sending its staff into the banks to examine their foreclosure operations, interview bank employees and review paperwork.
The Post is excellent to go back into the archives to report how the signs of a foreclosure scandal were out there for any regulator who bothered to look. Those included FTC settlements with banks like JPMorgan Chase, court cased (“a federal judge in Texas sharply criticized Countrywide Financial, later acquired by Bank of America, for hiring lawyers who ignored the rights of borrowers and being part of a “corrosive assembly line culture of practicing law”), and two GAO and Congressional Oversight Panel reports.
It’s hard to conclude anything other than the OCC didn’t want to know what was going on.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.