Labor & Employment Law

Silvers To Treasury: Can?t Resolve Foreclosure Crisis and Save Banks

By James Parks

How can a housing advocacy group like the Neighborhood Assistance Corporation of America (NACA) with a budget of less than $20 million, CORRECTLY process 20,000 people seeking mortgage modifications in one week in one city, and the United States government with a budget of $50 billion can only do 20,000  modifications a month across the whole country?

Damon Silvers, policy director of the AFL-CIO and a member of the Congressional Oversight Panel never got a straight answer to that question from U.S. Treasury Department officials at a hearing on Capitol Hill yesterday.

?Foreclosing on a family?s home is not a mere financial transaction,? Silvers said in his opening statement.

It marks a profound financial loss and often devastating emotional defeat for the homeowner, psychological trauma and social dislocation for the homeowners? children, falling property values and destabilized communities for the homeowners? neighbors.

Another question from Silvers that went unanswewred:  What plans does Treasury have for dealing with the possibility that major banks which received taxpayer bailouts will be held liable for failing to properly service $7 trillion in mortgages, or that the collateral for significant amounts of mortgage loans will turn out to be invalid?

Oversight Panel Chairman Sen. Ted Kaufman (D-Del.) said:

If investors lose confidence in the ability of banks to document their ownership of mortgages, the financial industry could suffer staggering losses. The possibility is especially alarming coming so soon after taxpayers spent billions of dollars to bail out these very same institutions.

Silvers and the other Oversight Panel members were incredulous when Phyllis Caldwell of Treasury said there was no systemic risk  to the banks from these invalid mortgages. Said Silvers:

It is not a plausible position that there is no systemic risk here.

Writing in Firedoglake, David Dayen, describes the scene this way:

After Caldwell continued that there was some risk, but no evidence of a major systemic risk, Silvers concluded, “I hope that ? if the Treasury comes back to us and is discussing whether or not we need to deploy further public funds to rescue Bank of America, or such other institutions as might be affected by these events, that we get a similar kind of indifference to their fate after it?s too late.”

“We are faced with a choice here,” Silvers closed. “We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks. We can?t do both.”

In the future, homeowners may have more recourse to prevent the kinds of misleading mortgages and fraudulent actions by banks that led to this crisis. Elizabeth Warren, the architect of the new Bureau of Consumer Financial Protection and former Oversight Panel chairwoman, this week outlined a sweeping new strategy to use ?crowd-sourcing? technology to collect tips from millions of consumers about deceptive financial practices, including misleading mortgages.

In an interview with National Journal, Warren said new techniques like crowd-sourcing make it possible to collect valuable information from millions of ordinary consumers who report problems as they arise. Using new systems to organize and find patterns in all that information, Warren said, the bureau could be able to spot new enforcement targets in a matter of days.

?Crowd-sourcing? refers to online collaborations that are built through contributions from thousands or millions of people.

Full post as published by AFL-CIO NOW BLOG on October 28, 2010 (boomark / email).