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Treasury Coddled Banks As They Fanned Foreclosure Crisis

David Callahan


President Obama's biggest failure in his first term was to not forcefully stem the flood of foreclosures that has been devastating lives, prolonging the economic slump, and stripping vulnerable groups -- particularly blacks -- of financial assets that took years to build up.

In turn, that failure was the result of another devastating mistake by Obama: picking Timothy Geithner to be Treasury Secretary and allowing that department to be way too cozy with the big banks.

The more we learn about all these subjects -- foreclosures, Treasury, and banks -- the worse it looks. The latest revelation comes today from ProPublica, which has been investigating how Treasury bungled efforts at foreclosure relief. The findings are appalling:

Documents obtained by ProPublica shed new light on this failing in 2009 and 2010, when the foreclosure crisis was at its peak and six million American homeowners were in danger of losing their homes. HAMP required mortgage servicers to offer loan modifications to eligible homeowners so that their monthly payments would be lower. The servicers — the largest of which were owned by the banks that had fueled the crisis in the first place — were in charge of reviewing homeowner applications, but the government set the rules and was supposed to supervise their work.

But the documents show that the government did not complete a major audit of the two largest banks in the program, Bank of America and Wells Fargo, until over a year after the program launched.

Such audits were rare at the other large mortgage servicers throughout 2009 and 2010, according to the documents. During these years, when the government provided little oversight and administered no sanctions, servicers reviewed 2.7 million modification applications and denied two-thirds of them. Meanwhile, homeowners regularly complained they had been mistreated by servicers in the program.

The documents also show how the Treasury Department coddled servicers that weren’t complying with the program’s rules. Once a year, servicers are required to certify that they are complying with the program’s rules. But servicers define for themselves what it means to comply. A company that admits violating the rules is allowed to merely submit a cover letter with their certification stating the exceptions and how it would fix the problems.

Not much more to add to this, except to say that the Obama Administration is still failing on the foreclosure relief front. Let's hope that Obama demands more of his second Treasury Secretary than his first.