Wednesday, March 16, 2011

Secretary Geithner Responds to Congressional Concerns on Role of Consumer Financial Protection Bureau in Mortgage Servicing Settlement

In a letter to Treasury Secretary Tim Geithner, House Financial Services Chair Spencer Bachus (R-Ala) questioned what role the Consumer Financial Protection Bureau had in drafting the proposals involved with a settlement of allegations of improper mortgage services procedures and what specific legal authority would permit an official associated with the Bureau, which does not have regulatory or enforcement authority, to participate in settlement negotiations. Earlier this month, five of the nation’s largest financial institutions received a draft settlement term sheet from DOJ on behalf of other federal and state agencies to settle allegations involving improper foreclosure and other servicing problems.

The concerns of Chairman Bachus were echoed by Senator Richard Shelby (R-Ala) at Senate Banking Committee hearings on GSE reform. Senator Shelby specifically questioned Secretary Geithner on the role played by Professor Elizabeth Warren in the settlement negotiations and whether her involvement was appropriate. On September 17, 2010, President Obama appointed Elizabeth Warren to serve as Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau.

In a letter responding to Chairman Bachus, which was also read in part to Senator Shelby at the hearing and made part of the record, Secretary Geithner said that the Bureau was invited to advise other agencies on how to design appropriate servicing standards for the mortgage servicing industry because, pursuant to Dodd-Frank, the Bureau will obtain authority to set standards for the mortgage servicing industry on July 21, 2010, which is the date when consumer financial protection functions of other agencies transfer to the Bureau. However, the Secretary assured Sen. Shelby and Chairman Bachus that the Bureau currently does not have authority to administer penalties and will thus not be a party to any formal settlement with mortgage servicers.