Congressman Miller Joins Economists and Financial Experts In Demanding a Stop to Mortgage Servicer Fraud -- a Significant Cause of Foreclosures

George Washington's picture


Congressman Brad Miller is sending the following letter to the financial regulators, and is currently rounding up additional signatories:


The Honorable Timothy Geithner Secretary
of the Treasury Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

The Honorable Edward DeMarco Director
(Acting) Federal Housing Finance Agency
(FHFA) 1700 G Street, N.W. 4th Floor
Washington, DC 20552

The Honorable Sheila Bair Chairman
Federal Deposit Insurance Corporation 550
17th Street N.W. Washington D.C., DC

The Honorable Ben S. Bernanke Chairman
Board of Governors of the Federal Reserve
System 20th Street and Constitution Avenue
N.W. Washington, DC 20551

The Honorable Mary L. Schapiro Chairman
Securities and Exchange Commission 100 F
Street, N.E. Washington, DC 20549

The Honorable John Walsh Comptroller of
the Currency (Acting) Administrator of
National Banks 250 E Street, S.W.
Washington, DC 20219

Dear Secretary Geithner, Chairman Bair, Chairman Shapiro, Acting Director DeMarco, Chairman Bernanke and Controller Walsh:

We are writing to urge that any exception to the credit risk retention requirements of section 941 of the Dodd-Frank Act include rigorous requirements for servicing securitized residential mortgages.

The Act requires that securitizers retain five percent of the credit risk on mortgage-backed securities. The requirement is the subject of a study by Christopher M. James published by the Federal Reserve Bank of San Francisco dated December 13, 2010, and entitled “Mortgage-Backed Securities: How Important Is ‘Skin in the Game’?”, which finds that the requirement will have the intended effect of reducing “moral hazard” and significantly reducing the loss ratios on mortgage-backed securities.

The Act provides for an exception, however, for “qualified residential mortgages” and for other “exemptions, exceptions, and adjustments” to the risk-retention requirement. We strongly urge that you use great care in allowing any exception to the risk retention requirement, and that you be vigilant in assuring that any exception not defeat the purpose of the requirement. Recent experience in financial regulation has been that seemingly modest, reasonable exceptions have swallowed the rules and allowed abusive practices to continue unabated. In considering any requested exception under section 941, please remember that the advocates for rule-swallowing exceptions to other financial regulation have not been entirely candid with regulators or legislators on the likely effect of those exceptions.

The rules adopted pursuant to section 941 must, of course, require rigorous underwriting standards for “qualified residential mortgages” or any other mortgages excepted from the risk retention requirement, but underwriting requirements are not enough. The rules must also address the servicing of securitized mortgages. Much of the turmoil in the housing market, which is largely responsible for the painfully slow recovery, is the result not just of poorly underwritten mortgages, but of conduct by mortgage servicers.

We direct your attention to the “Open Letter to U.S. Regulators Regarding National Loan Servicing Standards” dated December 21, 2010, and signed by 51 people with extensive knowledge of mortgage servicing (the “Rosner-Whalen letter”). We strongly urge that you consider closely the recommendations included in that letter.

The Rosner-Whalen letter makes sensible recommendations regarding the treatment of payments by homeowners, “perverse incentives” in servicer compensation, mortgage documentation, and foreclosure forbearance during mortgage modification efforts.

We especially urge that any exception require that servicers modify mortgages pursuant to established criteria to avoid foreclosure where possible. The statute governing “Farmer Mac” mortgages provides a useful example of such criteria. See 12 U.S.C. 2202a (“Restructuring Distressed Loans”). Foreclosures are catastrophic for homeowners, holders of mortgage-backed securities, the housing market, and the economy as a whole.

The conduct of servicers is largely responsible for much unnecessary hardship. A
requirement that servicers modify mortgage according to established criteria to avoid foreclosure can avoid that hardship in the future. Neutral, established criteria will also avoid “tranche warfare” between classes of investors.

We also especially urge that any rule for securitized mortgages require that servicers not be affiliated with the securitizer. There are obvious potential conflicts of interest, and no apparent countervailing justification. At a recent hearing of the House Financial Services Committee, several witnesses from major servicers were unable to offer any advantage in being affiliated with securitizers, other than to offer “full service” to customers. That justification is entirely unpersuasive. Homeowners may select the bank with which they have a credit card or a checking account, but they have no say in who services their mortgage.

In fact, community banks and credit unions have been reluctant to sell the mortgages that they originate to “private-label securitizers” for fear that the mortgages will be serviced by an affiliate of a bank, and the servicer will use that relationship to “cross market” other banking services to the homeowner. Requiring that servicers be independent of banks, therefore, would advance the goal of increasing the availability of credit on reasonable terms to consumers.

The Dodd-Frank Actives provides you ample authority to reform servicing practices, and regulation of mortgage securitization will be ineffective without such reform.


Rep. Brad Miller [and others]


Word on the Hill is that Miller's letter is getting traction in the House.

The Whalen-Rosner letter, co-signed by prominent economists such as Nouriel Roubini and James Galbraith, is here:
Securitization Standards Letter


As Yves Smith notes:

As we have written, and as experts and foreclosure defense lawyers have reported in Congressional testimony, and as pending lawsuits by attorneys general in Arizona and Nevada allege,
servicer abuses are a significant cause of foreclosures. These include
including delaying and misapplying payments, using false hopes of
pending mods to extract more payments from consumers, and applying
compounding junk fees

These efforts come at a time when the Federal Reserve and other
regulators have indicated through act and deed that they will not rein
in fraud by the big banks and mortgage servicers or otherwise lift a
finger to help homeowners.

For example:

help support the efforts of Congressman Miller, Chris Whalen, Josh
Rosner and the others taking a laboring oar on trying to clamp down on
fraud by mortgage servicers, please sign this petition.

While it is tempting to assume that government regulators will get on
top of this without an outcry by the public, remember that:

  • As Yves Smith wrote recently about treasury barring use of TARP funds to help borrowers facing foreclosure:

"If you had any doubts about whose side the Administration is on, this story should settle all doubts."

  • And as Professors William K. Black and L. Randall Wray note, in a slightly different context:

Fed cannot conduct a credible investigation. It has taken so many
fraudulent nonprime loans and securities as collateral that it is the
leading proponent of covering up these losses."

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moneymutt's picture

if someone sold me a lemon car, I'd have some fairly easy to implement remedies, most states have decent lemon laws and rules about disclosure, but freak, the mortgage guys/banks were allowed to fraud beyond belief on the most significant purchase most working folks make.....the more we read whistle blower accounts the more we know these rat bastards were not just lax, but criminally fraudulent, and yet almost no one held to account.

Rather than waiting around from criminal punishments for crimes, we can PREVENT crimes by simple rules that guarantee free, fair, transparent, low-fraud markets.

As bad as stuff was, if we could just fix things going forward, at the least, we would be so much better off.

The amount of parasitical drain of money and resources these bastards take is unbelievable, and that is that much less money to spend on thing for the common wealth - consumers with more disposal income to buy whatever, govt with more money for govt services and social safety net, instead, enormous money flows to a small sector of rich elite financial types for doing nothing of value to society. Shoot, at least drug dealers provide people with a high, these guys just take.

Thoreau's picture

There's plenty of fraud to go around on both sides of the equation. The way I see it, slowing down the foreclosure process is just further delaying the inevitable unwinding of debts across the board. And the quicker this crap unwinds, the sooner the Feds & Co. will be brought to the gallows.

NotApplicable's picture

Sorry, never gonna support the beast in DC.

There is no such thing as a necessary evil. To empower the criminal class is to enslave the world. In light of "national interests," hundreds of millions were murdered in the last century. In this century, the number could run into the billions, that is, if you help to legitimize this force as a social solution.

The only form of goverment that has the ability, let alone the capacity to solve social problems is self-government. All others are based upon violent coercion, and therefore doomed to fail as the individual seeks to avoid the gun to their head that dictates the limits of their actions.

theprofromdover's picture

Isn't it mail fraud to request payment on a mortgage when you are not the true owner of the note?

theprofromdover's picture


I thought you had to be a member of Her Brittanic Majesty's Privy Council to get an hono(u)rable.

Maybe it is one of these degrees you can buy from College of Reprobates, Fudpucker, Missouri.

RockyRacoon's picture

I'm reminded of the parent that warns the child of dire retribution if the child keeps on misbehaving... and then does nothing to back up the threat.   You get a spoiled child.  The Fed is a spoiled child.

hardcleareye's picture

RR, reconginzing your interest in the fate of the euro, and your admiration of german finance and marketing, I belive this "titurial" will be of interest to you. Cheers..

RockyRacoon's picture

Yes! Thank you.  I had to watch it several times to absorb the vital data.

hardcleareye's picture

I think the Fed is the "adult" that spoiled child grew up to become.. 

Signs of Sociopathic behavior,

-exhibits a lack of conscience

-a pattern of irresponsible or poor behavior

-very manipulative

-patterns of pathological lying

-inflated sense of self-importance or narcissism

-engaging in risky or dangerous behaviors

koaj's picture

the Fed is a criminal banking cartel; Congress is its enabler

snowball777's picture

"Tranche warfare"....cute, Brad.

shinola's picture

If Geithner, Bernanke et al really were "honorable" there would be no need for this website.

snowball777's picture

Cuz 95% OPM is so much better? Pfffft.

Careless Whisper's picture

seems like that letter is addressed to the ususal suspects. too funny.


Unlawful Justice's picture

How will they control-motivate the working class monkey?   That's what it's really about.  I picture a monkey under water were the Fed uses air control with "air tubes" to keep us motivated.

dan10400's picture

How about make the originators hold on to the equity tranche?

Monday1929's picture

It is now big news when a politician objects to systemic fraud.

anonnn's picture

Legislation is ink on paper. If law is applied to produce fairness where there was unfairness, it is justice. 

 Otherwise, you get the crisis we are in.

What's to complicate?

snowball777's picture

The definition of subjective terms like 'fairness', for a start. 

gwar5's picture

Well done Miller. Let's do it. Laws aren't just for the little people. 

Miller is a Tarheel representing district #13, around Raleigh.

Hell, I never knew he was in my state. I hope he's passive agressive.

A_MacLaren's picture

Bankster servicing scum...

To help support the efforts of Congressman Miller, Chris Whalen, Josh Rosner and the others taking a laboring oar on trying to clamp down on fraud by mortgage servicers, please sign

After I read the piece on Yves' website today, I signed.  Very glad to help.

P.S.; I feel even better about having signed now reading all the good company I'm in, who are power letter writers (or at least some of them). 


illyia's picture

Who the hell would junk a comment like that? I mean... why would you bother.

Oh... well...

Yeah. I guess...

Okay Jamie...

infotechsailor's picture

while i share GWs sentiment, I'd hardly call the service fraud the 'cause' of the foreclosures. more like an illegitimate bridge to bypass the bureaucratic red tape nightmare.


the cause seemed to be zerointerest FED policy and GSE's but thats just me .