By Elizabeth Warren
No one has missed the headlines: Haphazard and possibly illegal practices at mortgage servicing companies have called into question home foreclosures across the nation.
The latest disclosures are deeply troubling, but they should not come as a big surprise. For years, both individual homeowners and consumer advocates sounded alarms that foreclosure processes were riddled with problems.
While federal and state investigators are still examining exactly what has gone wrong and why, two things are clear.
First, several financial services companies have already admitted that they used “robo-signers,” false declarations, and other workarounds to cut corners, creating a legal nightmare that will waste time and money that could have been better spent to help this economy recover. Mortgage lenders will spend millions of dollars retracing their steps, often with the same result that families who cannot pay will lose their homes.
Second, this mess might well have been avoided if the Consumer Financial Protection Bureau had been in place just a few years ago.
The new consumer agency is one of the signature accomplishments of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama this summer. The new agency will take on oversight responsibilities that had been scattered among several federal agencies, and it will be a new cop on the beat that will end big loopholes in the regulatory system. For the first time, banks and non-bank lenders (such as payday lenders, check cashers, and mortgage brokers) will be subject to the same federal oversight to ensure that they are all playing by the same rules—no more turning sideways and slipping through the regulatory cracks.
Lost in much of the back-and-forth over wrongful foreclosures is the question of whether the scandal could have been prevented. The answer is yes. The practices now under investigation took root and grew because there was no single federal regulator with both the responsibility and the tools to look out for consumers.
Had it existed, the new consumer agency could have stopped these problems before they multiplied. Many of the failures already admitted were not sophisticated scams that had been carefully concealed. By enforcing existing laws and involving state authorities early on, the agency could have made sure that the law was respected. No one would need to wonder whether the world of borrowing and lending works only one way: Families have to follow the legal rules, but the rules are optional for big banks.
Once it is fully operational, the new consumer agency will have supervisory authority over all large mortgage servicers. It will be able to examine them on a regular basis to make sure they follow the rules. If those servicers decide it is cheaper or faster to circumvent federal law, the consumer agency will have the tools to hold them accountable. No one will be allowed to break the rules without triggering a strong and prompt federal response.
Currently, the federal interagency foreclosure task force, including the members of the Financial Services Oversight Council, is working along with the state Attorneys General to get to the bottom of these problems. The implementation team for the new consumer agency is also working to assemble and coordinate teams to deal with servicing and other issues. These efforts are critical, but there is more work to do: We must ensure this kind of scandal—or some close cousin—does not happen again.
A mortgage is the biggest financial commitment most Americans will make in a lifetime, and the toll on Florida has been especially heavy and the need for oversight particularly apparent. A few weeks ago, I watched proceedings in a Ft. Lauderdale foreclosure court and saw firsthand the painful outcomes for numerous families.
Unfair servicing practices can worsen a family’s already difficult economic situation, and the injury echoes from the family to the community and ultimately throughout the economy. Cops on the beat can stop problems before the damage spreads. If there ever was any doubt that the new consumer agency is necessary, the latest foreclosure developments should put that to rest.
Elizabeth Warren is the Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau and an Assistant to the President.
This article originally appeared in the Miami Herald under the headline “New Consumer Agency is Frightfully Necessary—and Late .”