At its Nov. 23 meeting next week, the Financial Stability Oversight Council is set to discuss the on-going foreclosure mess and whether it presents a systemic risk to the financial system, according to a Treasury Department official.
Also on the agenda, said one source, is the issue of mortgage servicing rights and whether a bank amassing too much of them might lead to systemic risk concerns.
The Nov. 23 meeting will be the second meeting of the FSOC, which was created by the Dodd-Frank Act. The interagency council chaired by Treasury secretary Timothy Geithner, is supposed to monitor financial institutions and guard against systemic risk.
Treasury general counsel George Madison said the foreclosure mess will be discussed at next Tuesday's meeting.
He noted that the federal banking agencies, state attorneys general and an interagency financial fraud task force are examining servicers and investigating foreclosure problems.
"To this point, none of that group has identified a systemic problem with foreclosures," Madison said at a Women in Housing and Finance luncheon Thursday.
However, a congressional panel that oversees the Troubled Asset Recovery Program issued a report that indicates foreclosure issues could be more complicated if the robo-signings of affidavits are a cover-up for the fact that loans servicers cannot demonstrate they can legally conduct a foreclosure.
The panel also raised concerns that the rapid growth of mortgage securitization outpaced the ability of the legal and financial system to track loan ownership.
In addition, investors in private-label MBS are demanding that the issuers buy back the loans. "Treasury should explain why it sees no danger," the oversight panel says in its report issued earlier in the week.
Senate Banking Committee chairman Christopher Dodd, D-Conn., also has called on the FSOC to review the foreclosure issue.
At a committee hearing on Tuesday, a Georgetown University associate law professor warned there could be "profound implications" for investors and issuers if the mortgages were not properly transferred to the securitization trusts.
"In the worst case scenario, there is systemic risk, as there could be a complete failure of loan transfers in private-label securitization deals in recent years, resulting in a trillion dollars of rescissions claims against major financial institutions. This would trigger a wholesale financial crisis," associate professor Adam Levin testified.
