Sen. Richard Shelby, R-Ala., on Wednesday blasted federal regulators and state attorneys general for using "strong arm tactics" to force the nation's megabanks (and megaservicers) to agree to a $30 billion settlement along with changes to their foreclosure and loan modifications practices.
"Under the guise of helping homeowners hurt by improper foreclosures, regulators are attempting to extract a staggering payment of nearly $30 billion for unspecified conduct," Shelby said Wednesday afternoon. "The $30 billion would most likely fund a slate of housing programs long sought by the [Obama] administration, but previously rejected by Congress."
Although Shelby took aim at regulators, industry lobbyists say federal banking regulators do not favor a large cash settlement with servicers because it will deplete capital at the institutions they oversee. (The banking regulators have not taken a public stance on the AG talks. Initially, the cost of the settlement was valued at $20 billion, not $30 billion.)
Meanwhile, House GOP leaders, including Financial Services Committee Chairman Spencer Bachus and Rep. Scott Garrett, R-N.J., sent a letter to Tim Geithner, secretary of the Treasury Department, taking issue with the proposed settlement.
"The breadth and scope of the draft settlement proposal raise significant concerns about its effect on the financial system, as well as concerns that the administration and state agencies are attempting to legislate through litigation," the letter says. (A copy was provided to members of the media.)
Supposedly, the AGs want servicers to employ principal writedowns, which some industry officials liken to "cramdowns" that Congress rejected in 2009. (The industry is fighting the idea.)
As the ranking Republican on the Senate Banking Committee, Sen. Shelby is urging an immediate committee inquiry into "regulatory shakedown by the new Bureau for Consumer Financial Protection…lead by Elizabeth Warren."
"I am also requesting that the administration and our financial regulators refrain from entering into any settlement agreement until Congress has had an opportunity to conduct appropriate oversight on this matter," Shelby said.
