Republican lawmakers demanded on Wednesday that Elizabeth Warren, the unofficial head of the Consumer Financial Protection Bureau, explain documents that seemed to contradict her claims of being only an “adviser’’ in recent mortgage negotiations between state prosecutors, federal regulators, and the nation’s biggest banks.
“It is plain that the CFPB has done more than provide ‘advice’ on the proposed servicing settlement,” charged Rep. Spencer Bachus, R-Ala., the chairman of the House Financial Services Committee, in a letter to Warren on Wednesday. “Since you testified, new information has come to light indicating that the CFPB has actually been deeply involved in the negotiations,” the letter said.
The development could be explosive. Because Warren has never been nominated or confirmed as director of the new bureau, she acts in a largely unofficial role with limited legal authority. That shadowy role has provoked howls of protest from GOP lawmakers about the administration’s lack of transparency.
The possibility that Warren deliberately misled Congress could set the stage for a much nastier political fight over her role and that of the fledgling consumer bureau. Suggesting that Warren either lied or misled the committee at a hearing two weeks ago, Bachus and Rep. Shelley Moore Capito, R-W.Va., asked Warren to “clarify or correct” her testimony.
But the documents don't necessarily contradict Warren's claim of being an "adviser." Though they confirm that bureau officials made recommendations, administration officials argue that they still constitute advice rather than decision-making.
The letter, which was blasted out in a press release, references documents on the consumer bureau’s letterhead that proposed demands that state prosecutors could make on the banks as part of a settlement of legal claims over shoddy mortgage-foreclosure practices.
Though the various sides are a long way from agreement, many of the state prosecutors and some federal regulators want the banks to put up more money for troubled homeowners and to actually reduce many of their loan balances. Bank executives are fighting those demands.
Republican lawmakers have hammered Warren and Treasury Secretary Timothy Geithner in recent weeks over their insistence that Warren had not played a role in proposing penalties for the banks. A document offering “perspectives on settlement alternatives in mortgage servicing” was marked “confidential for AG Miller” – a reference to Iowa Attorney General Tom Miller, who has been a leader in the servicing settlement talks.
The bureau document suggested that a “global settlement” could be the basis for reforming the banks’ deeply flawed loan-servicing and foreclosure processes, and it contended that a $5 billion penalty might be too low.
“Rough estimates suggest that the largest servicers may have saved more than $20 billion through under-investment in proper servicing during the crisis. As a result, a notional penalty of $5 million would seem too low,” says language at the top a CFPB chart that the committee released.
Another CFPB chart states, “Effective special servicing of delinquent loans would have cost 75 basis points a year more than the actual costs incurred.”
In a letter to GOP lawmakers earlier this month, Geithner specifically refuted any connection between the consumer bureau and any proposed settlement amounts. “CFPB does not currently have authority to administer penalties, and will, therefore, not be a party to any formal settlement with mortgage servicers," Geithner said at a hearing on March 15.
In their letter on Wednesday, Bachus and Capito accused the CFPB of being the “architect” of servicing-settlement negotiations, rather than merely providing advice.
Jen Howard, a spokeswoman for Warren, said there was no contradiction between Warren’s testimony and the documents. “As Elizabeth Warren testified to Congress earlier this month, the consumer bureau provided advice to various officials involved in the mortgage-servicing law enforcement matter,’’ Howard wrote in an e-mail on Wednesday. “She is aware that not everyone agrees with that advice or how to address the serious deficiencies at some of the nation’s largest mortgage servicing firms.”
Geithner, meanwhile, reminded lawmakers earlier this month that the CFPB will obtain significant authority to set standards for the mortgage-servicing industry when the bureau becomes officially operational on July 21 -- the date when the consumer financial protection functions of other agencies transfer to the CFPB.
“For this reason,” Geithner wrote, “the CFPB has been invited to advise the other agencies on how to design appropriate servicing standards for the mortgage servicing industry."
State attorneys general, federal regulators, the Justice Department, and other federal agencies have been trying to reach a global settlement with major servicers to rectify mistakes in foreclosure processing, including robo-signing documentation. Rumors have swirled that the CFPB has been pushing for a figure of about $20 billion to pay for principal write-downs on underwater loans to stem foreclosures.
Bankers, who are supposed to meet on Wednesday with Miller and other enforcement officials to submit a counteroffer, have balked both at the principal reduction modification plan idea and at the servicing standards, which they say would expose them to limitless liability.