CFPB to Start Big

A months-long internal investigation of 500 loan files by the Federal Reserve found no wrongful foreclosures, members of the Fed's Consumer Advisory Council said earlier this month. Zero out of 500. The Fed's report defined "wrongful foreclosures" as repossessions of borrowers' homes who were not significantly behind on their payments. But consumer advocates stated that didn't matter, because "That homeowners were not delinquent has never been our contention," said Rashmi Rangan, a member of the panel and the executive director of the Delaware Community Reinvestment Action Council. "Our contention is that many of these foreclosures were avoidable."

In other words, they could have written down the loan and kept the delinquent borrower in their homes. Heck, why require anyone to pay back their debts, just think of the Keynesian stimulus!

A new regulator, meanwhile, is not encumbered with lots of banking experts. The CFPB, Elizabeth Warren's new financial regulator, is excited to make a bang in home lending. A power point leaked to the HuffPost shows that the CFPA notes banks saved $20B by not applying 'special servicing of delinquent loans'. Presumably, given foreclosed loans were found to all be truly delinquent, this would merely add more signatures and busy work to what is a fact. Somehow, I don't see how adding costs to the intermediation process helps anyone, but that's why I'm not in charge.

The CFPB presentation notes that it could 'require 3.0 million principal reduction modifications over six months , exempting government FHA and VA loans. Why any private bank lends to homeowners any more is an interesting question. The CFPB notes 'servicers fund write-downs (make investors whole)', as if the problem with banks is they have too much money. That will really get the economy going.

With all the financial problems in the pipeline, I'm almost hoping the CFPB does something this bone-headed right out of the gate, because creating a big mess early is probably the best thing they can do. That is, if they did something subtle it would probably be worse because it would take longer to fester.