A senior Obama administration official on Thursday questioned whether the Justice Department’s rush to settle with mortgage companies over alleged mortgage and foreclosure abuses has affected the thoroughness of its investigations – the first time a top administration official has broken ranks over the issue.
Elizabeth Warren, a senior advisor to President Barack Obama and Treasury Secretary Timothy Geithner, and who currently heads the Bureau of Consumer Financial Protection, told the House Oversight and Government Reform Committee that the government may not have sufficiently investigated claims that mortgage companies illegally seized borrowers’ homes.
“I think there’s a real question about whether there’s been adequate investigation,” Warren said.
Warren’s remarks came after Rep. Trey Gowdy (R-S.C.) asked her why the Bureau of Consumer Financial Protection, a new agency responsible for protecting borrowers from abusive lenders, needed to oversee issues of mortgage abuse when the Justice Department was already involved.
“If these practices are illegal, then why isn’t [Attorney General] Eric Holder sitting here with you explaining what he’s done?” Gowdy had asked. “Why do we need your agency if they’re already illegal.”
The Justice Department joined with the Department of Housing and Urban Development, Treasury Department, Federal Trade Commission, state bank regulators and all 50 state attorneys general in launching investigations last year into reports that companies were breaking state and federal laws when repossessing borrowers’ homes.
The five largest mortgage servicers in the country – Citigroup, Wells Fargo, Bank of American, JPMorgan Chase and Ally Financial – have been negotiating with the government to settle the allegations in a proposal that could net nearly $30 billion in penalties and mortgage relief.
State and federal prosecutors are reportedly pressing the completion of a settlement with the five companies in an effort to provide greater certainty in the financial system, even though they have only initiated a limited investigation, the Huffington Post reported Monday.
But some have questioned whether the administration is wise to pursue a settlement without first building a strong case that prosecutors can use for leverage in negotiations, according to the Huffington Post.
“I would never want to go into a negotiation without solid evidence of actual misconduct to hold as leverage over my counterpart,” Neil M. Barofsky, former special inspector general for the Troubled Asset Relief Program, told the Post. “It would also be very dangerous from a public policy perspective to waive all future claims as part of such a settlement if you do not have a good sense of the size, scope and severity of the underlying misconduct.”