House Republicans are set to send a letter today to Treasury Secretary Tim Geithner raising concerns about a proposed settlement deal between the five largest servicers and various state and federal enforcement agencies.
Rep. Scott Garrett, R-N.J., is circulating a letter among top GOP members of the House Financial Services Committee that argued the state attorneys general and other federal agencies involved have gone too far in their attempt to punish the banks for problems with the foreclosure process.
"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 said, according to a copy obtained by ASR sister publication American Banker. "In addition, reports about the role played by political appointees in the Treasury Department — including those affiliated with the Consumer Financial Protection Bureau (CFPB), an agency that does not yet have any regulatory or enforcement authority — raise further question about the process through which the terms of the settlement are being negotiated."
The letter is expected to be signed by Financial Services Committee Chairman Spencer Bachus, Reps. Randy Neugebauer, R-Texas, Pete Sessions, R-Texas, and Patrick McHenry, R-N.C.
It comes in response to a 27-page term sheet given to the top five servicers last week by the state attorneys general, CFPB, Justice Department and Department of Housing and Urban Development. The term sheet was published on AmericanBanker.com on Monday.
The term sheet laid out a list of demands the state attorneys general are hoping the banks will agree to, including pushing for principal write downs and setting new servicing standards.
In the letter, the lawmakers said that an enforcement action traditionally imposes remedies for restitution to victims for specific crimes. But they said this term sheet goes well beyond that.
"The settlement agreement not only legislates new standards and practices for the servicing industry, it also resuscitates programs and policies that have not worked or that Congress has explicitly rejected," the letter said.
The letter mentions the Home Affordable Mortgage Program, which the House GOP is trying to eliminate under a bill expected to be passed by the Financial Services Committee on Wednesday. Under the term sheet, the state AGs would force servicers to make changes to how they offer workouts under Hamp, including speeding up the process to give troubled borrowers permanent modifications.
The letter asks Geithner to respond to 11 questions on the settlement by March 18, including what authority regulators have to mandate principal reductions and effectively create new standards for the servicing industry. Lawmakers are also questioning the role of the CFPB, which the term sheet says would monitor and enforce much of the agreement.
Although the letter does not reference Elizabeth Warren by name, the lawmakers specifically ask what role "political appointees" have had in drafting the agreement. Warren was appointed last year by President Obama to set up the CFPB but has not been formally nominated as its director.