For the moment, the job of ensuring that the nation's largest banks comply with the terms of last week's mammoth mortgage settlement falls on just one man.Joseph A. Smith, Jr., North Carolina's banking commissioner, is charged with ensuring that the five biggest mortgage servicers — Bank of America Corp., JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial — implement new servicing standards and take other steps that are required by the settlement.
As the settlement's independent monitor, Smith will publish regular reports that will name banks that fail to meet those responsibilities. He will have the ability to impose fines of up to $1 million per violation, and up to $5 million for certain repeat violations, according to last week's announcement.
The appointment represents a second opportunity for Smith to make an impact on the national stage after Senate Republicans blocked his 2010 nomination to head the agency that oversees Fannie Mae and Freddie Mac.
Both industry and consumer advocates praised the former bank compliance lawyer, saying he is the perfect choice.
"In his heart and in his actions, he is a consumer advocate," said Thad Woodard, president of the North Carolina Bankers Association. "In his mind and in his actions, he is understanding of the banking industry and its importance, and is fair in his dealings with the banks."
"And he plays fairly and openly with all parties, no matter what side of the equation from which they come."
Michael Calhoun, president of the Center for Responsible Lending, said, "I think what makes Joe so well-suited for this position is he's got a rare combination of deep policy background and just also the operational expertise."
"He understands the cost and benefits from both the borrower and the financial institution side," Calhoun added. "And that kind of expertise and balance is just really rare out there."
Important questions remain about the details of Smith's duties and the resources he will have to carry them out. Officials have not established what his annual budget will be, though they say that the funds will not come out of the $25 billion settlement total.
Smith will monitor not only compliance with the new servicing standards, but also with other parts of the settlement agreement, according to a spokesman for Iowa Attorney General Tom Miller, who led the settlement talks.
It's an enormous job, one that involves monitoring how tens of billions of dollars are spent and enforcing a complex set of new standards for the mortgage servicing industry.
The standards promise an end to robo-signing, restrictions on the controversial practice of moving forward with foreclosure proceedings while an application for a loan modification is pending, and the establishment by banks of a single point of contact for homeowners, among a thicket of other rules.
The 49 participating states are clearly putting a great deal of faith in Smith.
"Never before have state attorneys general been able to enlist an independent monitor with the backing of a court order to ensure that nationally chartered banks are holding up to their end of the bargain," Connecticut Attorney General George Jepsen said when the settlement was announced.
"As an independent monitor who has tremendous expertise in the financial sector, a history of looking out for consumers, and a great strategic approach, Joe Smith will look out for the interests of our states' homeowners."
Smith, who will work from his hometown of Raleigh, will face close scrutiny from consumer advocates who fear that the settlement will suffer a similar fate as previous efforts to assist troubled homeowners.
The Obama administration's mortgage-modification program is widely seen as a disappointment, and many believe that a lack of strong enforcement by the federal government is a major reason why the program has failed to meet expectations.
Smith plans to step down from his current job as North Carolina's banking commissioner, according to the Iowa AG's spokesman, though he has not announced a timeframe.
A spokeswoman for the North Carolina bank commissioner's office said that Smith was unavailable for comment.
Smith, a graduate of Davidson College and the University of Virginia Law School, is a former counsel for Centura Bank of Rocky Mount, N.C., which was acquired by Royal Bank of Canada in 2001. In 2002, Democratic Gov. Mike Easley appointed Smith as North Carolina's banking commissioner.
As commissioner, Smith oversaw the implementation of the Tar Heel State's foreclosure-prevention program. He was also a driving force in a state crackdown on payday lenders.
And Smith played a role in administering a landmark 1999 state law aimed at curbing predatory lending, at one point coming to Washington to testify when Democratic Rep. Brad Miller used the North Carolina law as the basis for federal legislation.
"His testimony was very candid, and was helpful to the arguments that I was making that those consumer protections would not hinder lending to people who really should be getting mortgages," Miller said in an interview.
John Ryan, president and chief executive officer of the Conference of State Bank Supervisors (CSBS), said that during the build-up to the financial crisis, he was on the phone frequently with Smith, who later became chairman of the state bank supervisors group. "He had a very keen sense that there were deep problems with our mortgage lending system and mortgage markets," Ryan said. "And it was not going to a good place."
In late 2010, President Obama nominated Smith to head the Federal Housing Finance Agency (FHFA), a position that had taken on greater political importance since Fannie and Freddie became wards of the federal government in 2008.
The day before Smith's Senate confirmation hearing, an article in the Wall Street Journal stated that the Obama administration was using the FHFA to pressure Fannie and Freddie to make principal reductions, an idea that congressional Republicans strongly oppose.
At the hearing, Sen. Richard Shelby pressed Smith hard on the issue. Smith insisted that he would act independently, but Shelby soon moved to block the nomination, arguing he would be too close to the Obama administration. Eventually, Smith withdrew his name from consideration for the post.
Late last year, as the mortgage settlement talks were inching toward their conclusion, some states wanted Sheila Bair, the former chairman of the Federal Deposit Insurance Corp., to monitor the settlement. But Bair made clear that she was not interested in the job.
Eventually, the state attorneys general, the federal agencies involved in the settlement talks and the five participating banks agreed to give the job to Smith.
So far, Smith is getting nothing but plaudits from those who have worked with him.
He is smart, inquisitive and fair, said Ryan, his former colleague with CSBS.
"He really is a very independent guy," Ryan added. "He has a clear sense of right and wrong and fairness."