While the topic of a House hearing Thursday was supposed to be mortgage servicing standards, the target was really the Consumer Financial Protection Bureau (CFBP).
GOP lawmakers on two Financial Services subcommittees sharply questioned Raj Date, the agency's No. 2 official, arguing the CFPB had improperly interfered with a pending settlement between the state attorneys general and several large mortgage servicers.
"The CFPB has been extremely involved in these mortgage negotiations," said Rep. Randy Neugebauer, the chairman of the House Financial Services oversight subcommittee, while raising questions about the CFPB's statements about its involvement. "I think it's really troubling."
Date defended the agency, saying it had been providing advice to the state AGs as they worked out issues with the banks. Treasury Secretary Tim Geithner has said he asked CFPB and its temporary leader, Elizabeth Warren, to help the AGs.
In the face of Republican charges that CFPB has changed its story over time, Date maintained that the bureau has been consistent about its role. "I do feel that the response has been unambiguous over time," he said.
Although GOP lawmakers said they had received a set of e-mails about the CFPB's involvement with settlement talks, at least some of the information appears already to have been made public. (Republicans have not yet released the e-mails.) GOP lawmakers pointed to a presentation by CFPB, first released months ago by The Huffington Post, which estimates that shoddy servicing practices saved banks $25 billion, and suggested that settlement funds be used to pay for principal reductions.
Rep. Sean Duffy, R-Wis., told Date that both the House and Senate have rejected proposals for principal writedowns of mortgages.
"And so the Congress has rejected these ideas," he told Date. "You say, 'No, no, no, this is an appropriate form of settlement.' . I take some form of offense to that."
But Date said that the CFPB was discussing the idea in the context of a voluntary settlement with banks, rather than as a change in the law.
"That is an idea that we have presented in the past. as part of a broader settlement," Date said.
Jennifer Howard, a CFPB spokeswoman, released a statement following the hearing about the documents that were provided Tuesday to House Republicans.
"The documents produced for Congress this week by the Treasury Department reflect inter-agency collaboration and advice," the CFPB said. "The documents also reflect discussions with industry to better understand the servicing market the CFPB will oversee. But to be clear: The Department of Justice and other federal and state officials are currently conducting negotiations of the terms of a potential settlement with mortgage servicers. The CFPB is not."
The documents included an e-mail exchange between Warren, Date and Richard Davis, the chairman and chief executive officer of U.S. Bancorp. While the e-mails were not made public, the exchanges seemed to reflect an attempt by the CFPB officials to understand how the servicing industry determines under what circumstances it is appropriate to grant a loan modification. Based on public discussion of the documents, neither Warren nor Date appeared to be requiring or suggesting that U.S. Bancorp. change its practices.
When asked whether CFPB is soliciting opinions from mortgage servicers about what would be workable, Date said, "It would not surprise me. I solicit opinions about a great number of things related to the mortgage industry."
The GOP's attacks on CFPB and Warren drew a fiery response from Rep. Barney Frank, D-Mass., the top Democrat on the House Financial Services Committee.
"There is an obsession with Elizabeth Warren, and let's be clear where it comes from," Frank said. "It comes from people who didn't want an independent consumer agency."
He added sarcastically: "Shame on her that she would actually sit down and come up with what she thought was best and then present it in a non-coercive way"
The CFPB was established as part of the Dodd-Frank Act enacted last July. It has been building a staff, but it does not take over responsibility as the consumer protection regulator of banks until July 21.
Warren, a Harvard Law professor who championed the idea of an independent consumer financial protection agency, has faced criticism from House Republicans in a series of hearings before the CFPB begins its supervision of banks. She appeared before the House Financial Services Committee on March 16 and the House Oversight Committee on May 24. She is scheduled to return to the House Oversight Committee on July 14.
On Thursday, Democrats expressed frustration that much of the hearing focused on the CFPB rather than about the problems with mortgage servicing, including forged signatures, lost paperwork, improperly notarized documents, and inflated fees.
"For me the hearing is not about the role of the CFPB in the settlement negotiations," said Rep. Carolyn Maloney, D-N.Y. "It should be about allegations of abuse in the servicing industry."
In addition to the state negotiations, which have been led by Iowa Attorney General Tom Miller, the robo-signing scandal sparked a review by federal banking regulators of the servicing and foreclosure processing practices of large mortgage servicers.
That review found what were deemed critical deficiencies and, in April, resulted in cease and desist orders against the 14 largest federally regulated servicers.
"By emphasizing timeliness and cost efficiency over quality and accuracy," Julie Williams, chief counsel of the Office of the Comptroller of the Currency said in written testimony Thursday, "examined institutions fostered an operational environment that is not consistent with conducting foreclosure processes in a safe and sound manner."
The 14 servicers are required to hire third parties to review foreclosures that were completed or in process during 2009 and 2010, and to identify and compensate borrowers who unduly suffered financial harm.
Rep. Shelly Moore Capito, R-W.Va., expressed concern that different servicing standards set by federal regulators, state regulators, and Fannie Mae and Freddie Mac would result in conflicts. "In my view, a single standard would certainly be better," Capito said.
Williams echoed that worry, saying, "A concern that we have with the processes under way is that there will be potentially multiple and inconsistent sets of standards."