The Federal Housing Finance Agency is well on its way to a remarkable achievement: proving less popular, among housing groups, than even the banks whose actions have exacerbated the foreclosure crisis.
For months, the regulator has drawn withering fire for its opposition to reducing loan values for some underwater borrowers. Now, some members of California's congressional delegation are suggesting that the agency's top lawyer, Alfred Pollard, is a stooge of the mortgage industry after he sent a letter expressing concern with pending state legislation meant to give homeowners facing foreclosure increased legal rights.
On Wednesday, 14 California lawmakers sent a response asking the FHFA's inspector general and the Department of Justice to investigate whether Pollard's letter constituted inappropriate lobbying.
"After a careful review, we have concluded that your letter is devoid of any meaningful substantive analysis, takes the path of least resistance, which is most beneficial to the financial industry but most harmful to at-risk homeowners, and directly contradicts the FHFA’s statutory mission of protecting the public interest," the lawmakers' letter said.
The California legislation, promoted by state Attorney General Kamala Harris, is known as the "Homeowner Bill of Rights." If enacted, all banks and servicers in the state would be required to adopt many of the reforms embedded in the recently signed $25 billion mortgage settlement, which expires in about three years. One measure, for example, would restrict "dual-tracking," in which banks pursue foreclosure proceedings against homeowners who are pursuing a trial loan modification at the same time. Most of the national banks that signed the mortgage deal have lobbied against the bill.
The California legislature is currently debating the measure. On May 11, apparently unprompted, Pollard wrote to legislators about the proposed law. Among other expressed concerns, Pollard said a provision that would allow the attorney general or a district attorney to punish any entity that files a "robosigned" document by imposing a $10,000 fee is too harsh, because no exception is made for any minor error in a foreclosure document.
If he had stopped at suggesting changes to particular provisions, Pollard may not have provoked such a furious response. But in the second half of the letter, he appears to more broadly attack any state effort to give homeowners greater legal rights to sue over a foreclosure. Doing so would slow the housing recovery, he said.
"Increasing legal risks for lenders and investors— where existing remedies exist and where new language creates incentives for litigation—ultimately creates harm for all homeowners," Pollard wrote.
Given the "coming together of actions" by federal regulators and law enforcement to address mortgage servicing problems, "it is unclear why legislation would be undertaken that could produce contrary results to these remedial steps," Pollard said.
"In the end, California’s non-judicial foreclosure process, that has served the state well and allowed a faster recovery of its housing market, will suffer," he said.
The congressional group, which includes Zoe Lofgren, the chair of the California Democratic Congressional Delegation, fired back.
"Frankly, your expressed concern for 'increasing legal risks for lenders and investors' is not one we would expect to hear from an independent regulator acting in the best interests of the taxpayers – though we certainly would expect to hear it from a regulated industry," they said. "To suggest that a state government can rely on a federal law that has not yet passed and federal regulations that have not yet been enacted displays either ignorance on your part or an attempt to mislead."
In response to a request for comment, an FHFA spokeswoman responded that the agency hadn't yet received the lawmakers' letter.
The FHFA letter also angered some consumer advocates. Kevin Stein, the associate director of the California Reinvestment Coalition, which supports the Homeowner Bill of Rights, wondered how Pollard could describe California's foreclosure process, which has been plagued by the same types of accounting mistakes and botched foreclosures that have occurred elsewhere in the country, as "good."
Stein noted the result of a recent audit that found problems with as many as 84 percent of 400 loans reviewed in the San Francisco area. "How could anyone look at that and say that the foreclosure process in California is serving us well?"
Craig Holman, a government affairs lobbyist for consumer rights advocacy group Public Citizen, said that Pollard -- a former banking lobbyist -- appears to be parrotting the position held by his former colleagues. "This is the classic example of the banking industry capturing the FHFA," he said.
Still, Holman said, he didn't expect a reprimand for Pollard. "Regulators have a wide berth of what they can do in carrying out official duties," he said. "It is a very difficult issue for an inspector general to step in, unless it can be identified that Pollard is violating the letter of the law."
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