Smith To Head Mortgage Monitor Office

WASHINGTON, DC-Joseph A. Smith Jr., the former North Carolina banking commissioner, will oversee the independent monitoring and enforcement office that is being set up under the $25 billion mortgage settlement agreement to which five major US banks and the federal government agreed last month. More details of the broad agreement, which took more than a year to negotiate, were revealed in court documents filed by the Department of Justice in the United States District Court for the District of Columbia this week, along with Smith’s appointment.

Smith’s role is to ensure that the banks uphold their end of the agreement in revamping their mortgage settling processes. The penalties he has at his disposal are tough: $1 million per violation or $5 million for repeat violations.

Also, according to a separate Department of Housing and Urban Development notice, the settlement does not let mortgage providers off the hook from wrongful securitization conduct, which in fact will be the focus of the new residential mortgage-backed securities working group that President Barack Obama announced during his State of the Union address.

Indeed, the Justice Department and the Obama Administration appear to hope that by releasing further details about the settlement, it will squash grumbling in some quarters that the banks got off too lightly.

HUD, for example, pointed out that the United States retains its full authority to recover losses on a government-insured or government-guaranteed loan and that it resolved certain FHA origination claims with Bank of America as part of this filing and with Citibank in a separate matter.  Also, the agreement does not prevent individual borrowers from bringing their own lawsuits if they want.  State attorneys general also preserved all claims against the Mortgage Electronic Registration Systems (MERS), and all claims brought by borrowers.

Finally, HUD pointed out that the banks cannot meet their obligations simply by offering help to homeowner, but that will only get credit by actually delivering principal reduction and other help. If they don’t the requirements will convert to cash payment and will result in obligations of an additional 25-40%.  “The settlement forces servicers to fix the problems that led to the broad violations uncovered during this investigation,” HUD simply stated.

Smith’s bona fides for his new role as chief enforcer include his oversight a leading foreclosure-prevention program. He has also served as chairman of the Conference of State Banks Supervisors and was President Obama’s nominee to serve as Director of the Federal Housing Finance Agency. 

As monitor, Smith will also publish regular public reports that identify any quarter in which a servicer fell short of the standards imposed in the settlement.  The agreement, one of the largest government-business settlements in history, was first announced last month with Ally Financial, Bank of America, Citigroup, JP Morgan Chase and Wells Fargo agreeing to settle alleged foreclosure abuses for $25 billion.