The banks were saved by the American people. Now who will save the people from the banks?
Last week, in a rare and possibly fleeting victory for the little guy, Ally Financial Inc.’s mortgage-servicing unit temporarily halted evictions tied to foreclosures in 23 states. This came after some attorneys for homeowners caught the company saying things that weren’t true in its court filings.
There’s no sense complaining to the federal government about Ally’s conduct, though. That’s because the Treasury Department is the company’s majority shareholder, after spending $17.2 billion of bailout money on Ally under the Troubled Asset Relief Program.
While the Treasury’s policy is to stay out of the company’s day-to-day affairs, the mess at Ally offers a fine example of why TARP is so politically unpopular.
In Florida and many other states, the law requires lenders and mortgage-servicing companies to jump through numerous hoops before they’re allowed to foreclose on a person’s home. These include having employees provide local courts with sworn, notarized statements about customers’ loans that they personally know to be true. These pesky requirements proved too much for Ally to follow.
So acknowledged a 41-year-old middle manager at Ally’s GMAC Mortgage unit, Jeffrey Stephan, during a December 2009 deposition, in which he estimated that he signed “a round number of 10,000” affidavits and other foreclosure documents a month. Stephan, a team leader overseeing 13 people in the company’s foreclosure department, said he relied on outside law firms to verify the records’ accuracy, rather than checking the facts himself. Nor was a notary present when he signed the affidavits, which were used in the process of repossessing homes and evicting residents.
Ally, the former General Motors unit that used to be called GMAC Inc., says such problems were merely technical defects, albeit unfortunate and regrettable ones. There will be “no interruption in new foreclosures,” the company said in a Sept. 20 press release, as if this were supposed to provide reassurance. Meanwhile, some Florida law firms representing the company have withdrawn affidavits signed by Stephan. The Florida attorney general’s office says it’s investigating.
Back in December 2009, the head of the TARP program, Herbert Allison, told Congress the government had no intention of getting involved in the daily management of the companies it bailed out.
“Our responsibility is to protect the taxpayers’ investment,” said Allison, the assistant Treasury secretary for financial stability. “Government involvement in the day-to-day management of a company might actually reduce the value of these investments, impede the ability of the companies to return fully to being privately owned, and frustrate attainment of our broader economic policy goals.”
With the benefit of hindsight and a little rephrasing, the government’s policy is clearer now: We have to let these bailed-out banks keep screwing the American people, in order to keep the American people from getting screwed on their investments in these bailed-out banks.
If this helps preserve the value of Cerberus Capital Management’s 14.9 percent stake in Ally, oh well. Hold your nose, we’re told, because it’s for the greater good. And never mind that this private-equity firm’s chairman happens to be a former Treasury secretary, John Snow. Just optics, you know.
It’s not as though the government is asserting its full rights as a 56.3 percent shareholder of Ally, either. Under the terms of Ally’s bailout, the Treasury received the right to name four directors to Ally’s nine-member board. So far, Treasury has appointed three.
It makes no difference how many loan-modification programs the government creates, or what new consumer-protection agency Elizabeth Warren gets hired to lead. As long as the Treasury is supporting a company such as Ally, Americans will be right to conclude the government is two-faced and working against their own best interests.
The problem of mortgage companies filing false court documents stretches beyond Ally. In August, for instance, a Florida circuit court judge blocked a Jacksonville foreclosure by Washington Mutual and JPMorgan Chase & Co., which had purchased the failed lender’s assets. The judge, Jean Johnson, wrote that WaMu and its law firm “committed fraud on this court.” As Bloomberg News reported on Sept. 21, JPMorgan had presented a document that showed WaMu had bought the mortgage, when actually it was still owned by Fannie Mae.
While JPMorgan has repaid its TARP money, Ally hasn’t. Given the government’s investments, it would be hard to fault anyone for thinking the Treasury condones this sort of behavior.
This is what infuriates so many Americans about the bailout culture. When banks break the rules, consumers are supposed to be able to turn to the government for help. When Ally breaks the rules, though, it’s the Treasury’s own company that’s doing it.
Our government isn’t supposed to prey on its own people in the name of protecting our investments. It never should have gotten in this business in the first place.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
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