Capito: Dodd-Frank Did Nothing to Address the Future of Federal Housing Finance

"Robo-signing" is a big topic in Washington this week with two Capitol Hill hearings addressing the scandal. First up was the the Senate Banking Committee, where Chairman Christopher Dodd called the crisis the "tip of the iceberg.” Today we get the House's hearing on the issue.


Congresswoman Shelley Moore Capito (R-WV) is Ranking Member of the subcommittee for Housing and Community, which is holding a hearing entitled "Robo-Signing, Chain of Title, Loss Mitigation and Other Issues in Mortgage Servicing.” I asked her what she plans to ask the panel’s witnesses. We also addressed her thoughts on the effect of Dodd-Frank regulatory reform on housing the the financial sector.

LL:You have the CFPB (Consumer Financial Protection Agency), which many fear will put the OCC and the FDIC at odds with each other. Will this independent entity help or create more harm when it comes the foreclosures and the issues mounting in the housing industry?

SC: The CFPB is an unchecked bureaucratic agency with unlimited power—that’s not the right approach to fixing the financial industry.

LL: Are you in favor of the CFPB? Should Warren be made the chairman (not this temporary title)?

SC: Her role will be determined by the President. If she is going to yield so much power over the financial regulatory system, she should be in a position that is subject to Senate confirmation. The CFPB has vast influence over consumer choice and the behavior of financial institutions. Whomever is named chairman will need to use this authority judiciously. Given Professor Warren’s previous statements on the role of this new agency in limiting consumer choice in financial decisions, I believe that her ascendance to the chairmanship is troubling. I look forward to working with my colleagues in the 112th Congress to restoring financial decisions to where they should be made, the family dinner table; not by an unelected bureaucrat in Washington.

LL: You have a hearing today, what do you hope to hear from those testifying?

SC: The process of foreclosing on a homeowner should be handled in a manner that respects the borrower, allows the banks to do their jobs and ensures accuracy and accountability in foreclosure documents. There’s no question that the paperwork misconduct we’ve all heard about over the last few months has tested the integrity of this process. The goal of this hearing is fact-finding and information gathering. We’re bringing in people from all spectrums of the foreclosure process, from bank representative to regulators to real estate experts, in an effort to figure out how and why this paperwork misconduct occurred.

LL: The issue of Robo-Signing is just another blackeye on already battered system. Do you think all the dirty laundry is out now or will there be additional wrong doings coming out?

SC: I certainty can’t speculate on whether additional wrong doings will surface, but one thing that I do want to find out it is if this is a case of fraudulent action by the banks or simply messy paperwork. One of the ways we find that out is to ask the banks about their foreclosure schedule, and I’ll be asking that question today.

Of course, I want to know “where were the regulators?” It’s difficult for me to accept that despite oversight by the OTS, FDIC, and the FED, as well as state regulators, this problem wasn’t identified sooner. That’s simply unacceptable to me, and I think it underlines the reality that we need smart regulations and regulators; alone, more rules are not the answer

LL: What should be done with all the mortgages that were robo-signed?

SC: Luckily, we’re not hearing about an overwhelming number of homeowners reporting that they have been improperly subjected to foreclosure proceedings. It’s my understanding that banks have already begun revisiting these files. I believe that banks do have a right to foreclose on a homeowner if that borrower is not meeting their end of the bargain.

We’ve seen that every state’s Attorney General has taken action to address the issue. For now, I think the authority should reside in them. That said, we have a responsibility to defend our constituents, and I certainly want to know if this is a case where the banks were too quickly foreclosing or if the regulators weren’t doing their jobs or if we need to take a look at the foreclosure process in general.

LL: How would you grade the mortgage system now?

SC: I think this paperwork problem underlines the need for banks to update and modernize their foreclosure approval process. Obviously, in the past two years we’ve seen a massive increase in the number of foreclosures, but the banks should have been able to put people and equipment in place to address the high volume. Borrowers deserve accountability and accuracy.

LL: Fannie and Freddie have yet to be addressed yet when it comes to Financial Regulation reform. What do you hope to see here?

SC: It’s unacceptable that Fannie and Freddie were not addressed in the Democrat’s Financial Services overhaul legislation. There’s no question that the mortgage giants were a huge factor in the economic downturn, and yet Dodd-Frank did nothing to address the future of federal housing finance. Recent estimates now indicate these entities may end up costing taxpayers $685 billion, as the Treasury has promised to inject unlimited funds through 2012.

I think the reform of Fannie and Freddie will be a top priority for Congress next year; we simply can’t afford to keep ignoring this issue.

LL: What's your message to the banks, mortgage lenders and reinsurers?

SC: We need to take the opportunity to see if there are ways to modernize the foreclosure process to ensure transparency and accuracy.


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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."