Bank Lawyer's Blog

I'll Be Watching (And Chasing) You

When strategic defaulters are considering walking away from their homes, they'd be advised to make certain that if they have an outstanding second lien loan on their home, they either plan to pay it or otherwise hide their assets in a remote location and leave the country. You never can tell when the junior lender might retain a guy like Leo Stawiarski Jr. to track you down, sue your hindquarters, stew your pet rabbit "Alf," and then start getting nasty. Actually, Leo sounds like a calm, rational, patient, and persistent lawyer, who understands how to analyze the situation and deal with the "walk-aways" in ways that results in many of them discovering that they didn't walk away far enough.

In an interview posted yesterday on Housing Wire, Leo lays out the options. First, you work with a borrower to see if you can't get a sale, a short sale, or a repayment plan worked out, based on the financial condition of the borrower and the value of the equity in the collateral. If you can't work it out, you beat the borrower over the head with a club and keep beating him or her until they pay up pursue your contractual rights under the loan documents and applicable law. You sue the borrower, obtain a judgment, and then execute the borrower on the judgment, pursuing the ever-popular garnishment of wages and/or bank accounts. He doesn't discuss other tactics, such as filing the judgment lien in the real estate records, where it clouds title to any real estate you may buy or sell in the foreseeable future (or for a few years, at any rate), and, of course, the ever popular remedy of "kneecapping," used to great effect by the IRA to discipline miscreants in Northern Ireland yet sometimes frowned upon by law enforcement authorities in this country.

Leo isn't heartless, although since we're describing an attorney, that might mean he's got a heart the size of the judgment center of Charlie Sheen's prefrontal lobes or of Kirstie Alley's hips. It's difficult to be certain. Regardless, he understands that borrowers may be in dire straights, but ultimately, that's not his problem.

While we understand that borrowers may find themselves in difficult financial circumstances, as a lawyer representing the second mortgage holder, my primary focus is to enforce the terms of the binding contract between the lender and the borrower. At LCS Financial, our objective is to ensure that the borrower meets their contractual obligations to our clients, taking into account the borrower’s ability and willingness to repay the indebtedness.

As I said last week, that's a lawyer who's just doing his job. Don't like it? Change the system.

I happen to agree with his comments about strategic defaulters. I especially appreciate an observation that isn't made often enough. Ultimately, strategic defaulters screw a lot more people than lenders.

These defaults adversely affect neighborhood property values because they lead to excess inventory and property deterioration. Moreover, strategic defaults generally impact taxpayers. Most loans are now government owned, insured, or guaranteed which means taxpayers are essentially funding strategic defaults. The key is to create an environment of responsible homeownership where financially capable borrowers honor their obligations because they know there will be consequences if they simply walk away. One of the clearest ways to create such an environment is for servicers and lenders to pursue their remedies when faced with strategic defaults.

Low-key, rational, and relentless. The perfect temperament for a "collector"

. ***********************************************************************************************************************

I'm off to the annual Texas Bankers Association Legal Conference. See you next week, or if you'll be there, see you tomorrow..

Unfair Market Appraisals

The American Banker recently ran an article (paid subscription required) that discussed one of those hare-brained legislative schemes that pop up in times of economic crisis and that lead us to conclude that when states rights advocates refer to states as "laboratories of democracy," they are referring to the laboratory of Doctor Frankenstein (pronounced "Frank-en-steen" for all you "Young Frankenstein" afficianados). This scheme involves the plans of four states, Illinois, Nevada, Missouri and Maryland, to enact legislation "that would prohibit or restrict appraisers from using distressed sales, such as those of foreclosed properties, as comparable sales when assessing the value of a home." The promoters of the legislation say that widespread foreclosures and short sales in those states have "distorted" the market, driving down the prices of houses generally, because the distressed sales are used as "comparables" by appraisers. As a result, homeowners can't exercise their "right" to refinance their homes from high interest rate mortgages to low interest rate mortgages. Obviously, you'd need a healthy hit of peyote before reading a state constitution closely enough to find that right enshrined therein, but we've become a society where the term "right" is loosely defined and peyote prevalent.

It's amusing that legislators who think nothing of "distorting the market" if that distortion curries favor with the average homeowner, a homeowner who might like the idea of the state government artificially propping up the value of his home, would likely blanche the color of Caspar if you proposed allowing banks who invested in commercial real estate loans to amortize their losses over an extended period of time, which, as regular readers recall, was a legislative proposal first included, then removed, in the small business lending bill passed last year by Congress. After all, there are a lot more homeowners than there are community bankers.

The critics make their case that such legislation will have deleterious effects:

• artificially inflated housing prices were the cause of the last bubble and there's no reason to think that they won't lead to another.
• Fannie, Freddie, and the FHA may very well refuse to accept appraisals written in those states (so, good luck encouraging more home lending).
• Appraisers would be violating federal appraisal standards.

Bill Uffleman, president of the Nevada Bankers' Association, asks: "Part of the problem in creating the false housing economy was shaky appraisals," Uffelman said, "and now we want to sanction a new round of shaky appraisals?" Yes, Bill, that's exactly what "we" want to do, if by "we" you mean some pinhead legislators who understand many laws, but apparently not the law of unintended consequences.

Sometimes, You Get What You Pay For

For fans of class action litigation, a recent client alert from Ballard Spahr is a definite "must read." The firm discusses a bill working its way through the Maryland state legislature (passed by the House and being considered by the Senate tomorrow) that "would deprive consumers, employees, and businesses of the opportunity to use arbitration as a forum for resolving disputes."

House Bill 729 would render unenforceable any written agreement made before a dispute arises that waives or has “the practical effect of waiving the rights of a party to that agreement to resolve the dispute by obtaining relief as a representative or as a member of a class of similarly situated persons.”

As Ballard Spahr notes, while some states have adopted laws that invalidate class action waivers in arbitration agreements, no state or federal law invalidates class action waivers in all agreements. Maryland appellate courts have issued rulings that validate such waivers in arbitration agreements, and apparently this new law is aimed at overturning common law. However, it would have broad application beyond arbitration agreements.

[The bill would cover] all types of arbitration agreements with class action waivers, including contracts between (1) businesses and consumers, (2) employers and employees, and (3) businesses and businesses, such as franchise agreements. Even negotiated contracts are covered.  The Bill provides that the ban is to be retroactive and applied to any written agreement in existence on or after the date the law takes effect.

While the bill faces serious constitutional challenges if enacted (which challenges are discussed in the alert), and may never have much impact other than causing some temporary inconvenience before it is quickly overturned by the courts ("quickly" being a relative term), you have to wonder what evidence there is for the need for such a wide-ranging prohibition on class action waivers in the first place. Who is harmed by permitting private parties to agree to ban class action lawsuits and to use arbitration as an alternative to class action litigation, and who benefits from such a ban? That was easy: class action plaintiffs' attorneys. If even sophisticated commercial parties can't privately contract to outlaw class actions, then plaintiffs' counsel can open up the litigation spigots and buy all of their babies a new pair of shoes.

One thing you have to admit about trial lawyers: when it comes to political contributions, they make their money count.

RSA Breach Proves That Cyberspace Is A Sea Filled With Sharks

Of all the reactions to last week's announcement that RSA had suffered a security breach that compromised its SecureID tokens, used by many banks as part of two-factor authentication, one that especially intrigued me was related by Tracy Kitten on The Fraud Blog. Mike Angelinovich, CEO and co-founder of security company OHVA Inc., had strong words for the FFIEC Guidance that most banks and other financial institutions follow:

"If we want to really improve online security, then these governing boards, such as the FFIEC, need to release some meat behind their requirements and not just offer guidance. Look at what has happened over the last five years under the FFIEC guidelines: Not much outside of annual record-breaking levels of online theft."

Mike's is not a lone voice, crying in the wilderness.

Even Stephen Northcutt of SANS Institute, who's been careful not to jump to conclusions about the RSA breach, says two-factor token technology may need some review. "The FFIEC should work closely with RSA to get good advice, so the guidelines can include information about what additional measures should be implemented to help security, to increase the security of two-factor authentication."

It's true that FFIEC's guidance is about six years old and that cybercriminals, and banking technology, have not been exactly standing in place since 2005. Therefore, the critics have a point. The proposed guidance (most recently discussed by Tracy last month) also is coming under attack, even before it's issued.

"The regulators' awareness of some of the threats is positive, and what they are trying to do on the business banking side is good," says former Bank of America executive David Shroyer, now a partner at risk assessment provider Fraud Red Team. Shroyer says the FFIEC draft update gives banks more insight about online threats. "But the new guidance is not explicit about antivirus updates and patches, and that's important," he says. "Financial institutions live and die by this guidance."

Tracy hopes that the RSA breach will prompt FFIEC to revise its guidance before it's issued, but seems skeptical. In this case, my sympathies are with the regulators, but I'm not as much of a geek as Tracy might be, and as the experts she quotes surely are. Technology is changing so quickly and cybercriminals are so well-funded (in many cases, by organized crime) and so "smart" (intellectually, if not morally), that whatever updates FFIEC will issue, will likely be quickly stale.

A lesson for bankers is that consulting regulatory guidance in the area of information technology and online banking security should be merely the first step, not the only step. You might decide to rest on the premise that you've done all the guidance suggests and, therefore, your information security and authentication processes and procedures are "safe and sound," as far as the regulators are concerned. Unfortunately, the crooks aren't resting. Like sharks, they're always moving, and moving forward. If your security is breached and your customer loses money, whether it's your fault or that of a third party, it's your name that will be plastered over the the pages of the local newspaper, online message boards, blogs, and Twitter "tweets." You may escape legal iability or regulatory penalties, but that will not spare you from the reputational "hit," which can be more painful.

The unfortunate fact of life is that banks who want to swim in cyberspace are well advised to be swimming at least as fast as, and preferably faster than, the sharks.

Dead In The Waters

While some readers have been trying to get me riled up over a headline in yesterday's American Banker that claimed Sheila Bair had been given a "Hero's Welcome," by the ICBA on Tuesday, I just consider the fact that the word "hero" has become so devalued these days that helping an elderly person cross a busy intersection is considered "heroic," and that in Ms. Bair's case, not being spit upon by bankers would be considered by some "unbiased" observers to be a positively orgasmic audience response. Read the two speeches she gave, the first to the ABA and the second to the ICBA and tell me she wasn't poking a stick in the eye of the first and kissing the hindquarters of the second. Like most people, bankers love folks who come not to bury them but to praise them.

Sorry, I won't rise to the bait.

The "major" topic that's got me all in a tizzy is one that every time I write about it on my blog, it causes loony leftists from St. Petersberg to St. Louis to open up a can of "tolerance" on me and show me what the word "inclusion" means to the unhinged. That topic is, of course, the derailed House Ethics Committe investigation of Maxine Waters over OneUnited. It's been out of the MSM since late last year, when the Democratic head of the Ethics Committee suspended two of the lawyers working on the investigation. With a Republican in charge of the Committee, that car is not only not out of the ditch, it appears to have busted an master cylinder, caught on fire, and might be ready to melt down into a blob of waste.

The Republican chairman of the House Ethics Committee has accused his Democratic predecessor of violating House rules and acting without cause in forcing two staff lawyers to take paid leave amid a contentious committee probe of alleged misconduct by Rep. Maxine Waters (D-Calif.) last year.

Rep. Jo Bonner (R-Ala.), who moved into the chairmanship in January, made that claim about former chairwoman Zoe Lofgren (D-Calif.) in a letter he sent early this month to the two lawyers, who played lead roles in the Waters probe. They were idled just as Waters was to be tried by the committee over her actions involving a bank in which her husband had a financial interest.

In the letter, which Bonner said he wrote after consulting other members, he said that Lofgren's decision was unilateral and taken "without cause, in my view," and that the two staffers - counsels Morgan Kim and Stacey Sovereign - had "acted appropriately and consistent with the highest ethical standards."

Although Bonner claims both lawyers have been "reinstated," their lawyer said that they both landed jobs elsewhere. Neither had gas masks strong enough to protect them from the partisan stink bomb that the House Ethics Committee has become (or perhaps always was). The investigation of Waters has not resumed, and as Waters' attorney put the matter with eloquent understatement, "The investigation obviously has problems." Of course, he thinks the invetsigation should be scuttled becuase of everything that's occurred, while other see in everything that's occurred further cause to expand the investigation, or launch a separate investigation, of Lofgren.

The safe bet is that the investigation is dead. Let's throw a little dirt on it and focus on 2012.

Lawyers: The Bane Of Our Existence

Housing Wire's Rick Grant took off on lawyers this afternoon, especially attorneys for borrowers who fight foreclosures, and he wasn't feeling "judicious."

The problem I have with attorneys getting involved in every important decision that gets made in this country is one of scope. Attorneys are trained on the details. By choosing which details to focus upon, they can guide the conversation into a corner. They can lead a judge, for instance, to want to throw out a foreclosure proceeding against a borrower who hasn’t made a payment in two years because the signature on a particular document doesn’t meet a certain set of requirements.

I have to believe that a statesman would look at these cases differently.

What "statesman"? The only names mentioned by Rick have been dead for a few hundred years. Does he mean Dennis Kucinich? He's not a lawyer. Moreover, if he's insinuating that "stateswomen" aren't the best qualified to render judicial decisions, he's going to be hearing from some female critics who will be after him with garden shears. Not Hillary Clinton, though, because she's a lawyer and, ipso facto, disqualified.

While I happen to agree that our society currently is grossly overlawyered, I don't agree with Rick that just because a judge is a lawyer, he or she is not going to be able to see the forrest for the trees. With respect to robosigning and other technical procedural problems with foreclosures that have been raised by borrowers' counsel in order to thwart foreclosures, I think, as evidenced by a decision I discussed a couple of weeks ago, there have been plenty of judges who aren't diverted by the view from the weeds. That post prompted an e-mail from a borrower from another state who was on the receiving end of a judge (who is also a lawyer, I assume) who ruled, in effect, "if you don't pay, you must go away," notwithstanding procedural defects in the lender's case. That's two, and since I don't get out much, I've unjustly extrapolated that tiny sample into a huge number of judges who must be getting it "right" in Rick's view. Sure, that's a lousy rationale, but I'm trying to fight fire with fire.

I guess Rick's complaint really boils down to the fact that lawyers, in return for the payment of money, do what the legal system requires them to do: be zealous advocates for their clients. It's called an "adversarial system" of justice for a reason. Opposing parties duke it out by having their lawyers put on the best one-sided arguments they can make in favor of their client's position, the judge enforces the rules of evidence to, theoretically, separate the wheat from the chaff with respect to the facts, and, where the matter is decided by the judge, the judge also makes a ruling based upon the facts and the applicable law. What borrowers' counsel are doing in trying to use procedural defects to derail foreclosure proceedings is referred to as "their job." As a counsel for lenders, I can sit outside their arena and laugh at their arguments and claim that all they are doing is trying to throw sand in the eyes of the court in the hope that they can save their clients from losing their homes, but I realize that if our roles were reversed, my strategy and tactics very likely would be the same.

Yes, it's a system that can burn up a lot of time and money. On the other hand, it seems to be found to have advantages over trial by combat, dunking, the application of leaches, the application of stretching and the rack, and the ever popular "Because Gadhafi Says So."

Rick also seems to be bothered by the fact that lawyers get paid for what they do, and conflates that fact into a flat assertion that lawyers do what they do solely for the money (the same as mortgage brokers, he contends). He underestimates the motivating pleasure that is derived from practicing a profession where being a jackass is not a liability, but often an asset. He also overlooks the equal disdain that lawyers feel for "journos" who write articles bashing lawyers like the low-hanging fruit they've become, in return for the payment of money. Not nearly as much money as lawyers are paid for what they do, of course, but that must be another symptom of the fetid depths to which the values of Western Civilization have fallen.

I acknowledge Rick's sense of frustration with the cumbersome system of "justice" that has evolved in this country. His complaints seem to revolve around the fact that there all these individual cases being filed by so many borrowers, cases that impede the large loan servicers from making stuff up and lying through their teeth, under oath, rather than actually following procedures established by our elected representatives to ensure that a minimum standard of due process is accorded everyone, fat cat and brokeback alike, before someone severs the connection between "dwelling" and "dweller." I mean, as it is, every citizen has the right to go to court to oppose entities and persons who are more powerful than they, and that just gums up the works, doesn't it? Like Rick, many people ask, "Isn't there a better way?"

I had a professor in law school who told his students that if we came to law school seeking knowledge of the means to absolute justice, we were in the wrong place. Instead, we should be seeking a PhD in Philosophy or Theology. For most of us, "justice" is the proper functioning of the legal system that human beings have erected to dispense it. If we don't like the system, then we should persuade enough voters to change the system, and "have at it." He'd been teaching at the law school for 50 years, and he hadn't been presented with a viable alternative yet. Eventually, he died waiting.

I'm open to any rational discussion of ways to curb these alleged abuses. However, at some point the ignorance displayed about the purpose of the legal system we've adopted in this country (a system in which lawyers play a critical role) and its superiority in preserving the freedoms we take for granted over other systems of "justice" that mankind has heretofore concocted becomes so overwhelming that I can no longer restrain the cry of my teen-aged self and must utter the ultimate epithet, "Eat My Shorts"!

Many "Our Fathers" and "Hail Marys" must then be said for my penance.

You want to live in Japan or France where there are fewer lawyers? Well, go live there, although you might want to give the Japanese a break. An influx of justice-seeking "gaijin" is likely the last thing they need at the moment. As for France, bon voyage! Wherever else you think they've got a better handle on this depressing problem, you owe it to yourself (and to the rest of us) to boogie on down the road. Just get out of my country, Clyde.

On the other hand, if you have a better system in mind to dispense civil and criminal justice in this country, then propose it to the legislators of your choice and "let's have at it." 1,000+ years of common law tradition be damned, let's hear YOUR brilliant idea for resolving civil and criminal disputes, and balancing the rights of parties with different interest, without those evil lawyers (and their lawyer-judge enablers) being involved.

[sound of crickets chirping]

Yeah, lawyers are A-holes.

Life's a bitch.

Get over it.

Sue, Baby, Sue!

The failure of a bank or thrift has many unfortunate consequences for those who ran it. For one thing, the FDIC may very well sue them at some point down the road, alleging, at the very least, that they were negligent (or grossly negligent, where applicable state law requires a standard higher than ordinary negligence). That can inflict serious heartburn and many sleepless nights, as well as financial pain and suffering, on the defendants.When you own or run a bank, you don't get the option of taking it through Chapter 11 of the Bankruptcy Code for a nifty "reorganization." Instead, the FDIC takes it thorough a receivership and wipes you out. No second chances in the land of the FDIC-insured. One strike and you're out.

Recently, some critics have complained that the FDIC has not been filing as many lawsuits as it should be filing against the former officers and directors of failed banks, only five so far out of 347 failures. Professional bank-hater and law professor (I apologize for the redundancy) Bill Black is, as he usually is, outraged by the fact that failed bankers aren't being drawn and quartered by the thousands.

"Everything is wrong about this," said William Black, a University of Missouri-Kansas City law professor who was a top lawyer at the Office of Thrift Supervision and its predecessor when U.S. savings and loan thrifts were collapsing in the late 1980s and early 1990s.

"The FDIC is suing a tiny percentage of officers compared to the S&L crisis," Black said. "The cases should be strong, given that they had so many warnings."

"Given that they had so many warnings." I'd say that was an idiotic statement, except I don't want to be politically incorrect and offend idiots. On the other hand, perhaps Black has been clairvoyant while the rest of us labor under the cloud of the absence of prescience, or perhaps he assumes that from 1997 through 2007, everyone else was getting the same warnings he was receiving, beamed straight from the Planet Mongo to Black's brain through the fillings of his teeth. Sorry Bill, like Human League, the rest of us are only human.

Black's act is getting even more stale than it was when we first started yawning at his ravings. When it comes to what my teenage nephew would call "D-bags," I say all you have to do to recognize one is to paint it black.

Inasmuch as the vast majority of the failures that have arisen out of the latest crisis have occurred within the past two years and, as an FDIC spokesperson explained, it takes an average of 18 months for the FDIC to fully investigate potential claims against former officers and directors, it is highly likely that more suits are coming. The fact that the FDIC is taking its time to thoroughly (I"m sure) investigate potential claims so that it can survive a motion to dismiss and Rule 11 sanctions for having filed a frivolous and groundless lawsuit make a solid case so that innocent lives will not be destroyed, is a good sign. At least, it's a good sign to those of us not thirsting for the blood of the first born of broke bankers.

It's not as though the FDIC hasn't had plenty to do since the fall of 2008. Their employees have to worry about something a bit more pressing than "publish or perish" or how to spend a three-month summer vacation.

Bair's Badge of Honor

No sooner do I comment on last week's booing and jeering of Sheila Bair by community bankers than Pravda Reuter columnist Rob Cox (paid subscription required) tells his readers that the booing is Bair's Badge of Honor.

She was taken aback by the booing. But in fact, watchdogs should bask in such disdain if it means they're doing their jobs.

[...]

So the guffaws and snorts FDIC boss Bair elicited from small bank chiefs at Wednesday's American Bankers Association confab in Washington may represent something of a badge of honor for her.

[...]

Her job is to enforce rules that minimize taxpayers' losses from bank failures, provide a competitive banking market and claw back ill-gotten gains. If bankers don't like her for that, so be it.

Since Cox thinks Bair "should bask in such disdain," I assume he'll, personally, be toasted to the consistency of a mellow marshmallow by my hoots of derisive laughter.

Cox posits that a regulator who is respected by the regulated has likely been the object of "regulatory capture," which he asserts was the case with the OTS. It doesn't seem to occur to Cox, or it occurred to him but he chose to deliberately ignore it, that a lack of respect also can be indicative of the fact that the regulated entities honestly think that the object of their ire has not performed competently the job she swore an oath to perform. It might also be indicative of the fact that the community bankers in the audience think that Bair's pro-consumer priorities are not, as she asserts, always perfectly aligned with what should be the first priority of the Chairman of the FDIC: the safety, soundness, and survival of FDIC-insured financial institutions. For all her populist posturing, many community bankers think that Bair's FDIC has adopted a "too small to save" policy with respect to the community banking industry, and bankers see the landscape littered with the bodies of primarily small banks and de novo bank applications stiff-armed, while the too-big-to-fail banks get richer and industry consolidation accelerates.

In other words, Ronnie, there might be legitimate reasons that Ms. Bair is held in such contempt by the regulated. To know that, you'd have to get out of your bubble and actually talk to community bankers. Obviously, it's easier to construct straw men and then kncok them down from your perch inside The Beltway or on the Island of Manhatten. I've had contact with some regulators over the past six months who suffer from the same type of myopia, so it shouldn't surprise me that some members of the so-called Main Stream Media are similarly afflicted.

Cox's description of Chair Bair's "job" demonstrates his complete lack of understanding of the FDIC's mission. That mission, as stated by the FDIC on its website:

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation's financial system by:

• insuring deposits,
• examining and supervising financial institutions for safety and soundness and consumer protection, and
• managing receiverships.

The taxpayers may ultimately be on the hook for the FDIC's liabilities, but the FDIC is funded by assessments on banks whose deposits it insures, so it's minimizing the fund's losses (and the resulting need for increased assessments on banks), not the taxpayers' losses, that is a portion of the "job" of the FDIC. As to "providing a competitive banking market," Cox must have confused the USA with the former USSR. The FDIC does not "provide" any markets, much less competitive markets. Finally, "clawing back ill-gotten gains" is a new feature of federal banking law, and any dissatisfaction of bankers with Ms. Bair's performance could have absolutely nothing to do with such a power. Bair simply hasn't done anything in that respect that could be the cause for the boos that greeted her.

Cox is the same guy who, a few months ago, wrote a column for Reuters in which he claimed that the demise of small banks was a good thing. He thought the US should look for inspiration to Canada, where, he claimed, there were only a handful of very large banks that were tightly regulated by the federal government, like public utilities.

Personally, I think Cox should come to Texas and address the Independent Bankers of Texas. I'm convinced that his Politburo-friendly views would garner him a very warm reception. Moreover, since Texas is a concealed carry state (in fact, the state legislature is currently moving through a bill to permit university students to carry sidearms on campus), I'm sure that by the time he got very far into his speech, he'd have a number of badges of honor to display proudly to the EMTs on his way out of the venue. He might not be fully conscious by that time, but if his latest column is any indication, that's his normal state.

The Charmer And The Charmless: A Tale of Two Consumer Advocates

While Liz Warren was turning on the charm and her opponents were melting like school girls with Bieber Fever, Sheila Bair ventured into the lion's den to tell bankers exactly what they didn't want to hear and got an earful of raspberries in reply.

In what the Wall Street Journal (paid subscription required) called a "charm offensive," Liz schmoozed her critics across the country. While she didn't thrill everyone, she made some headway, especially, it appears, with some community bankers.

It's clear some bankers, especially at the smaller institutions known as community banks, are warming to her. These banks, which can be found in every congressional district, wield clout in Washington disproportionate to their size.

I don't know what community bankers the Journal has been talking to, but from the ones who talk and write to me, I'm seeing an attitude expressed about Ms. Warren that is a long way from what I would describe as "warm." Steve Bartlett, former Texas congressman and current president of the Financial Services Roundtable, perhaps expressed best the mixed feelings toward Ms. Warren of even community bankers inclined to like her personally, when he observed that while she's won respect, bankers are still very concerned about what havoc she may wreak through oppressive regulations enacted and enforced by an agency that is being set up by a person who has, in the past, made harsh statements about banks, statements that in some cases make it hard to presume that she and the agency she claims she conceptualized will be fair and balanced. As Steve says, there are billions of dollars at stake.

I think she's got an uphill battle to win over her critics, especially in Congress. Some Republicans may pay lip service to the notion that Liz is "not so bad," but their actions are speaking louder than their words. However, you have to give her credit for convincing people she's not a snake, but a snake charmer.

FDIC Chairman Sheila Bair, whose career arc as a bank regulator is on a different path than Ms. Warren's at the moment, showed a lot of guts yesterday by addressing an American Bankers Association conference and telling the audience that bank jobs weren't jobs "in the real economy."

Federal Deposit Insurance Corp. chairwoman Sheila Bair on Wednesday told a sometimes hostile crowd of mostly community bankers that increasing the size and profitability of the financial services industry isn’t and shouldn’t be the goal of financial economic policy.

“In policy terms, the success of financial sector is not an end in itself, it is a means to an end. It is to support the vitality of the real economy,” Bair said to an American Bankers Association conference that sometimes jeered and heckled her. “What really matters to the life of our nation is create more well paying jobs and enable entrepreneurs to create new jobs.”

That's one way to warm up a crowd.

She then started chanting her "what's good for the consumer is good for the bank" mantra, which set the pagan bankers in the audience to "groaning," according to Market Watch. The talk ended on a sour note, as hard as that is to believe.

“Probably the best news at the conference was that Sheila Bair has only about 90 more days,” said one banker to the group before asking a question. Bair, who had left the room, has said last year she plans to step down in June at the end of her term.

I guess for many bankers, June 30, 2011 will not come a moment too soon. For Sheila, the hostile reception only builds her "street cred" for her next job as Executive Director of ACORN.

Onboard A Ship Of Fools

There's no telling what, in the myriad of items you read each day, is going to strike your funny bone. Take, for instance, the 27-page settlement term sheet that was recently circulated by the attorneys general of all 50 states and the federal banking regulators. Within that document, of all the items that are laugh worthy, I got an initial chuckle out of the requirement on page 9 that loan servicers provide the formula they use to calculate the net present value of loan modifications and foreclosure alternatives on a loan to the CFPB upon request. I can see Liz Warren arm wrestling with the CFO of Wells Fargo over the appropriate discount rate to use in NPV calculations. You get the sense that there's no crevice into which an eminently unqualified bureaucrat won't be poking his or her nose if such settlement terms are agreed to by the servicers. It won't be long before the size of paper clips used to attach portions of loan modification documents will be specified by the CFPB and/or the AGs.

I also like the requirement on page 19 that servicers "consider partnering with national chain retailers such as FedEx Kinko's, Staples, Office Depot, and Wal-Mart, or through use of bank branches affiliated with Servicer, to allow borrowers to copy, fax, scan and mail or email documents to Servicer free of charge with national chain retailers." As you plow through weeds this thick, AGs, you might ask yourself what this type of procedural minutiae has got to do with enforcing the law, as opposed to...you know...social engineering.

According to Housing Wire, these folks, who propose to regulate the mortgage servicing industry with laser-like precision and in minute detail, have apparently failed to understand the basic fact that before you make a settlement proposal to the other side, you need to get your own side on the same settlement page.

...[I]t appears there is some negotiation left to complete between the AGs themselves.

"We haven't even begun face-to-face discussions with the banks yet," a spokesman in Miller's office told HousingWire Monday. "We'll begin the negotiations and hammer out an agreement."

The spokesman at Miller's office said the proposal was transmitted to all 50 state AGs before it was sent to the banks. But a spokesman in Utah Attorney General Mark Shurtleff's office said he hasn't seen it.

"We'd love to comment on it (the settlement), but we wouldn't know what we were talking about," the spokesman said.

Other AGs have openly criticized the settlement. Oklahoma AG Scott Pruit opposes the settlement, saying that a principal write down requirement would force servicers to violate their contractual obligations to mortgage investors. Virginia AG Kenneth Cuccinelli told Bloomberg at least a dozen states, including his own, don't back the proposal.

It takes extra special effort to make yourself look more inept than large loan servicers, but it's obvious that the state AGs have what it takes.