How N.Y. Fed’s Dudley Can Be Occupy Wall Street's Hero

Editor's Note, July 25, 2012: This and other BankThink opinion columns written by Joel Sucher bearing this note, published between October 2011 and June 2012, mentioned the law firm of Stephen J. Baum, Litton Loan Servicing, or both. The columns should have disclosed that Baum's firm, working on behalf of Litton, had attempted to foreclose on the writer's property in 2009. American Banker's editors were unaware of this history at the time the columns were published.

It was an “I feel your pain” moment for William Dudley, the president of the Federal Reserve Bank of New York.

He had just finished a speech at Fordham University in the Bronx and was giving a reporter a few sound bites, saying he understood why the Occupy Wall Street crowd was so angry about the bank bailouts. However, he continued (sounding a bit apologetic), the bailouts were the “least bad choice.”

Dudley then left Fordham to tour the surroundings, pointing out the fact that the borough had enjoyed a bit of a growth spurt, adding 10,000 jobs since the recession. But that happy face faded as quickly as snow in the Sahara when he noted that most Bronx households consisted of renters, not homeowners and, by extension, not vulnerable to drowning via pair of concrete overshoes otherwise known as mortgage debt with negative equity. 

But, really, Dudley didn't have to travel to the city's northern-most borough to find a set of ready ears. By a quirk of logistical fate, his office is within shouting distance, and a hop, skip and a jump away from a crowd that I believe he could win over, not with his words so much as with action – one that he's already taken.

Suggestion to the New York Fed Chief: Walk out the front entrance of your office on Liberty Street; turn right, walk a half a block and simply cross Broadway (keep an eye out for speeding cabs). There you'll find a whole bunch of people camped in Zuccotti Park who'll surely hang on your every word. Think of the photo op!

If I were to suggest an agenda for a speech, perhaps you could talk about the miserable failure of Treasury's Home Affordable Modification program, which fell well below the administration's expectations of saving four million homeowners from inevitable foreclosure.

Then there's the newly announced update to the Home Affordable Refinance Program designed to help more homeowners refinance, which you were quoted as calling a “step in the right direction.” However, you then provided a more sobering context, calling for a more “comprehensive approach to housing policy, starting with an urgent effort to remove the obstacles that make it difficult for all borrowers [emphasis mine] to refinance at today's low mortgage rates.”

As president of the New York Fed, tossed and turned, one way, then another, in the turbulent seas of a seemingly endless financial crisis, was there anything positive you might offer to those who felt that they, as the proverbial suckers, would never get an even break? Yes, I would submit: there is.

On Sept. 1 the Fed announced an enforcement action against Goldman Sachs. This followed in the aftermath of Goldman's sale of its trouble-laden servicing mortgage subsidiary Litton Loan to an up and coming subprime servicer, Ocwen Financial. While trying to lay down the law to Goldman, if it were ever to get back into the servicing business (doubtful, I'd venture to guess) the Fed also tried to redress the grievances highlighted in the recent scandal the press had dubbed Foreclosuregate: robo-signing, lost documents, etc, etc. 

Litton, while far from a top-tier servicer, was the object of much homeowner wrath, and when Goldman bought the operation in 2007, that venting found a major Wall Street target. Push came to proverbial shove in May, when the Fed was contacted by the Financial Times, which had received an anonymous letter from a Litton executive charging that his employer, along with Goldman, had implemented a “ ‘denial sweep' strategy that systematically denied a modification to potential eligible homeowners without an actual review of the loan.” The Fed told the FT the matter was then “under investigation.”

The resulting enforcement action, the Fed said last month, would “address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing involving its former subsidiary, Litton Loan Servicing, LP.” 

Frankly, you could have knocked me over with a feather when I read the details of the agreement. Goldman (Dudley's former employer), forced to offer its mea-culpas; yes, indeed! Truth be told, it was done so that the Fed could follow along the path previously trod by the Office of the Comptroller of the Currency in signing consent orders with the 17 largest servicers. But while allowing Goldman to say “I'm sorry, it won't happen again,” the Fed did hold the feet of the 1,000-pound gorilla to the fire by ordering it to come up with the name of an independent consultant to examine how Litton foreclosures were handled in 2009 and 2010. And that number, according to the anonymous letter, may be in the hundreds of thousands.  

This, I would submit, is one small victory for the anti-foreclosure lobby, and, by extension, their allies in Zuccotti Park; all delivered by an institution that Tim Geithner once called home.

So, I'm hoping that Dudley would consider a meander down the street to Zuccotti, consent order in hand, and let the crowd know that the Fed not only shares your pain, but has a few analgesics that might make you feel a bit better.  

Joel Sucher, a filmmaker in Hastings-on-Hudson, N.Y., is working on “Foreclosure Diaries,” a documentary about the financial crisis.