WASHINGTON — As state and federal officials struggle to reach a global settlement with the largest mortgage servicers over problems in the foreclosure process, regulators have grown frustrated with the lack of leadership on their side, saying no one is making an effort to corral the multitude of agencies involved.
Some regulators have called on Treasury Secretary Tim Geithner to get more involved, but several sources said he has tried to distance himself from the process over concerns about some of the provisions being sought, such as principal writedowns, and a reluctance to interfere with an enforcement action.
Others had hoped that the Financial Stability Oversight Council, which was created last year to help regulators take joint action against systemic problems, would be a sounding board to work out disagreements among the agencies. But the FSOC has largely stayed out of the issue.
As a result, the settlement process has dragged out as infighting between various players has intensified, with no clear resolution in sight.
"There is just no leadership," a source close to the process said. "It's not even herding cats, because no one is trying to herd them."
The most public face on the deal has been Tom Miller, Iowa's attorney general, who represents the 50 state attorneys general involved in the process. But some fellow AGs have turned against the 27-page settlement term sheet delivered to the top five mortgage servicers, and Miller has acknowledged he is not in charge.
"That's why this is a good relationship," Miller said at a press conference last week. "Nobody is driving the bus. Or to put it more certainly, each agency gets an hour to drive the bus … but nobody is really in control."
Although some Treasury Department officials have been involved in the talks, several players have sought for Geithner to take a more active role in putting a settlement together. But sources said the Treasury chief does not feel it is appropriate for him to be involved with an enforcement action. Geithner also has substantive concerns about what the state AGs have proposed, including the term sheet's push for more principal reductions and other prescriptive requirements that could drag out the foreclosure process. Sources said Geithner has taken those concerns to the White House.
A Treasury spokesman denied those assertions.
But observers said they do not understand why Geithner doesn't take a stronger public role in the process given the breadth of the settlement and its potential impact on the economy.
"This settlement will have a negative effect on the economy when the recovery is fragile, and the Treasury secretary should be looking out for the broad economy," said Phil Swagel, a professor at the University of Maryland School of Public Policy and a former Treasury Department official in the Bush administration. "It would be appropriate that the Treasury secretary should take a lead role."
Jo Ann Barefoot, co-chair of Treliant Risk Advisors and a former deputy comptroller at the Office of the Comptroller of the Currency, agreed Geithner should be more involved.
"I think he has a leadership voice in what's going to be good for the economy, and this is a big issue," she said. "There are questions here about appropriate process. Is it appropriate to be extracting penalties that aren't designed to go to the people who were harmed? There are important legal topics on that. Secretary Geithner has a role to play talking about what is going to be short- and long-term helpful to the economy."
