WASHINGTON Sen. Elizabeth Warren, D-Mass., and Rep. Elijah Cummings, D-Md., are urging the Federal Reserve Board to hold a formal vote on enforcement actions.
In a letter dated Feb. 11, the lawmakers asked Fed Chair Janet Yellen to reassess the agency's delegation rules and mandate that the central bank be more directly involved in major consent orders. The Fed's delegation of authority currently allows board members to enable staff to enter into consent agreements on their behalf.
"While the board votes on every important decision the Fed makes on monetary policy, the board rarely votes on the Fed's important supervisory and enforcement decisions," the letter says.
Warren and Cummings pointed to a $9.3 billion amended settlement the Fed and the Office of the Comptroller of the Currency entered into with 13 mortgage servicers last February, which the Fed board did not review or approve. The agreement was later criticized because it included $5.7 billion in credits servicers could earn for loan medications or forgiveness.
"While loan modifications and the forgiveness of deficiency judgments are critically important, the Fed's initial public statement about the amended orders did not divulge that the servicers could earn credits that were far larger than the relief they were providing homeowners," the lawmakers said, noting that if servicers wrote down $15,000 on a $500,000 loan, they would get credit for $500,000, not $15,000. "This method of calculating credits potentially reduces the settlement value by billions of dollars."
The lawmakers recommended that in addition to requiring the board to vote on major consent orders, the Fed provide board members with staff to review developing enforcement actions and notify them before staffers enter into any consent orders.
In September, Warren and Cummings asked the Fed to explain the process for entering into consent agreements, including the original agreement with mortgage servicers in April 2011 and the February 2013 amendments. Ben Bernanke, the Fed chairman at the time, responded in December that staff members with designated authority often consult board members but that the amount of consultation varies and isn't codified in written guidelines or procedures.