Colin Barr

Following the money in banking, economics, and Washington

Bair sees millions of 'infected' foreclosures

May 12, 2011: 1:24 PM ET

Sheila Bair is still fuming over the feds' half-hearted tilt at the big foreclosure mills.

The Fed and the Treasury last month issued enforcement actions against the big mortgage banks, led by Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC). While the feds insisted their crackdown would help fix robosigning and related ills, Bair -- who is chairman of the Federal Deposit Insurance Corp. -- took issue with the action, saying watchdogs need to dig deeper to find out how big the foreclosure mess really is.

Bankers, heal thyself

Bair was back on that warpath Thursday, as she and other regulators testified before Congress on financial reform. Bair has always been more apt to speak her mind than most of her Washington counterparts -- a tendency that hasn't, judging by Thursday's testimony, changed with this week's news that she will leave the FDIC this summer.

"Flawed mortgage banking processes have potentially infected millions of foreclosures, and the damages to be assessed against these operations could be significant and take years to materialize," Bair told the Senate Banking Committee. "The extent of the loss cannot be determined until there is a comprehensive review of the loan files and documentation of the process dealing with problem loans."

That comment contradicts the claims of the bankers and most of their regulators, who as usual are eager to move on lest anyone notice how reckless they have actually been.

Bair made her comments in urging that the mandarins running the new Financial Stability Oversight Council consider banks' exposure to mortgage-related cleanup costs as they assess the robustness of the financial system in a weak recovery. But she also hammered home a point she made last month: that the regulators are going to have to push the banks harder if they expect to get anywhere in cleaning up foreclosuregate.

"The enforcement orders were only a first step in setting out a framework for these large institutions to remedy deficiencies and to identify homeowners harmed as a result of servicer errors," she said. "The enforcement orders do not preclude additional supervisory actions or the imposition of civil money penalties."

The Fed has said much the same, of course. But it might be  unwise to hold your breath waiting for big fines. It would be tragic to do anything that might hamper the banks in their quest to take your money and sit on it, after all.

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Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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