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For Immediate Release
March 7, 2012

Lending Discrimination Practices

 Prepared Statement of Senator Chuck Grassley of Iowa
Ranking Member, Senate Judiciary Committee
Hearing on Lending Discrimination Practices
Wednesday, March 7, 2012

Mr. Chairman, thank you for holding this hearing.  I fully support pursuing justice for victims of the mortgage crisis.  But, the settlement that the Civil Rights Division of the Justice Department obtained against Countrywide should not divert us from the real issues surrounding the mortgage crisis.

Recently, Barry Ritholtz wrote a column in the Washington Post concerning the larger robo-signing mortgage settlement.  Many of the points he made about that settlement also apply to the Countrywide settlement.  The economic impact of the Countrywide settlement is minimal.  Although the complaint asked for the victims to be put in the same position they would have been absent the discrimination, for civil penalties, and for consequential damages, the consent decree provides only $1700 per victim.  

For those who still have these mortgages, perhaps this will cover one mortgage payment.  Many of these individuals will still hold mortgages that exceed the value of their homes.  The likelihood that they will default is essentially unchanged.  

For the rest, bear in mind that one third of all Countrywide mortgages ended up in default.  For these victims who are alleged to have paid higher costs and interest rates, the default rate is almost certainly higher.  Since you no longer live at your most recent address, good luck receiving your settlement.  If you do, here is my advice:  Don’t spend it all in one place.

Like the larger settlement that state attorneys general obtained, this settlement is for Bank of America a mere cost of doing business.  We do not know what individuals took the unlawful actions.  They face no punishment. And they can keep their jobs.  Countrywide admits nothing.  The government has proven nothing to any court.

The problem is not limited to civil litigation.  The Justice Department has brought no criminal cases against any of the major Wall Street banks or executives who are responsible for the financial crisis.  In the greatest speech ever made concerning prosecuting crime, then-Attorney General Robert Jackson said, “Law enforcement is not automatic.  It isn’t blind…. What every prosecutor is practically required to do is select the cases for prosecution …  in which the offense is the most flagrant, the public harm the greatest, and the proof the most certain.”  That has not happened here.

I have already called for the resignation of the head of the Criminal Division, Lanny Breuer, for his false denial to Congress that ATF ever walked guns in Operation Fast and Furious.  But that does not take away from the terrible job he has done in prosecuting financial crimes.  Consider Countrywide.  The former CEO was accused of lying about the risks of Countrywide’s loans.  He made more than half a billion dollars as CEO of Countrywide.  

The SEC let him settle for less than 5 percent of that amount, given that Countrywide reimbursed him for most of the cost.    Something is seriously wrong if the allegations, including discrimination, against the former CEO are true, but he keeps 95 percent of his pay.

Even worse, Mr. Breuer’s Justice Department decided not to bring any criminal charges against him.  Mr. Breuer recently stated that it was important not to “completely discount the deterrent effect when we investigate cases even if we don’t bring them.”  This is preposterous.  The department’s message is that crime does pay.  Light settlements and no prosecutions not only do not deter.  They invite crimes of this sort to occur against similar future victims. How are the department’s enormous resources being used?

The error in failing to prosecute Countrywide’s former CEO is further compounded by the unwillingness of the department to contact a former Countrywide vice president whose job was to fight fraud.  CBS interviewed Eileen Foster.  In her “60 Minutes” appearance, she discussed Countrywide’s “systemic” fraud.  She said they concealed evidence of fraud.  She also had evidence of Countrywide’s unlawful acts of retaliation for reporting bank fraud and mail fraud to federal regulators.  Based on her statements, “60 Minutes” wondered why no charges of violating the certification requirements of Sarbanes-Oxley had been brought.  

Ms. Foster was fired, but eventually recovered more than $1 million from her whistleblower complaint.  As the coauthor, along with Chairman Leahy, of the whistleblower protection provisions Ms. Foster utilized, I am glad that she was made whole for her unlawful termination.  However, I am appalled that the Justice Department turned a blind eye and refused to reach out to her.

When recently asked about the department’s failure to contact Ms. Foster, Mr. Breuer responded that she should not have waited for the government.  “There are telephones, you can tweet, you can let the government know.”  How insulting.  

Mr. Breuer obviously lacks comprehension of the enormous obstacles facing whistleblowers.  Mr. Chairman, I would ask to put in the record at this point an article by Reuters and the transcript of Ms. Foster’s and Mr. Breuer’s interviews from “60 Minutes.”

Other administration efforts in this area are equally questionable.  It is about to use taxpayer dollars through the HAMP program to bail out speculators who drove up housing prices during the bubble.  Landlords will be able to qualify for up to four federally-subsidized loan workouts.  The benefits they will receive include lower interest rates, longer terms, and forgiveness of principal.  The Countrywide victims did not receive those.
I am glad to see that the National Council of LaRaza and the NAACP have representatives testifying before us today about the Countrywide victims.  

Finally, I note that there have been multiple previous financial crimes task forces in this administration, including a new one this year.  But no major responsible party has ever been prosecuted.  All the previous task forces did was issue press releases.  They have added nothing to the existing entities that have also taken no meaningful criminal action.  We should not expect anything more from the announcement of yet another task force.  We should not confuse the packaging with the package.  

All that matters is results – prosecutions and convictions.  The American people are still waiting.

Mr. Chairman, I look forward to today’s hearing.