By Peter Schroeder - 03/09/11 07:24 PM EST
"The settlement agreement not only legislates new standards and practices for the servicing industry, it also resuscitates programs and policies that have not worked or that Congress has explicitly rejected," the letter states.
For example, the settlement would require servicers to require write-downs of mortgage principal, which had been rejected by Congress previously.
It also criticizes the terms for demanding servicers to make changes to how they offer mortgage modifications under the Home Affordable Modification Program (HAMP). House Republicans are currently pushing legislation to eliminate that administration program.
Financial Services Committee Chairman Spencer BachusSpencer BachusThe FDA should approve the first disease-modifying treatment for Duchenne Muscular Dystrophy Study: Payday lenders fill GOP coffers Pope Francis encourages building bridges to address challenges MORE (R-Ala.) and GOP Reps. Randy NeugebauerRandy NeugebauerCourt ruling highlights need for new CFPB structure Top CFTC aide joins boutique K Street firm Yahoo hack spurs push for legislation MORE (Texas) and Garrett are expected to sign on to the final version of the letter, which is due to go to Treasury Secretary Timothy Geithner Wednesday night. Other House Republicans may also provide their signatures.
The letter goes on to state that the proposal raises "significant concerns about its effect on the financial system," as well as concerns that the administration is attempting to force, via the settlement, changes to mortgage servicing that normally would be dealt with via legislation.
Furthermore, the lawmakers question what role the Consumer Financial Protection Bureau (CFPB) played in drafting the settlement. The CFPB, created as part of the Dodd-Frank financial reform law, will not be officially established until July. The fact that CFPB appointees, who do not yet have official authority, may have played a role in putting together the settlement raises "further questions about the process through which the terms of the settlement are being negotiated," they wrote.
The lawmakers also criticize the administration for proposing the settlement without consulting the House Financial Services Committee, which has jurisdiction over housing and banking issues.
The letter includes several questions, several asking Geithner to cite the specific legal authority that gives regulators the power to make certain demands. They also ask if regulators weighed the market impact of their terms.
“The mortgage servicing system we have today is broken, and we should work together to establish a stronger set of standards and best practices," said a Treasury spokesperson in response to the letter.
Details of the broad mortgage servicer agreement became public earlier this week, when 27 pages of terms were published by the American Banker. The demands are numerous and varied, ranging from regular audits of third parties hired to help with foreclosure proceedings to banning the practice of "dual tracking" foreclosure proceedings while a homeowner is working through a mortgage modification program.
This post updated at 2:49 pm, 3:13 pm.