Now that Richard Cordray has been appointed as the first director of President Obama’s Consumer Financial Protection Bureau, it is high time we take a look back at his record as Ohio Attorney General. He was, after all, picked by Obama based on his record (and because nominating Elizabeth Warren would have been too difficult).
So what, exactly, did Cordray do in his two short years as Ohio state Attorney General that impressed the president so thoroughly? And do these actions make him likely to be a good consumer advocate?
Ohio’s Foreclosure Crisis
Ohio was hard hit by the foreclosure crisis, especially in already depressed cities like Cleveland. They were also hit earlier. A report issued by a state foreclosure taskforce in 2007, stated that Ohio had the highest rate of mortgages in foreclosure or seriously delinquent of any state in the nation. Of all Adjustable Rate Mortgages, about three-quarters were were 90 days past due or already in the foreclosure process — “almost twice the national average.”
So when Cordray became state AG in 2009, after being elected in 2008, this was the biggest crisis facing the state: homeowners losing their homes to banks. This was a bit of a legal and procedural mess, especially given all the secondary market securitization of subprime mortgages that precipitated the collapse. There was plenty of fraud and legal missteps on the part of banks while foreclosing on homes, and Attorney General Cordray took a tough stance on mortgage lenders and servicers.
Cordray Takes a Stand for Homeowners
Early on in his term, Cordray publicly announced that he would be suing mortgage lenders who offer to help homeowners avoid being foreclosed on, and then go back on their word. Was he seeking punitive damages? And looking to put these banks out of business for their malfeasance? No. According to the Columbus Dispatch, Cordray said that “The goal of the lawsuits is compliance with their promises…We want there to be accessible personnel, a reasonable process, clear steps. What we want is a change in behavior.”
In July of 2009, Cordray followed up on that promise, filing suit against Carrington Mortgage Services for “failing to provide homeowners with acceptable ways to avoid foreclosure.” The company violated an agreement they had made in 2008, to “make ‘good faith’ modificactions on loans to avoid foreclosures,” according to Reuters.
Eventually, Carrington settled in May of this year, admitting to no wrongdoing and agreeing to new servicing standards, according to Housing Wire. He didn’t abuse his office to score political points; he used his position to force the company to give Ohioans a chance to save their home, just like they had promised to.
He would later file a suit against GMAC for alleged robo-signing of foreclosure affadavits, and another against Barlcays Capital Real Estate and American Home Mortgage Servicing for issuing deceptive and/or unfair loan modifications. In two short years as AG, he managed to take full advantage of the office’s ability to protect Ohioans from greedy corner-cutting corporations.
A Case for Regulation
The profit imperative is necessary to a functioning market economy, but not when it it sought to the detriment of society. A regulator must find an acceptable balance between these two impulses, and Republicans are currently pretending to think Cordray would be incapable of at the helm of the CFPB .
But looking at Cordray’s record, it’s easy to see that he used his powers as Ohio AG to protect consumers from corporate cruelty, not to punish banks and mortgage servicers — even if they might have deserved it. He is not some local level politician who used his office to posture at the expense of local businesses; he took a principled stance against unprincipled businesspeople, on behalf of the Ohioans who elected him.
I suppose, at the heart of this debate is the question: who, exactly, is responsible for the economic crisis? Loathe to blame corporations, and staunch believers in market and individual freedoms, Republicans like to blame the Community Reinvestment Act and subprime borrowers for the mess we got into; loathe to blame consumers, Democrats instead point their finger at predatory lending practices, the breakdown of ratings agencies’ standards, and CDOs made of mortgage-backed securities. Naturally, Democrats’ arguments are more based in fact: would underqualified borrowers be able to purchase ‘too much house’ if the incentives weren’t in place for both mortgage brokers and lenders to get as many loans signed as possible, with the knowledge that they could sell them bundled on the secondary markets, with AAA rating? Likely not.
For a group of people so obsessed with free markets, it’s stunning how little they believe in the power of incentives to affect consumer choices. They inhabit a universe full of binaries, where there is no middle ground between Ayn Rand and Leon Trotsky. This worldview makes them a) unable to see how an under-regulated shadow banking industry trading in complex instruments backed by subprime mortgages can pervert incentives for both lenders and buyers and b) unwilling to nominate a head of the CFPB, even if his whole record as a regulator demonstrates that regulation and the productive flow of capital are not at odds.
I, personally, am not looking forward to the manufactured controversy that Cordray’s nomination will likely become. Perhaps once he begins to act as CFPB head, and expands the powers of the agency, it will be hard to refute the notion that this sort of regulation is good for Americans, and good for responsible business.