The Department of Housing is Wall Street’s Latest Clean-Up Crew


Originally published at Because Finance is Boring.

What’s a government agency to do when a major source of profits for two big banks is at risk? If you’re the Department of Housing and Urban Development (HUD), you just try and make the problem go away for them!

Mortgages are still big business to the nation’s biggest banks. And most banks rely on the government to help in case things go wrong, through insurance that reimburses the bank if the borrower defaults — called FHA insurance.

The government form banks must fill out in order to get this insurance used to have a checkbox on it where banks certify they haven’t been convicted of a crime for the last three years. So, right before six major Wall Street banks pled guilty to FX rigging in May, the government agency in charge of this form (HUD)…just changed the form!

Alan Pyke reports for Think Progress:

Five days after HUD proposed dropping the provision, news broke that six different gigantic Wall Street companies that had conspired to rig foreign currency exchange markets were pleading guilty to criminal fraud charges. If HUD’s proposed changes go through, all six firms would suddenly regain unfettered access to taxpayer-backed mortgage insurance.

Luckily, three lawmakers noticed the change: Rep. Maxine Waters and Senators Sherrod Brown and Elizabeth Warren. The three wrote a letter calling out HUD for trying to sneak this change through, and erase any consequences for the banks’ criminal guilty plea.

Not only did HUD propose taking away the checkbox regarding past criminal convictions, they tried to sneak the change past the public. In the notice HUD is required to file to tell the public about any changes, they didn’t even MENTION that the checkbox was going away!

David Dayen reports for The Intercept:

“HUD may have good reasons for proposing these changes at this time,” write Brown, Warren and Waters, but “its Federal Register notice fails to even describe the changes to the certifications on illegal conduct — let alone offer a rationale for them.”

HUD could have used this opportunity to create real, immediate penalties for the banks After all, as Pyke noted, “JP Morgan and Citigroup — currently hold a combined $2 billion in mortgage loans insured by the Federal Housing Administration.” Can you imagine the deterrent effect it would’ve had, if HUD had denied these banks future FHA insurance, due to their recent guilty pleas?

Instead, it’s just yet another entry in a long series of regulators burying Wall Street’s bodies for them, and helping them avoid any consequences for bad behavior.


Alexis Goldstein used to work on Wall Street, and now writes about financial reform. Find more of my work at Medium, Twitter, FinanceIsBoring.com or alexisgo.com.