Responsible policymakers face a dilemma in how to respond to the revelations that employees of some major banks have been “robo-signing” affidavits used in foreclosure actions. The banks deserve serious condemnation for routinely making misrepresentations (the less polite term is “lies”) in what they filed with the judges.
Here is one idea to resolve this dilemma. It holds banks accountable while also creating a path back to restoring certainty in the housing market. The idea starts with a senior corporate officer at a bank personally certifying that his or her bank has checked its internal processes and found those practices to be sound. The Sarbanes-Oxley Act requires this sort of certification by chief financial officers and other top corporate officials when they submit their public financial statements.
Certification by senior bank officers will hold those officers accountable for the sorts of misstatements that some banks have made to the courts. The bank and senior banker would be essentially making a stronger set of “reps and warranties” about the banks’ systems. If a senior officer is not willing to sign, then the regulators and the public have good reason to remain skeptical. If and when the senior officer does sign, the officer and the bank are taking responsibility—something many feel has not happened enough since the financial crisis began.
The certification can also bring increased certainty back to a portion of the housing market—the portion covered by that bank’s activities. More banks will sign over time, and this will create a path forward to leaving this portion of the mortgage mess behind us.
The dilemma for policymakers has been how to choose between inaction and overheated words that could likely harm the housing market. Personal responsibility and certification would allow us to hold banks and bankers accountable while creating a path to renewal for the housing market.
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