Ted Kaufman - United States Senator for Delaware

Kaufman thrust into forefront of foreclosure fray

Source: The News Journal

By Nicole Gaudiano

October 18, 2010

Retiring Sen. Ted KAUFMAN's name still isn't on the office stationery at his new job overseeing administration of the Troubled Asset Relief Program, but already he's being asked to address a critical issue facing the lending industry.

Lawmakers in charge of two House Financial Services subcommittees asked KAUFMAN -- just two days after he became chairman of the TARP oversight panel on Oct. 4 -- to look into whether banks that received TARP money used fraudulent or improper documentation to foreclose on homeowners across the nation. The controversy has prompted some banks to suspend foreclosures.

Democratic Reps. Luis Gutierrez of Illinois and Dennis Moore of Kansas are seeking an "immediate" investigation, "given that most of these institutions were rescued by taxpayers through TARP and some remain dependent on taxpayer support," the two lawmakers said in an Oct. 6 letter.

Such requests may become routine over the next six months as KAUFMAN, a Delaware Democrat, settles into his new job. Central to his mission, he said, will be questions about how TARP is functioning, whether it's serving taxpayers' interests and what lessons were learned from its response to the subprime lending crisis in case, "God forbid, this should ever happen again."

In his first letter as TARP's oversight chairman on Oct. 8, KAUFMAN assured Gutierrez and Moore that his panel and other TARP overseers would respond to their concerns. A November oversight report from the panel will explore broader concerns about TARP's foreclosure mitigation programs, he wrote. "Taxpayers have a critical interest in ensuring that the foreclosure process is fully and properly followed."

KAUFMAN, who is finishing a two-year appointment to fill Vice President Joe Biden's Senate seat, said his selection to the panel came as a surprise.

He had delivered a farewell speech to his Senate colleagues and was looking forward to a life of teaching, writing and working on nonprofit boards in Delaware when Senate Majority Leader Harry Reid called to say he was appointing KAUFMAN to the five-member bipartisan panel. Panel members later voted to make KAUFMAN their chairman. The panel's work ends in April. It's a fitting assignment for KAUFMAN, a financial-policy aficionado who considers Andrew Ross Sorkin's "Too Big to Fail" -- 600 pages about the federal government's bailout of Wall Street -- light reading.

Expanding on Senate work

KAUFMAN, who has an MBA from the Wharton School of the University of Pennsylvania, didn't serve on the banking committee during his two years in the Senate, but involved himself in the minutiae of financial-reform legislation. He railed against threats posed by concentrated, interconnected financial institutions, pushed for tougher short-selling rules and delivered prescient speeches on the dangers of high-frequency trading before such practices played a role in the wild market fluctuations of the May 6 "Flash Crash."

"I do have, I think, some credibility on these issues, and it clearly fits in with what I did in the Senate," he said in a recent interview. "It is taking an area that's complementary to the main things I worked on and just boring down a thousand miles into the ground."

KAUFMAN wasn't in the Senate in 2008 when President George W. Bush signed the TARP legislation into law. Asked whether he would have voted for the bill, he paused before answering.

"I probably would have voted for it," he said. "It was clear that the country was in deep financial trouble and that we had to do something to get over it, and that's what TARP was about."

TARP authorized the Treasury to buy $700 billion in troubled assets from banks and financial institutions to halt the subprime-mortgage crisis. Most investments in the banking sector have been recovered, officials say, and they now estimate the program's total cost at $51 billion.

Treasury's authority to lend additional money under TARP expired Oct. 3, but the department is still spending money on existing contracts. One such contract is the Home Affordable Modification Program, which helps some homeowners reduce monthly mortgage payments and avoid foreclosure.

As early as March, TARP's oversight panel raised concerns about whether loan servicers had adequate staffing to manage such loan modifications. In its September report, the panel highlighted a survey in which homeowners applying to the program complained consistently about servicers losing legal documentation.

Attorneys general in 50 states are now investigating reports that lenders used improper foreclosure procedures, and the Senate Banking Committee will hold a hearing in November.

As the oversight panel's new chairman, KAUFMAN will hold hearings, write oversight reports and possibly testify before Congress. Perhaps most significantly, he's responsible for the final report on TARP's performance, said Mark Calabria of the libertarian Cato Institute.

"Twenty years from now, when someone goes back and researches TARP, the first thing they're going to read is the final report," he said. "He is going to have an ability to really shape, kind of, how history looks at TARP."

KAUFMAN's predecessor at the TARP oversight panel was consumer advocate Elizabeth Warren, the controversial Harvard law professor who angered financial institutions by targeting predatory lending and abusive credit card fees. She recently was appointed to lead the newly created Consumer Financial Protection Bureau.

Warren is credited with aggressively pushing for transparency on TARP spending and was known for her sharp questioning of Treasury Secretary Timothy Geithner during his appearances before the panel.

"The point is blunt: Without more candid data on bank stability, on commercial real estate, small-business lending and home mortgage foreclosure efforts, the shape and depth of the risks facing our economy remain hidden," she said during an opening statement in June.

A consensus-builder

Picking up where Warren left off, KAUFMAN approved a report released Thursday that found the Treasury Department's extensive use of private contractors in TARP programs creates significant concerns about transparency and potential conflicts of interest.

"They may have conflicts of interest, are not directly responsible to the public, and are not subject to the same disclosure requirements as government actors," says the report, which was unanimously approved by the TARP oversight panel's five members.

Calabria said KAUFMAN may be more of a consensus-builder than Warren, who saw three Republicans leave the panel during her chairmanship. But his politics will be the same.

"Because he's someone who's got a reputation for being fairly far left, the narrative he paints isn't going to be friendly to the financial services industry and it's probably not going to be friendly to the idea of free markets in general," Calabria said.

But panel members on the left and right said the group acted in bipartisan comity under Warren's leadership, passing 17 of 24 reports unanimously. They said they unanimously voted to make KAUFMAN their next chairman because they see the same consensus-building spirit in him.

"Like many people who come from Delaware, Sen. KAUFMAN is not a particularly partisan person, and that fits, I think, well with the spirit in which our panel has functioned," said Damon Silvers, a Democratic appointee who previously worked as a law clerk in the Delaware Court of Chancery.

Kenneth Troske, a GOP appointee to the panel, said the panel's Republican appointees believed voting for KAUFMAN "was an important statement to make" in the interest of continued bipartisanship.

KAUFMAN will have to balance his new role on the TARP panel with his job as a senator until November, when his Senate successor will be sworn in after Delaware's special election.

KAUFMAN's first hearing as TARP's new oversight chairman will be held Thursday and will look at whether steps to limit executive pay at institutions that received large amounts of TARP money were successful. Among the institutions are American International Group Inc. and Bank of America.

"We've got seven more reports to write," Troske said. "Sen. KAUFMAN will have plenty to do."

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