WASHINGTON — Federal Deposit Insurance Corp. Chairman Sheila Bair said Wednesday the growing robo-signing scandal was symptomatic of the poor incentives that marred the securitization market, but she opposed a universal freeze on foreclosures.
While she continued to push for loan workouts, Bair said, "Across-the-board foreclosure moratoriums - I'm not sure that would help anyone. I think it would forestall a process that necessarily has to take place," Bair said.
Addressing a Washington conference of the Urban Land Institute, Bair also hailed government efforts to improve quality of mortgage servicing, and continued her criticism of the government-sponsored enterprises.
"In hindsight, the implicit government backing enjoyed by the mortgage GSEs, where profits were privatized and the risks were socialized, was an accident waiting to happen," she said.
Her speech, which included a question-and-answer period, came amid calls for investigations of whether banks' poor documentation was to blame for improper foreclosures of some borrowers.
Although Bair said FDIC-supervised banks "upon initial review" do not appear to have been responsible, she called the issue a "serious matter."
"The robo-signer situation underscores how wrong things went in the financial crisis and that there is still a lot of work to do," she said. "Foreclosure is a costly, unpleasant and emotional process. … Loan modifications should be considered whenever possible. Foreclosure should only come after careful thought, thorough analysis and good documentation."
The revelations, she added, reflect "the poorly aligned incentives that have existed in the mortgage servicing business."
The FDIC has attempted to address servicer incentives through a recent rule restricting use of a safe harbor in failed-bank scenarios for securitized assets. In addition to requiring bank originators to retain a piece of securitized loans in order to get the safe harbor, the rule also deals with how servicers are compensated.
Bair expressed hope coming regulations to implement the retention requirements in the Dodd-Frank bill will likely make similar improvements for all financial players.
"While the FDIC's new rule will help create positive incentives for servicing, it is, by the nature of our authority, limited to banks," she said.
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