State Farm has another battle on its hands and this one has morphed into a constitutional battle. This battle is with a whole group of State Attorney Generals and State Banking Officials of the twelve states that regulate mortgage brokers.
The case started with State Farm trying to finagle its way around some requirements in the State of Ohio, that were put in place to reign in some of the worst excesses of the current lending mess.
You see, State Farm has a bank. A thrift to be exact. And it likes to offer loans, and other banking products to its insurance customers. But the people that they do this through are not employees of State Farm. They are the various independent agents (as State Farm likes to call them) that run State Farm offices.
Ohio's Bank Supervisor said “If they are independent, then they are brokers. And if they are brokers, they must license as mortgage brokers and follow our laws.” We would like to know who the are and that they have a clue what they are doing. State Farm did what any business that wants to avoid regulation in this day and age does: they went to their friendly do-nothing federal regulator and got a letter from the Chief Counsel of the Office of Thrift Supervision (OTS) saying that State Farm independent agents were exempt from state regulation.
Now it should be understood that FEDERAL courts do not normally pull back the reigns on FEDERAL agencies. But the Federal District Judge Edmund A. Sargus had a very hard time understanding the methodology of State Farm and the OTS. In his opinion and order he noted that a letter from the chief agency's attorney hardly complies with the Administrative Procedures Act as set out by congress. He goes on to note that at no time prior had the OTS had any interest in the area of regulating mortgage brokers and that for the State of Ohio to hear about it for the first time when State Farm hands it a letter from the OTS is a little bit unusual.
So the Judge ruled against State Farm in their request for a declaratory judgment. State Farm has taken the case to the 6th Circuit Court of Appeals. We are currently at the point where various parties are submitting their amicus briefs. The OTC has already filed one for State Farm, and it is expected that various State Attorney General Offices, and some group from the Conference of State Banking Supervisors will submit one for the State of Ohio.
While we wait for the dust to settle, I am curious as to one point: I understand why The Federal Reserve Bank (The Fed), the Office of the Comptroller of the Currency (OCC), and OTC have done nothing to reign in the current mortgage mess. But why do only twelve States regulate mortgage brokers?
In case the link above doesn't work here is the url: http://www.goodwinprocter.com/Files/CFSA/07/rm_07_10_9_Ohio.pdf
Monday, January 28, 2008
A Different State Farm Battle
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3 comments:
Excellent points Russell and another example of what happens when the government does not hold businesses to minimum standards. If subprime lenders had been held to some minimum standards like banks in their lending and oversight this subprime debacle may have been avoided.
State Farm bank shows up in the racketeering lawsuit filed down here. It was that institution that seeded the engineers with money to begin down here. It also provided a point of leverage for State Farm over these firms.
sop
I guess they didn't consider the fact that insuring a house that they also hold the mortgage on gets you into some interesting situations.
Sounds like the insurance end won the argument in MS.
Countrywide does the same thing from the opposite direction. They put insurance on the home loans they make. Of course their biggest problem at the moment isn't with a hurricane, but with the fact that 1/3 of their sub-prime loans are in default as of years-end.
http://www.reuters.com/article/marketsNews/idUKWEN362420080129?rpc=44
The "insurance end" wins all the arguments in Mississippi pardner. Them boys own the commissioners office lock stock and barrel.
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