Behind the $25B Settlement: Joe Smith

Parties to the landmark mortgage servicing settlement in February appointed one man to oversee $25 billion in compliance.

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In an interview with _DS News_, Joseph A. Smith, onetime banking commissioner for North Carolina and ex-nominee for the Federal Housing Finance Agency, lays out the role he envisions playing as he monitors funds for homeowners, states, and the federal government.

The settlement monitor speaks with an understated tone about his stewardship of the historic settlement, which 49 state attorneys general and federal officials completed in February.

""I'll implement exactly what the settlement says and we'll go from there,"" he tells _DS News_.

His main prerogatives: Setting expectations with servicers, establishing a sense of integrity for his office and the process, and deploying assets as well as possible.

Smith says he continues to engage in preparatory meetings with the nation's five largest servicers â€" Ally Financial, Bank of America, Citigroup, Chase, and Wells Fargo â€" as he rolls out the Office of Mortgage Settlement Oversight (OMSO).

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The office, a 501(c)4 nonprofit corporation, retains the help of another full-time staff member, plus six others in part-time or contract roles. Like any nonprofit, it is managed by a board of directors. Unlike other nonprofits, Smith is personally responsible for policy decisions â€" a court-ordered one-man force.

He plans to secure the assistance of a primary professional firm, which he says will serve as his ""eyes and ears and arms and legs"" in the banking landscape. He likens firm personnel and contractors with accounting firms to ""auditors and bank examiners"" responsible for overseeing the reporting process.

The way servicers report their compliance to Smith could not entertain more importance. If a bank fails to meet deadlines and the settlement monitor is unable to find a cure, he could enact $1 million or more in fines with the help of the attorneys general, who he says would take servicers to court in the District of Columbia.

""If you violate something, you give the banks the opportunity to make it right. If they can't cure or won't cure, then you need to consider enforcement actions and penalties,"" he says, adding that ""an egregious violation will get big penalties.""

He warns that non-compliance will net ""plenty of back-up from [state attorneys general]"" and ""injunctive relief from the courts.""

Smith sets up OMSO just as the Consumer Financial Protection Bureau (CFPB) moves forward with rule-making proposals this summer that some say could enact a formal set of national servicing standards.

Asked whether the servicing industry will receive new rules, the monitor says ""ultimately… we'll have national standards â€" and we ought to.""

_Editor's note: To read the full, exclusive interview with Joe Smith, subscribe to_ DS News _and request our May issue._