The Second S&L Scandal: OTS Ignored Reckless Lending and Gave Thrifts Cover

WASHINGTON, Jan. 21 /PRNewswire-USNewswire/ -- The federal Office of Thrift
Supervision (OTS) has failed in its responsibility to oversee the nation's
thrift institutions and protect the public from reckless lending practices,
according to a new report released today by the Center for Responsible
Lending.
www.responsiblelending.org/policy/regulators/the-second-s-l-scandal.html

CRL recommends that OTS be eliminated as a government agency and that its
functions be folded into other federal banking regulators as part of the
regulatory overhaul the new Administration and Congress are considering.

A CRL analysis of court records, government reports, financial data and other
information shows how OTS's neglect of its duties contributed to the ongoing,
historic mortgage and economic meltdown:

-- OTS allowed WaMu, IndyMac and other thrifts to engage in increasingly
risky lending practices that harmed borrowers, undermined the
institutions' own financial health and ran up enormous costs that
have landed in the taxpayer's lap.
-- OTS was slow to act as the financial health of the banks it oversaw
deteriorated. It failed to take action that would have significantly
reduced the economic fallout from these bank failures.
-- The agency hid from investors and the public the seriousness of
thrifts' financial problems. In some instances, the OTS allowed
banks to falsify financial results to mask poor results that would
have
raised alarms sooner.

The damage caused by OTS's failures is enormous. In 2008, five thrifts with
assets totaling $354 billion collapsed. Seven other thrifts holding assets
totaling another $350 billion have been sold or are entangled in their parent
companies' bankruptcies.

OTS, a unit of the U.S. Treasury Department, is the agency responsible for
overseeing federally-insured banks known as thrifts, or savings and loans. It
was created from a predecessor agency where incompetence and regulatory lapses
were major contributors to the first S&L scandal, until now the costliest
taxpayer bailout in U.S. history.

"OTS was created in 1989 to clean up that era's S&L mess," says Michael
Hudson, co-author of the CRL paper. "Now the agency is presiding over a second
S&L scandal -- one that couldn't have happened without inaction and negligence
by the very agency responsible for policing the industry."

The report makes clear that OTS wasn't the only federal regulatory agency that
failed to counter the growth of unsafe practices during the mortgage boom. The
entire federal regulatory structure -- including the OCC and the Federal
Reserve -- shares responsibility for the mortgage debacle. OTS's failures
stand out, however, even within an overall regulatory meltdown. Given the
rapid change and dramatic challenges that have unfolded over the last decade,
the OTS's role of chartering and overseeing national thrifts is outdated.

"The OTS faces two primary obstacles: The number and asset size of the thrifts
it manages are falling, and those thrifts that remain are losing lots of
money," said co-author Jim Overton. "The OTS is increasingly obsolete at a
time when we need a new regulatory framework that will both protect consumers
and bring stability to the banking system."

In addition to critiquing OTS's failures, the paper includes a body of
recommendations for reforming the federal financial regulatory system. By
protecting homeowners and families from the kind of unscrupulous lending
practices that have proliferated in recent years, the report argues,
regulators can also help ensure the safety and soundness of America's banking
institutions.

For more information: Kathleen Day at (202) 349-1871 or
kathleen.day@responsiblelending.org; or Ginna Green at (510) 379-5513 or
ginna.green@responsiblelending.org.

About the Center for Responsible Lending
The Center for Responsible Lending (http://www.responsiblelending.org/) is a
nonprofit, nonpartisan research and policy organization dedicated to
protecting homeownership and family wealth by working to eliminate abusive
financial practices. CRL is affiliated with Self-Help
(http://www.self-help.org/), one of the nation's largest community development
financial institutions.

SOURCE Center for Responsible Lending

Kathleen Day, +1-202-349-1871, kathleen.day@responsiblelending.org, or Ginna
Green, +1-510-379-5513, ginna.green@responsiblelending.org, both of Center for
Responsible Lending