U.S. housing secretary says British rate-rigging scandal proves need for more oversight

By Anjeanette Damon

Monday, July 9, 2012 | 2:13 p.m.

The British interest rate-rigging scandal is further proof that regulators need to take a stronger hand in the financial industry to protect consumers, U.S. Housing Secretary Shaun Donovan said today at a Reno news conference.

In Reno to tout the Obama administration’s efforts to ease refinancing for troubled homeowners, Donovan said consumers continued to need stronger protections.

“Broadly, what it points out is one of the things that led us into this crisis was a failure of those that were supposed to be overseeing our mortgage and financial system,” Donovan said, likening the London scandal to the activities that led to the 2009 collapse of the financial industry and housing market.

Late last month, British and American regulators fined Barclays $453 million for manipulating the London interbank overnight rate, called LIBOR.

The LIBOR is based on what large international banks pay to borrow money. LIBOR is used to set the rates for other financial contracts and investments, including adjustable rate mortgages.

Although Barclays is the only bank to pay a fine so far, regulators are investigating several more large banks for manipulating the rate.

According to reports, Barclays manipulated its reported borrowing rate according to what may have benefited their traders. When the turmoil began in the financial industry, Barclays also reported lower rates to give the impression of greater financial stability.

Donovan noted the British crisis proved the need to strengthen regulations that protect consumers.

“Banks expect homeowners to meet their responsibilities, we should expect the very same thing of our financial institutions,” he said. “Frankly, that didn’t happen in this crisis.”

Nevada Treasurer Kate Marshall, who attended a roundtable with Donovan and Northern Nevada real estate industry representatives, echoed his comments.

“I think you are starting to see people who are conservative economists who were previously questioning how much regulation was needed say if these banks really think they can move the LIBOR rate with such a cavalier attitude” that more oversight is needed, she said.

Donovan visited Northern Nevada to tout the administration’s programs to help troubled homeowners refinance their mortgages and to urge Congress to act on a trio of bills that would further ease refinancing restrictions.

He credited to the Obama administration’s programs with lowering the foreclosure rate in Nevada. The Silver State no longer leads the nation in the number of forecloures.

But the foreclosure slowdown is attributed mostly to a new state law that requires banks to prove their authority to foreclose on the property.

Many experts say the law has artificially lowered the foreclosure rate by delaying bank actions.

Donovan said the federal policies still played a role.

“According to the evidence I’ve seen is about half of the reduction of foreclosures in Nevada happened before the (state) law went into effect,” Donovan said. “So clearly it’s more than just the law.”