The moment the state attorneys general proposed a mortgage servicing settlement it seemed only logical that lenders and banks wouldn’t like it. The natural flow of solutions, after all, is going to require some level of back and forth. And so the American Bankers Association recently expressed exasperation at Paul Krugman’s column in The New York Times on March 13 titled Another inside job. Written by ABA President and CEO Frank Keating, the trade group’s letter to the editor of the Times is published here. I was particularly struck by the laconic nature of the entire submission. Why would the ABA only have 174 words to say about Krugman’s column on a 27-page proposal? And what did this passage mean?

“Even if the allegations against the firms involved are proved accurate, it doesn’t mean the entire mortgage industry is systemically flawed and in need of wholesale restructuring.”

In short, there seemed to be a side of the story not being told. And, as it turns out, there is. HousingWire Thursday obtained a copy of the original letter sent to the editor of The New York Times. It is nearly three times longer – 462 words – and can be viewed by clicking here. Judge for yourself if you think the editors at The New York Times rightfully cut the letter. As an editor myself, I support whatever changes they made, knowing full well the daily challenges of the position. However, there is a systematic dysfunction to the entire mortgage servicer redemption methodology. And though the ABA “takes on” Krugman, what really gets to the association is the proposed settlement. Or more specifically, the way in which change is going down. Change can only be fully accepted when just. And we can only hope regulators appreciate the necessity of hedging against the unintended consequences of policy. And that is the point, we can only hope. For this process of change is no more transparent that the dark lending systems it intends to condemn. “The OCC diverted 30% of its resources into a horizontal review of the mortgage servicing industry, and other regulators did likewise, yet we don’t know the details,” said ABA executive vice president of government relations Robert Davis, who worked with Keating on drafting the letter. In clarifying the macro reasons behind what the NYT letter means to the ABA, Davis said the issue is, inevitably, that there were varying degrees of noncompliance in mortgage servicing. Violations were not uniform, he said, so the ABA concern is on a blanket settlement being offered as a solution without differentiation. “Penalties should be commensurate with the degree of regulatory noncompliance and actual harm to consumers,” he said. Nonetheless, the ABA is concerned that the proposed settlement terms push many changes that have “no clear nexus to violations or consumer harm” and divert attention from state law enforcement to federal issues such as bankruptcy proceedings, Davis tells HousingWire. “We don’t want to see a result that overrides state law jurisdiction of property rights,” Davis adds. The ABA is frustrated that there is no public forum to openly discuss the needs of borrowers and banks. Four state AGs are also sounding alarms on the proposal. The cost of mortgage origination for borrowers will begin to rise as interests rates won’t remain at historic lows forever. Yet, there is nothing in the settlement that improves borrower access to credit or allows for safer lending. The proposed settlement does, however, consolidate the power of those in charge. If nothing else the proposal blurs the lines between the judiciary, enforcement and legislative branches of government. Does mortgage servicing in the United States solve its woes from a single judge, jury and executioner? “There should be clear national standards, and one of these is that servicers have to be prepared to comply with all state law requirements,” Davis warned. “The solution can’t be shipped wholesale to Washington, D.C., for social engineering.” And that is what the ABA really meant in its letter to The New York Times. Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.