Three top Democrats are accusing the Department of Housing and Urban Development of quietly removing a key clause in its requirements for taxpayer-guaranteed mortgage insurance in order to spare two banks recently convicted of federal crimes from being frozen out of the lucrative market.

HUD’s action is the latest in a series of steps by federal agencies to eliminate real-world consequences for serial financial felons, even as the Obama administration has touted its efforts to hold banks accountable.

In this sense, the guilty plea has become as meaningless to banks as their other ways of resolving criminal charges: out-of-court settlements, or deferred prosecution agreements. “Too Big to Fail” has morphed into “Too Big to Jail” — and then again, into “Bank Lives Matter.”

Sens. Sherrod Brown and Elizabeth Warren and Rep. Maxine Waters fired off a letter to HUD on Tuesday, saying they believe that the timing of the change was designed to clear the way for two banks recently convicted of federal crimes — JPMorgan Chase and Citigroup — to continue to make Federal Housing Administration-insured loans. Last year, JPMorgan Chase wrote $1.67 billion in FHA loans, and Citi wrote $342 million, according to data from the Congressional Research Service.

On May 20 of this year, JPMorgan Chase and Citigroup both entered a guilty plea on one felony count of conspiring to rig foreign currency exchange trades, the largest market on the globe.

Five days earlier, on May 15, HUD slipped a notice into the Federal Register, seeking to alter its standard loan-level certification form, known as HUD-92900-A. This form must be filled out for lenders to receive FHA insurance, which reimburses them if the homeowner falls into foreclosure.

On the current HUD-92900-A form, lenders must certify that their firm and its principals “have not, within a three-year period … been convicted of or had a civil judgment rendered against them” for a variety of crimes, including “commission of fraud … violation of Federal or State antitrust statutes or commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements or receiving stolen property.”

JPMorgan and Citi’s guilty plea would fall under the antitrust statute, and according to Brown, Warren and Waters’ reading of the certification, that would make them ineligible to obtain FHA insurance on their loans.

On the updated form, this language has been excised. The notice in the Federal Register did not even mention the removal, making it impossible to discover without comparing the old form and the proposed form side by side. The Wall Street Journal ran a story about the certification changes in May, but failed to notice that the new language would let law-breaking banks off scot-free.

The day before HUD released the notice in the Federal Register, the New York Times reported that the Justice Department sought to lessen the consequences of the guilty pleas in the foreign exchange rigging case, ensuring that federal regulators would not use the pleas to bar banks from certain business lines.

The Securities and Exchange Commission then granted waivers from disqualification to JPMorgan Chase, Citi, and the other guilty banks in the case, over the objections of one SEC Commissioner that the big banks had effectively become “Too Big to Bar.”

The HUD changes would similarly take away an automatic penalty for bank misbehavior. Per Brown, Warren and Waters, they “allow HUD to turn a blind eye to criminal violations — putting homebuyers and taxpayers at additional risk.”

HUD spokesperson Cameron French said the agency was not providing comment on the Democratic letter. He said HUD would review it and respond accordingly.

HUD solicited public comment for two other alterations to the form. Under the Paperwork Reduction Act, only administrative changes that potentially raise burdens on private businesses must go through the public comment process. Anything that reduces paperwork burdens has no such requirement.

According to the Democratic lawmakers, HUD asserted in staff-level discussions that removing the certification does not represent a change in policy. HUD staff argued that a certification on a separate lender-level form is sufficient for keeping criminally negligent lenders out of the program.

However, in their letter, Brown, Warren and Waters explain key differences between those two certifications. The lender-level form covers only felonies by the lender subsidiary and its employees related directly to participation in real estate or mortgage lending. The loan-level form is much broader, encompassing civil or criminal violations of any type, whether related to real estate or not. Plus, violations by the lender’s parent company firm or its affiliates count under the loan-level certification.

JPMorgan Chase and Citi would pass the lender-level certification, because the violation to which they pleaded guilty occurred in foreign exchange trading, not mortgage lending.

While many industry observers believe banks should not be punished in one area of their business for the sins in another area, the threat of such consequences could act as an effective deterrent for the parent company to follow the law across its business lines. But if these consequences are habitually waived, the deterrent value becomes irrelevant. The industry has also warned of reduced access to credit if large FHA lenders like JPMorgan Chase and Citi were barred, a perennial objection any time profits are threatened.

“HUD may have good reasons for proposing these changes at this time,” write Brown, Warren and Waters, but “but its Federal Register notice fails to even describe the changes to the certifications on illegal conduct — let alone offer a rationale for them.” They allege that HUD staffers offered to give additional reasons, but only after the comment period ended on July 14. The notice has already been reviewed and approved by the Office of Management and Budget, the final step before authorization.

The Democratic lawmakers believe removing the certification language results in a change in policy rather than simply a change to the form. They requested that HUD withdraw the notice and issue it again under the Administrative Procedures Act, giving an explicit rationale for the change, and how it would affect JPMorgan and Citigroup’s FHA loan status. The public would then have an additional 60-day comment period.

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