Alabama Republican Sen. Richard Shelby on Wednesday blasted efforts by federal and state officials to reach a settlement with mortgage servicers over botched foreclosures as a "regulatory shakedown" by the Obama administration that goes far beyond rectifying the damage caused to homeowners.

"This proposed settlement appears to be an attempt to advance the administration’s political agenda, rather than an effort to help homeowners who were harmed by a servicer’s actual conduct," Shelby said at a Senate Banking Committee hearing about the housing market.

Attorneys general from all 50 states and federal regulators are working to settle a broad investigation into problems in home foreclosures by leading mortgage servicers. Last week, officials from the states and the U.S. Justice Department, the Department of Housing and Urban Development, the Federal Trade Commission and the new Consumer Financial Protection Bureau presented the banks with 27 pages of demands for changes in mortgage servicing procedures.

The government officials also are pushing for financial penalties of $5 billion to $20 billion or more.

But Shelby said the attempt to help people harmed by botched paperwork and other foreclosure problems was being "hijacked" by some state and federal officials intent on circumventing Congress to provide more assistance to troubled homeowners.

He said the "shakedown" was led by Elizabeth Warren, who is helping launch the new consumer bureau as a White House and Treasury Department advisor. Shelby strongly opposed creation of the agency, which was the centerpiece of the overhaul of financial regulations enacted last year that he also opposed.

“Just last year, I warned that the new Bureau of Consumer Financial Protection would prove to be an unaccountable and unbridled bureaucracy. I did not expect to be proven correct so quickly," Shelby said. "Under the guise of helping homeowners hurt by improper foreclosures, regulators are attempting to extract a staggering payment of nearly $30 billion for unspecified conduct. The $30 billion would most likely fund a new slate of housing programs long sought by the administration, but previously rejected by Congress."

Shelby called for the banking committee to start an inquiry into the settlement talks. He also asked the Obama administration and banking regulators to "refrain from entering into any settlement agreement until Congress has had an opportunity to conduct appropriate oversight on this matter."

-- Jim Puzzanghera

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Photo: Sen. Richard Shelby (R-Ala.). Credit: Bloomberg