But regulations on servicers are thin. Servicers can, Andy Kroll noted earlier this year, change their charges and fees without notifying homeowners in advance. The companies routinely mess up families’ paperwork. And often they benefit from the confusion — tacking late-payment or wrong-payment fees onto customers’ bills.

Servicers have existed for decades, but have remained obscure — to the press, to the public and even to the regulators meant to be overseeing them. The federal regulators in charge of mortgage servicers — including the Office of the Comptroller of the Currency and the Federal Trade Commission, though each in a limited capacity — generally have not taken action when they break laws. In fact, though the Housing and Urban Development Department receives thousands of complaints a year, Washington hardly ever reacts. Instead, state governments are responsible for regulation. And that means a patchwork quilt of responses. Some states, like Ohio, go after the companies aggressively. Others don’t.

The good news is that this will soon change. Already, the Consumer Financial Protection Bureau technically has the mandate to oversee and write rules for mortgage servicers, though it is not staffed or set up yet. If the foreclosure fraud crisis is big enough, the new Office of Financial Research and Financial Stability Oversight Council might become involved. And last week, Rep. Brad Miller (D-N.C.) said of Congress, “We now have resolution authority that we can take out for a spin.”

Plus, Congress and the White House are now paying attention. Though the administration is using kid gloves, not pushing for new solutions or calling for a national moratorium on foreclosures, the Hill is more active. Sens. Richard Shelby (R-Ala.) and Chris Dodd (D-Conn.) have called for hearings when Congress comes back into session, after the November elections. Other offices I spoke with, including Sen. Sherrod Brown’s (D-Ohio), said they are considering new legislation or hearings to look into the fraud crisis. In the meantime, about 40 state attorneys general are investigating or initiating cases related to the crisis.

The final bill, more than 2,300 pages in length, directs regulators to create 533 new rules — applying to everything from debit cards to hedge funds to mortgage underwriting. It contains three central provisions. First, it provides the government with new powers to identify risky banking institutions and to shutter them, via a new systemic regulator. Democrats say this provision ends “too big to fail.” Second, the Dodd-Frank bill makes banks less dangerous, forcing them to keep more capital on hand, banning them from making risky trades on their own behalf and keeping them from investing heavily in vehicles like hedge funds. Finally, it creates a new consumer financial protection bureau, which will have the power to create and enforce new rules regarding financial products like home-equity loans and credit cards.

The White House pre-released only a short excerpt of Obama’s speech, indicating he plans to focus on consumer protections. “These reforms represent the strongest consumer financial protections in history,” he will say. “And these protections will be enforced by a new consumer watchdog with just one job: looking out for people — not big banks, not lenders, not investment houses — in the financial system. Now, that’s not just good for consumers; that’s good for the economy.”

Republicans argue that the bill will stifle the economy, reduce credit and overtax the banking system. Sen. Mitch McConnell (R-Ky.) remarked on the Senate floor this morning: “It’s almost as if it’s a prerequisite for any Democrat legislation: If it leads to more job loss, they’ll pass it. Americans are tired of this kind of ‘reform.’ Job stifling taxes, regulations, government intrusion. These appear to be the three pillars of every Democratic legislative effort.  They’re also the three things lawmakers can do that are guaranteed to kill more jobs.”

Several media outlets have noted that Wall Street’s biggest banking titans — including Lloyd Blankfein, the head of Goldman Sachs, and Jamie Dimon, the head of J.P. Morgan Chase — were not invited to the signing.

Senate Majority Leader Harry Reid and Banking Committee Chairman Chris Dodd were all smiles after the Senate passed its financial reform bill on Thursday. (epa/ZUMApress.com)

This afternoon, the U.S. Senate passed a sweeping financial regulatory reform bill, overhauling the regulation of everything from the biggest banks to consumer financial products to exotic instruments like credit-default swaps to the derivatives used by farmers. The bill passed 60 to 39.

[Congress1] Earlier on Thursday, Republicans Olympia Snowe (Maine), Susan Collins (Maine) and Scott Brown (Mass.) voted for cloture to end debate and move on to the final majority-rules vote. The bill just made the cloture mark, with 60 votes. Sen. Russ Feingold (D-Wis.) chose not to vote with his party, saying he did not find the bill strong enough. White House spokesman Robert Gibbs that President Obama will probably sign the legislation into law next week.

Thus ends a yearlong saga for the bill, whose architects Rep. Barney Frank (D-Mass.) and Sen. Chris Dodd (D-Conn.) spent hundreds of hours in negotiations before coming up with the final package. Work on writing the bills started last summer in the House and the Senate. The House approved its version of reform in December, and the Senate passed its version in May.

The biggest sticking point for reform in the Senate — and one of the reasons the bill took longer than in the House — concerned derivatives, which allow an investor to hedge against price fluctuations in a stock, commodity or other product. The derivatives portion of the bill fell under the purview of the Senate Agriculture Committee, headed by Sen. Blanche Lincoln (D-Ark.). Facing a tough primary challenge from the left, Lincoln inserted a strong provision forcing banks to spin off their trading desks for swaps — a kind of derivative — and to capitalize them separately. Companies vehemently fought against the proposal, but it ultimately appeared, albeit in a slightly changed form, in the final bill.

Once the House and Senate had their bills, the two moved to a conference committee to iron out their differences. In conference committee, the Senate bill was used as the base text, while Dodd led a team of more than 40 legislators voting on various changes. Dodd, Frank and the other conferees addressed everything from regulating derivatives to limiting banks’ ability to bet their own money alongside their clients’. Conference committee culminated in a 20-hour marathon session in June. The combined bill then passed the House again — and today it cleared its last hurdle in the Senate, sending it to the president’s desk.

The final bill, more than 2,300 pages in length, directs regulators to create 533 rules, according to the Chamber of Commerce. The bill contains three central provisions. First, it provides the government with new powers to identify risky banking institutions and to shutter them before they harm the broader financial system, via a new systemic regulator. Henry Paulson, the Treasury Secretary under President Bush when the financial crisis first hit, lauded the provision this week. “We would have loved to have something like this for Lehman Brothers. There’s no doubt about it,” he told The New York Times, referring to the investment bank that collapsed, destabilizing the country’s financial system and contributing to the credit crunch. Democrats say this provision ends “too big to fail,” by providing the government with a way of shutting down failing banks, reassuring counterparties and containing any sense of panic.

Second, the Dodd-Frank bill makes banks less dangerous, forcing them to keep more capital on hand, banning them from making risky trades on their own behalf and keeping them from investing heavily in vehicles like hedge funds. “[The bill] places some limits on the size of banks and the kinds of risks that banking institutions can take,” President Obama told an audience of Wall Street workers this spring, speaking at Cooper Union in Manhattan. “This will not only safeguard our system against crises, this will also make our system stronger and more competitive by instilling confidence here at home and across the globe. Markets depend on that confidence. By enacting these reforms, we’ll help ensure that our financial system — and our economy — continues to be the envy of the world.”

Finally, it creates a new consumer financial protection bureau, which will have the power to create and enforce new rules regarding financial products like home-equity loans and credit cards. “Consumers finally will have a cop on the beat … that will monitor the market and write and enforce the rules,” said Susan Weinstock, the financial reform campaign director for the Consumer Federation of America. “The Wild West for financial products and services is coming to an end. Consumers will now have a bureau that will clear out the tricks and traps in financial products and services that have harmed so many Americans.”

That said, the bill is imperfect by anyone’s measure. It orders 68 studies, and leaves major decisions up to regulators prone to lobbying and industry influence. It includes loopholes, including the glaring exemption of auto dealers who make car loans. But a broad range of experts on Wall Street, consumer protection and governance have lauded it as the strongest reform made since the Great Depression.

“This isn’t just about dollars and cents,” Sen. Harry Reid (D-Nev.), the majority leader, said on the floor. “It’s about fairness and justice. It’s about making sure there’s not a next time. It’s about jobs. And it’s about rescuing our economy.”

Correction: Sen. Scott Brown was initially incorrectly listed as being from Maine. Thanks to commenter Flitedocnm for pointing out that Maine cannot in fact have three sitting senators.

The bill impacts all parts of the financial system, from payday lenders to hedge funds to mortgage underwriters to debit cards. But it contains three central provisions. First, it provides the government with new powers to identify risky banking institutions and to shut them down before they harm the broader financial system, via a new systemic regulator. Second, it makes banks less risky, forcing them to keep more capital on hand, banning them from making risky trades on their own behalf and keeping them from investing heavily in vehicles like hedge funds. Finally, it creates a new consumer financial protection bureau, which will have the power to create and enforce new rules regarding financial products like home-equity loans and credit cards.

Speaking on the Senate floor just before the cloture vote, Majority Leader Harry Reid (D-Nev.) praised the bill:

The Wall Street earthquake that sent shockwaves around the world hasn’t hit anywhere as hard as it hit Nevada. You can draw a straight line from the unchecked greed on Wall Street to the collapse of the housing market on Main Streets throughout my state.  As soon as the big banks went down, the foreclosure signs went up.

How did this happen?  Let me put it this way: When you go to any of the great casinos across Nevada and put your chips on the table, you’re gambling with your own money.  If you win, you win — and if you lose, you lose.

But Wall Street rigged the game: They put our money on the table. When they won, they won big. The jackpots they took home were in the billions. But when they lost — and boy, did they lose big — they came crying to the taxpayers for help. The winnings were theirs to enjoy, but the losses were all of ours to share and to shoulder. That’s the way the market worked: It worked for a few fortunate ones in the big firms and worked against everyone else. So, when I say that’s how the market worked, what I really mean is that it didn’t work at all.  It was badly broken — and it nearly bankrupted us.

It cost eight million workers their jobs, millions of retirees their savings and millions of families their homes. It shattered our faith in our financial system. But there’s another problem: We’ve been talking about this rigged system — this raw deal — in the past tense.  But it’s not a thing of the past.  It’s very much in the present. The rules that allowed Nevada’s economy to collapse are still the same rules of the road today.  And that means every new day we don’t act, we run the risk of it happening all over again.

That’s a gamble I’m not willing to take.  The bill before us makes sure we don’t have to.

The first question was: How did this happen?  The next question is: What are we going to do about it? One, we’re saying to those who gamed the system: The game is over. We’re cracking down on those who gamble away what so many have worked so hard to put away. And two, we’re saying to families and taxpayers: Never again will you be asked to bail out a big bank when that bank loses its risky bets.

Let me say that again, because it’s one of the most important parts of this bill: No more bailouts, because no bank is too big to fail. We’re going to give consumers and investors the strongest protections they’ve ever had against abusive banks, mortgage companies, credit card companies and credit-rating agencies.

He also noted:

This isn’t just about dollars and cents.  It’s about fairness and justice.  It’s about making sure there’s not a next time.  It’s about jobs.  And it’s about rescuing our economy. I know Wall Street reform is complicated.  There aren’t many people who know all the ins and outs of derivatives trading or credit default swaps or mortgage-backed securities. But the principle before us is really quite simple: You either believe that we need to strengthen oversight of Wall Street, or you don’t. You either believe that we need to strengthen protections for consumers, or you don’t.

Our choice today is between learning from the mistakes of the past and dangerously letting them happen all over again.

* Note: An earlier version of this post said the final vote would happen tomorrow or Saturday. Just after the cloture vote, Sen. Chris Dodd (D-Conn.) moved for the Senate to modify its own procedure, and bumped the vote up to 2 p.m.

• Nearly four in five say “they have just a little or no confidence that the measure … will prevent or significantly soften a future crisis.”
• Three in four say “they don’t have much or any confidence the proposal will make their savings and financial assets more secure.”
• About half say the bill “will do more to protect the financial industry than consumers.”

And, to top it all off, a quote from the area man: “Banks and the government are making out, not the ordinary person. … We’re going to have another crisis and worse.” That said, more and more respondents say they support tougher regulations, and three out of four support stronger measures to keep banks in check. Republicans, as well as Democrats, are for stronger oversight. I would not be surprised if, as with health care reform, the big, complicated bill became more popular over time.

Instead of toughening up ethical and marketing standards for financial planners, Congress studies the issue in the financial overhaul bill. Instead of making it easier to sue lawyers, accountants and bankers who help commit securities fraud, Congress studies the issue. The bill also studies, among other things: short selling, reverse mortgages, improved insurance regulation, private student loans, oversight of carbon markets and the “feasibility of requiring use of standardized algorithmic descriptions for financial derivatives.”

In many cases, the government-mandated studies make sense: Washington wants to analyze exotic financial instruments before regulating them, which is certainly better than Washington rushing a loophole-addled or half-baked provision into the bill. In the case of Fannie Mae and Freddie Mac, too, the government has little incentive to act quickly given the complexity of the regulatory challenge and the tenuous stability of the enormous housing market. But the CNN article gets at why in many cases the studies are problematic: The bill includes them because lobbyists managed to kill hard-and-fast regulations. And ordering a study gives lobbyists and businesses more opportunities to wear down legislators and regulators.

“As I have indicated for some time now, my test for the financial regulatory reform bill is whether it will prevent another crisis.  The conference committee’s proposal fails that test and for that reason I will not vote to advance it.  During debate on the bill, I supported several efforts to break up ‘too big to fail’ Wall Street banks and restore the proven safeguards established after the Great Depression separating Main Street banks from big Wall Street firms, among other issues.  Unfortunately, these crucial reforms were rejected.  While there are some positive provisions in the final measure, the lack of strong reforms is clear confirmation that Wall Street lobbyists and their allies in Washington continue to wield significant influence on the process.”

Senator Feingold was one of eight senators to oppose the repeal of Glass-Steagall in 1999. Senator Feingold also opposed the Wall Street bail-out in 2008. During consideration of the financial regulatory reform bill, Feingold cosponsored a number of key amendments to ensure that banks are no longer too big to fail, and that depression-era reforms to create a firewall between Wall Street and Main Street are restored, among other critical issues.  None of these amendments were included in the final bill, which is why it failed Feingold’s test for real reform.  Amendments Feingold cosponsored included:

• Cantwell-McCain-Feingold amendment to restore the Glass-Steagall firewall between Wall Street and Main Street
• Senator Dorgan’s “too big to fail” amendment, which requires that no financial entity be permitted to become so large that its failure threatens the financial stability of the U.S.
• Brown-Kaufman amendment proposing strict limits on the size of financial institutions
• Dorgan amendment to ban so-called naked credit default swaps, speculative bets that played a role in the economic crisis
• Merkley-Levin amendment to prohibit any bank with government insured deposits from engaging in high-risk finance, like investing in hedge funds or private equity funds

That means Democrats’ next best option will be to win the vote of Sen. Maria Cantwell (D-Wash.), who did not vote for the original version either.

A version of both the Volcker Rule — banning banks from proprietary trading — and a provision to force banks to spin off swap desks made it into the final day, and I’ll look more closely at what language actually made it through later on.

But one small detail: At 2:52 a.m., Rep. Barney Frank (D-Mass.), the head of the conference committee, inserted a provision into the bill. It sticks banks with more than $50 billion in assets and hedge funds with more than $10 billion in assets with the costs of implementing the reforms. It made it in.

Apparently, executives are “panicking” over a possible change to the liquidation authority provision that would name Fannie Mae and Freddie Mac, the government-sponsored entities backing the mortgage market, as “financial companies,” meaning that other “financial companies,” like Wall Street banks, would need to cough up funds to shut them down. Republicans have already put out a bill supporting Fannie and Freddie’s liquidation; the scenario is certainly possible within the next few years. Politico writes:

That would be an enormous added liability to the banks and could expose them to ratings agency downgrades and a big stock market sell-off. “It’s not clear to us how the markets and ratings agencies will react to this,” one senior executive at a large Wall Street bank said last night. “But because this is a known quantity of potential liability there is a very real possibility that ratings agency’s will determine it is an immediate hit.”

Fannie Mae and Freddie Mac are much more likely to fail than any of the systemically important banks already a part of the liquidation authority, dramatically changing the equation for ratings agencies assessing the possible impact of financial reform. The exasperated executive added last night: “This is what happens when you have really important decisions made by the scribble of a pen.”

Here, via Politico, is the House side’s proposal. The conference committee is due to finish its work today.

Update: Pencil erased. Banks are off the hook.