New York Attorney General
New York Attorney General, Eric Schneiderman was appointed this week by President Obama to a special investigative unit that will coordinate existing federal and state probes into foreclosure fraud prior to the financial crisis. Schneiderman said today that these efforts would “move aggressively.” Schneiderman is not popular on Wall Street and his appointment as lead of this crime unit sends culprits a strong message.
“This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans,” Obama said in his State of the Union speech. The unit will investigage not only banks but financial firms and mortgage originators that engaged in illegal behavior and will seek compensation for victims as well as relief for homeowners.
In a statement a spokesman for Schneiderman said no settlement would be agreed upon that would limit his ability to carry out investigations of the mortgage crisis.
California Attorney General
Meanwhile, the proposed $25 billion settlement with the nation’s mortgage industry is publicly being called “inadequate” by California Attorney General Kamala D. Harris’ office who said in a statement, “our state has been clear about what any multistate settlement must contain: transparency, relief going to the most distressed homeowners and meaningful enforcement that ensures accountability. At this point, this deal does not suffice for California.”
When Harris walked away from the negotiations table in 2011 for the big five servicers (Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo) not offering enough to her state’s homeowners, California’s withdrawal as a key player stalled talks. The team has since launched separate investigations into the lenders, coming back to the table recently, but to no avail.
The $25 billion settlement is said to not cover any mortgages held by Fannie Mae and Freddie Mac, only those held privately by the banks, a point of contention among states. Additionally, $17 billion would be put toward principal reductions for underwater borrowers and $5 billion would be in a reserve account for individual homeowners victimized by bad servicing. Another $3 billion would help homeowners refinance their current mortgages at 5.25 percent.
Why the settlement has stalled
While all of these moves are appealing, the settlement states that attorneys general would be required to release the banks from any further action related to the improper servicing of loans and claims against originating mortgages, which many attorneys general have called overly broad and vague. Schneiderman and Harris have both protested any interruption of their current investigations.
Because no settlement has been reached among the 50 states, each state will independently have to decide whether they will launch (or pursue) independent investigations or join a settlement with the states that do agree to the terms. Negotiations have been led by Iowa Attorney General, Tom Miller who has said in several statements that no settlement would release banks from any claims regarding securitization.
These 50-state talks alongside federal agencies have started and stopped a number of times, but with President Obama’s new crime unit and condemnation of victimization of homeowners during his State of the Union could mean a resolution could come this year – perhaps before the polls open in November?