Despite months of outcry, the Obama administration is drawing closer to a deal with the five biggest mortgage banks to settle charges of robo-signing and foreclosure fraud. Led by NY AG Eric Schneiderman, six rogue AGs have defied the “50 state” panel, DOJ and HUD, insisting on carrying forward investigations into forged documents and improper procedures but bank-friendly authorities are seeking a more bank-friendly approach.
Without considering the guilt or innocence of the five major banks involved, the Obama Administration is poised to let Wall Street off the hook for foreclosures where as many as one million borrowers were “harmed” by robo-signing practices.
In a three-author article, the Wall Street Journal was abuzz over the impending settlement which will grant immunity for innumerable counts of alleged robo-signing in exchange for loan “haircuts”. Quoting HUD Secretary Shaun Donovan, the Journal glowingly touts the deal as the largest principal reduction of the crisis, promising a million borrowers a share of some $19 billion in relief on their loans:
“As part of the proposed settlement, Mr. Donovan said, a “number of families” who were harmed by foreclosure-processing mistakes would be directly compensated by banks.”
The banks would also agree to reforms, as part of the practice of “deferred prosecution” that Obama has continued from the Bush era. Back-room wrangling between Wall Street giants and the SEC or DOJ have shown great tolerance of the reckless behavior that drove the US economy into the ditch.
With banks paying fines that represent small portions of their annual profit totals, the settlements have been considered a nicely manageable cost of doing business. But with a preponderance of industry flacks winding up regulating themselves, public outrage hit new highs this fall.
Finally, we saw NY District Court judge Jed Rakoff change course, infuriated that courts and federal agencies have simply stopped bothering to determine whether or not crimes were committed as they approved a profusion of immunity deals. As a result, Citigroup was instructed to prove their innocence in court risking a lutitude of investor lawsuits should they lose.
Is Anybody Here Sane?
NY Attorney General Eric Schneiderman has been leading the charge to conduct thorough investigations before negotiating away the people’s right to prosecute. Since last August he has opposed Obama’s proposed settlement with Citigroup, Bank of America, JPMorgan Chase, Wells Fargo and Ally Financial for robo-signing, an unauthorized practice that had become so common, authorities stopped caring.
The Revolving Door at Holder’s DOJ
As it happens, four of the five banks involved in the settlement were clients of the DC law firm where both Attorney General Eric Holder and Lanny Breuer, the current head of the DOJ’s criminal division, were partners. Reuters and Huffington Post report here that Holder opposed investigations into robosigning despite receiving ample evidence of forged or suspect documents going back to 2010, the same year deputies under both Holder and Breuer went back to work for to the same law firm.
Brokered by a 50-state panel of Attorneys General, the robosigning settlement talks ground to a halt when Schneiderman objected to the immunity provisions, seeking to preserve NY’s rights to criminally prosecute, but also trying to tie together loan origination and securitization fraud allegations onto the same inquiry.
Upholding the rule of law is our best weapon in preventing future economic catastrophe, strongly dissuading criminal or reckless activity, seeking full reparations for victims instead of partial reimbursements and policing an industry plagued by government-industry incest and pay-for-play at the highest levels.
For taking his job seriously, NY’s Eric Schneiderman was booted from the panel, but was later joined by AGs from five other states, most of whom have filed related lawsuits: Kamala Harris (CA), Martha Coakley (MA), Catherine Cortez Masto (NV), Jack Conway (KY) and Beau Biden (DE).
These rogue AGs met January 10, to share notes with some nine other AGs said to be upset with the slow pace of the federal negotiations and the tin ear of the Obama administration. Attending were representatives from NH, HI, MO, MI, MD, MN, OR and MT. Biden’s Deputy AG Ian McConnel suggested the “50 state” AG panel was not truly representing the concerns of all the Attorneys General being asked to sign off on the deal. Follow up meetings were also in the planning, according to Huffington Post coverage.
It’s possible news of an impending settlement came down because the administration felt Schneiderman, Harris and the rogue AGs were leading a growing exodus of other AGs. The stepped-up timetable may be forcing dozens of AGs to hurriedly pick sides in a showdown.
AM radio reports in NYC today suggested New York might ‘lose it’s share of the pie’ because Schneiderman was not onboard. The WSJ spin is palpable, laughably describing the development as a “settlement of an investigation” although no investigation actually has taken place (can you ‘settle’ an investigation?). The WSJ would have New Yorkers believe we are lucky that the banks are offering back a fraction of the money taken through deceptive practice.
From a law and order perspective, Obama’s settlement deal is horrid but it also just looks bad – the Obama administration clearly has favored banks from the outset – and seeks from them the corporate campaign donations that are expected to shatter records this fall.
Schneiderman Finds an Outspoken Ally in DC
But Schneiderman may be armed with new insights after his collaboration with Steve Linick, the Inspector General at the Federal Housing Finance Authority. Also “gone rogue”, Linick has had the audacity to investigate banks after the 2008 collapse in connection with their Fannie Mae and Freddie Mac dealings.
In October, Linick raised eyebrows reporting Fannie & Freddie knew of rampant problems with foreclosure methods as far back as 2003. Quoting Financial Times [paywall], Firedoglake revealed Schneiderman was given FHFA’s finding on a dozen big banks obtained during a wide probe into specious securitization practices.
Linick has been stymied from making criminal referrals because the Obama/Holder DOJ has been so lax in prosecutions, but the FHFA also had a high bar of proof needed to charge fraud at the federal level, because intent must be proven. By contrast, Schneiderman needs only to prove fraud happened, invoking the Martin Act which grants state authorities greater powers because it was designed to protect the NY state pension fund from potential problems before they cause ruin.
The financial industry and their media mouthpieces now look to restore the banks’ advantage in an unbelievably tangled mess, where faulty paperwork could give homeowners decisive leverage in negotiations.
The surging Occupy movement has been raising awareness of unfair foreclosure practices and the deleterious effect of money in politics, attracting younger activists to the cause. By December, almost 50 Members of Congress responded, backing a bill seeking immediate investigations by state AGs instead of this immunity deal. About a year earlier, Maxine Waters led 31 members of Congress in urging the administration to investigate the robosigners, but was summarily ignored.
Now on the campaign trail, Obama is promising to restore fairness to a middle class besieged by lopsided policies, but the President was criticized for lip service and a “show” crackdown in recent weeks, going after CEOs at Fannie/Freddie while blatantly overlooking Wall Street’s criminal enterprises.
For New Yorkers concerned with this issue, we recommend you contact Schneiderman’s office at http://ny.ag.gov or find your state AG here, but above all, write President Obama who “is committed to creating the most open and accessible administration in American history”.
Cross-posted at NYaltnews.com.
[Update] For more texture and background, see my comment below.
[Update II] While updates on radio news continued to announce a deal is getting closer, a new WSJ piece entitled “Obama faces Heat From Left on ‘Robosigning’ Talks” quotes lead negotiator AG Tom Miller of Iowa as backing off, saying “we won’t reach a settlement any time this week”.
Noting both Sen. Sherrod Brown and MoveOn.org has taken up the cause in petitions and protests of Obama campaign sites (!), the WSJ seems to have overlooked Brown’s point – the settlement reportedly will allow banks to use write-downs to transfer some of the losses to investors, including state pension funds:
“The proposed principal reduction program must focus on banks settling with their own money, rather than shifting their financial liability to Private Label Securities (PLS) trusts.”
Naked Capitalism also fleshes out this investor-fleecing plot, adding other valuable ruminations – for example describing overtures Obama may be making to “favored” state AGs to ensure they don’t join the Schneiderman Six.
Tom Perrelli, the #3 at DOJ intimately involved in the talks announced he will be stepping down in March.
(OpEdNews Contributing Editor since October 2006) Inner city schoolteacher from New York, mostly covering media manipulation. I put election/finance reform ahead of all issues but also advocate for fiscal conservatism, ethics in journalism and curbing overpopulation. I enjoy open debate, history, the arts and hope to adopt a third child. Gustav Wynn is a pseudonym, but you knew that. =–> Users may repost my articles, provided it links to the original.