Obama administration protecting big banks from foreclosure and mortgage securities fraud investigations?

New York Attorney General Eric Schneiderman is being pressured by the Obama administration to accept a wide-ranging state settlement with banks over dubious foreclosure practices. Mr. Schneiderman and top prosecutors in some other states are objecting to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

The secretary of Housing and Urban Development, Shaun Donovan, and high-level Justice Department officials have been trying to persuade the attorney general to support the settlement. Mr. Donovan and others in the administration have even been contacting Mr. Schneiderman’s allies, including consumer groups and advocates for borrowers, seeking help to secure the attorney general’s participation in the deal.

Terms of the possible settlement focus on improper foreclosure practices such as robo-signing and submitting forged court documents to speed up the process of removing people form their homes. Negotiations on this deal have been led by Thomas J. Perrelli, associate attorney general of the United States, and Tom Miller, the attorney general of Iowa.

Institutions including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo were asked to pay about $20 billion that would go toward loan modifications and possibly counseling for homeowners. In exchange, the attorneys general participating in the deal would have agreed to sign broad releases preventing them from bringing further litigation on matters relating to the improper bank practices.

The banks balked at the $20 billion figure and the talks seemed to stall over the summer, as Mr. Schneiderman and a few other attorneys general, including Beau Biden of Delaware and Catherine Cortez Masto of Nevada, questioned aspects of the deal.

Mr. Schneiderman began objecting a few months ago to the proposed releases barring future litigation, declining to participate as long as they were included.

“The attorney general remains concerned by any attempt at a global settlement that would shut down ongoing investigations of wrongdoing related to the mortgage crisis,” said Danny Kanner, the spokesman for Mr. Schneiderman. His office has opened several inquiries into mortgage practices during the credit boom.

Mr. Schneiderman has also sued to block a settlement proposed by Bank of New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing Countrywide Financial loans that investors say were mischaracterized when they were sold.

The deal would require Bank of America to pay $8.5 billion to investors holding the securities; the unpaid principal amount of the mortgages remaining in the pools totals $174 billion. Lawyers representing 22 institutional investors, including the Federal Reserve Bank of New York, BlackRock and Pimco, contended that the deal was favorable. Schneiderman’s lawsuit contends that the deal could “compromise investors’ claims in exchange for a payment representing a fraction of the losses” experienced by investors and that it had been negotiated without the knowledge of all of the holders of the securities.

On August 7th, Mr. Schneiderman crossed paths with Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public. Ms. Wylde, who has criticized Mr. Schneiderman for bringing the lawsuit said in an interview on Thursday that she told the attorney general “it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

Something indefensible? Like foreclosure and mortgage securities fraud maybe?



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