The president announced the unit in his State of the Union speech yesterday.
“Our working group is focusing on conduct related to the pooling and creation of mortgage backed securities, issues related to conduct that created the crash, not abuses that happened after the crash,” New York Attorney General Eric Schneiderman said today in Washington.
Schneiderman will co-chair the unit, which includes officials from the Justice Department, Securities and Exchange Commission and Internal Revenue Service. Obama said in his speech that the 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.”
State and federal officials have been negotiating with the five largest mortgage servicers -- Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. (C), Wells Fargo & Co. and Ally Financial Inc (ALLY). -- to settle claims they used so-called robo- signing and faulty documentation to justify foreclosures. All 50 states announced an investigation into the practices in 2010.
The deal with the banks could be worth as much $25 billion in loan forgiveness, interest rate reductions and other aid for homeowners, said a person familiar with negotiations who declined to be identified because the terms weren’t public.
Fraud Task Force
The joint federal-state mortgage investigative unit will be part of a task force Obama created in 2009 by executive order to investigate and prosecute financial fraud cases. The task force, led by Attorney General Eric Holder, is made up of 20 federal agencies, including the Justice, Treasury, Commerce and Labor departments, 94 U.S. attorneys and state and local agencies.
The new unit is an attempt to better coordinate efforts among the federal and state agencies in the task force, according to the Justice Department. Schneiderman said the unit will also investigate mortgage origination.
Since its formation, the task force has charged more than 1,200 defendants for crimes related to mortgage fraud, including schemes that resulted in financial losses to homeowners and banks, and attempts to illegally obtain government money, according to the Justice Department.
Foreclosure Talks
Representatives of Democratic attorney general offices met at a Chicago hotel Jan. 23 to discuss the negotiated terms in the foreclosure settlement talks with banks and ask questions, said Iowa Attorney General Tom Miller. Miller, who is helping to lead the negotiations, said after the meeting that an agreement with the banks was getting closer.
In August, Schneiderman was removed from the executive committee representing the states in negotiations with the mortgage servicers. Schneiderman “actively worked to undermine” the multistate group’s efforts, Miller said in a statement at the time.
Schneiderman and California Attorney General Kamala Harris have said any settlement shouldn’t protect banks from claims that haven’t been fully investigated, such as claims stemming from the packaging of mortgages into securities sold to investors.
“My concern with that has always been to make sure that we’re not releasing claims that obviously now are even more important to me because I’m investigating them,” Schneiderman said.
‘Steadfast Commitment’
Schneiderman’s office has been conducting its own investigation into the mortgage operations of major banks.
“In coordination with our federal partners, our office will continue its steadfast commitment to holding those responsible for the economic crisis accountable, providing meaningful relief for homeowners commensurate with the scale of the misconduct, and getting our economy moving again,” Schneiderman said in a statement.
Harris in California, Nevada Attorney General Catherine Cortez Masto and Delaware Attorney General Beau Biden are also running mortgage-related investigations. Biden won’t sign on to the proposed multistate agreement as drafted, Delaware Deputy Attorney General Ian McConnel said in a Jan. 23 phone interview.
Massachusetts Attorney General Martha Coakley has sued the five banks involved in the talks.
Those calling for a full investigation into bank home lending and the creation and the sale of mortgage-backed securities include the Campaign for a Fair Settlement, a coalition of labor unions, consumer advocates and political activists including MoveOn.org.
The group said in a statement after Obama’s speech that a full investigation into banks’ role in the financial crisis will protect taxpayers “by making it much harder for Wall Street CEOs to again act lawlessly in pursuit of profits at the expense of regular Americans.”
To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net; Carter Dougherty in Washington at cdougherty6@bloomberg.net
To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Maura Reynolds at mreynolds34@bloomberg.net; Lawrence Roberts at +1-202-624-1985 or lroberts13@bloomberg.net
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