Iowa Attorney General Tom Miller kicked his New York counterpart Eric Schneiderman off the executive committee for the 50-state working group on foreclosure fraud yesterday. As leader of the working group created last October, Miller has drawn criticism for negotiating lenient terms for major lenders and not investigating some shady foreclosure practices. His latest move is another sign that Miller leans toward terms favored by banks and their Obama administration allies.
Late last year, Miller indicated that any settlement with major lenders would focus on ending the practice of “robosigning” and increasing mortgage modifications, including write-downs of principal, to help keep owners in their homes. Schneiderman and several other attorneys general oppose settlement terms that would grant broad immunity to banks, because robo-signing is only one of many widespread unlawful lending practices.
A few days ago, Gretchen Morgenson reported for the New York Times on federal officials’ efforts to strong-arm Schneiderman:
In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the [New York] attorney general to support the settlement, said the people briefed on the talks.
Mr. Schneiderman and top prosecutors in some other states have objected 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. […]
An initial term sheet outlining a possible settlement emerged in March, with institutions including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo being 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 – Beau Biden of Delaware and Catherine Cortez Masto of Nevada, for example – questioned aspects of the deal.
Miller explained his decision to remove Scheiderman from the working group’s executive committee as follows:
“New York has actively worked to undermine the very same multistate group that it had spent the previous nine months working very closely with,” said Miller, who is leading the state group. For a member of the executive committee, that “simply doesn’t make sense, is unprecedented and is unacceptable,” Miller said [in a written statement]. […]
An executive committee of 13 attorneys general, not including Schneiderman, and two state banking regulators is leading negotiations on behalf of all 50 states, said Geoff Greenwood, Miller’s spokesman. The executive committee has a smaller committee that negotiates directly with the banks, he said.
Several attorneys general, including Schneiderman, have criticized any possible settlement that would protect banks from state investigations by providing the lenders with broad releases from liability. Those probes include the bundling of mortgage loans into securities.
From reports I’ve read, all of the attorneys general who are concerned are Democrats. Republican AGs aren’t complaining that Miller is driving too hard a bargain, which suggests that the banks are getting what they want out of the deal. Meanwhile, unnamed sources tried to convince Washington Post readers that the proposed settlement terms aren’t as bad as Schneiderman suggests:
Inherent in Schneiderman’s warnings was an implication that officials negotiating the current deal are willing to give away too much, a suggestion that those involved in the talks describe as inaccurate and infuriating. Several people familiar with the talks said those at the negotiating table have never considered granting banks immunity from claims related to the securitization process, nor have they sought to prevent Schneiderman and others from pursuing broader investigations into other issues, such as securitization, fair housing claims and criminal fraud.
Really? Then why did Delaware Attorney General Beau Biden praise Schneiderman for continuing “to raise important and legitimate concerns about the scope of the releases being demanded by the banks”?
Illinois Attorney General Lisa Madigan remains on the executive committee of the 50-state working group, but she has insisted that banks be given only a narrow release from liability in this settlement, not a broad release covering all forms of wrongdoing related to mortgages
Yves Smith argues persuasively at Naked Capitalism that Miller won’t get the settlement he’s looking for:
Aside from robosigning, which was all over the funny papers last year, the Administration and the AGs have made sure they have no facts. A member of the Administration who was involved in the settlement talks confirmed what we have long said on this blog: there was no investigation of any kind, despite Iowa attorney general Tom MIller’s
liesclaims to the contrary. They didn’t even bother getting to first base, namely making document requests.
And that is why at least some of the AGs are so uncomfortable with what is going on. Even though Gretchen Morgenson of the New York Times focuses tonight on the Administration’s efforts to leash and collar Schneiderman, he isn’t alone in having significant reservations. […]
If the AGs stick to this stance, there is no deal. The article maintains the AGs still want damages of $20 to $25 billion. The banks aren’t going to pay much if anything to settle on robosigning, and the AGs haven’t done the legwork to make a case on loss mitigation.
So the bullying of Schneiderman looks to be misguided, since the settlement is likely to fall apart. But it is nevertheless germane because it reveals the Administration’s warped thinking and sense of priorities.
Demoting Schneiderman doesn’t seem to have convinced anyone that Miller’s negotiating team is on the right track. Even the Wall-Street-friendly New York Times editorial board supports Schneiderman’s stance on the mortgage settlement.
Smith describes the Obama administration as “corrupt,” and it’s hard to disagree when we have yet to see the federal government take on any financial giant in any meaningful way. Last week Kathryn Wylde, a board member of the Federal Reserve Bank of New York, took Schneiderman to task for rejecting a different settlement, related to how Bank of New York Mellon and Bank of America sold mortgage-backed securities. Wylde is a “Class C director” of the New York Fed, which means she is supposed to represent the public interest, not the banking industry. But here she is complaining that Schneiderman won’t play ball:
Ms. Wylde said in an interview on Thursday that she had told the [New York] 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.”
By all means, let’s do “everything we can” to support Wall Street firms, even if they they are selling investors crappy mortgage-backed securities, or denying homeowners loan modifications, or forging papers to support foreclosure court filings.
When Tom Miller was fighting to keep his job last fall, he touted his commitment to consumer protection and enforcing the law against businesses. In contrast, Miller said, his Republican challenger Brenna Findley was influenced by conservative ideology and opposed prosecuting businesses that break the law. For that reason, Miller’s handling of the foreclosure negotiations is particularly disappointing. He took criminal charges off the table too soon and should have investigated the alleged fraud more thoroughly.
In March, Smith characterized Miller’s proposed settlement as “a suicide pact for the attorneys general in states that are suffering serious economic damage as a result of the foreclosure crisis.” Here’s hoping that AGs with higher political ambitions, like Schneiderman, Biden, and Madigan, torpedo the deal sought by Miller and the Obama administration. Consumers victimized by fraudulent lending and foreclosure practices deserve better.
UPDATE: From Radio Iowa’s report on this story:
Chris Neubert of Iowa Citizens for Community Improvement says the exit of New York’s attorney general is concerning.
“It leaves a void at the table for a voice that’s really calling for a settlement that’s as tough as possible, really cracks down on the big banks, really pushes hard for principle reduction without giving up any chance for future prosecution,” Neubert says.
Introducing the “threat” of criminal prosecution as leverage in the negotiations would be “illegal and unethical” according to Geoff Greenwood, a spokesman for Miller. Greenwood says the case is about holding the banks accountable and helping homeowners.
“Attorney General Miller has called for some form of principal reduction from day one. He has never backed down from advocating for targeted principal reduction,” Greenwood says. “To this day, ten months into negotiations, principal reduction remains on the table and will likely be a component of an agreement, that is assuming we reach one.” […]
“It looks to me like they just want this to be wrapped up so they can move on,” Neubert says. “When the fact is these fundamental problems and the (housing) crisis and the things that have been going on for years now have not been adequately addressed by the Obama Administration.”