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AG Determined to Get Best Deal for
Residents Affected by Foreclosure Scandal

By Scott Van Voorhis

Wall Street and New York’s biggest banks may be eager to call it a day on the sorry foreclosure mess and its many scandalous subplots, even at the expense of writing a very big check. But alas, New York Attorney General Eric Schneiderman, is having none of it. Just a year into the job, Schneiderman has succeeded in helping shift the debate, both in New York and nationally, away from efforts to close the book on the foreclosure mess and onto a new and seemingly growing round of investigations aimed at getting at the root causes – and supposed villains – behind the ongoing catastrophe.
The latest in a long line of activist attorney generals in New York, Schneiderman has pulled the Empire State out of a proposed multibillion foreclosure settlement with the banking industry and ramped up his own probes of the industry.
That could keep New York banks on the hot seat for months, if not years, while potentially dragging out a resolution to a foreclosure crisis that has had a major impact on hopes for an eventual recovery of the housing market, according to some industry experts.
 “Any time you have major states like New York opting out of a settlement it obviously creates a lot of difficulties for the banking industry,” Ed Mermelstein, a New York real estate lawyer who closely tracks the foreclosure issue. “Between Occupy Wall Street and occupy every other square in every other city, it in some degree goes back to the banking industry. They definitely want to move on and put this matter behind them.”
Schneiderman’s biggest splash to date came just a few months ago when he broke off from talks between state attorneys general across the country on a potential $25 billion mortgage fraud settlement involving Citibank, JPMorgan Chase, Ally Financial and Bank of America.
The deal includes $17 billion in principal reductions and mortgage modifications, with another $5 billion to be doled out to victims of mortgage abuses and $3 billion towards refinancing troubled loans.
Schneiderman and Delaware Attorney General Beau Biden contend the talks were too narrow, letting banks shut the door on a range of issues and alleged abuses. Both announced they would be forging ahead with their own investigations.
Schnederman’s decision to pull out did not come overnight, but rather was the end result of months of building tensions with Iowa Attorney General Tom Miller, who has taken the lead in hammering out a national settlement.
Miller issued a scathing statement accusing Schneiderman of working “to undermine the very same multistate group with which [he] had been working very closely over the previous nine months.”
The New York AG fired back, arguing Miller and other state AGs were being too hasty in their pursuit of a settlement, potentially letting the nation’s biggest financial institutions walk away without fully facing the consequences of their actions.
“Ongoing investigations by attorneys general cannot be shut down by efforts to settle quickly and those responsible must be held accountable,” Schneiderman’s office said in a statement at the time that was reported by Bloomberg. “While it is [Miller’s] prerogative to remove us from the executive committee, we will continue to be an active voice on these issues as a part of the 50-state coalition and in other forums.”
A sticking point for Schneiderman, according to comments made at the time by Biden, was the sweep of liability protections sought by the banks in exchange for agreeing to shell out billions in settlement cash. That could have hampered investigations into issues far beyond the robo-signing issue dealing with both the writing of troubled mortgages that later when into foreclosure, as well as their packaging and sale on Wall Street, Biden explained.
Since breaking free from the national settlement talks, the New York’s chief law enforcement officer has intensified what appears to be broad ranging probe into various facets of the foreclosure scandal.
Though Schneiderman’s office says it won’t publicly discuss active investigations, the AG has revealed some of his cards over the past few months, with hints at probes into everything from how shady subprime loans were packaged and sold to investors on Wall Street to the handling of foreclosure cases by a controversial law firm.
Schneiderman recently won a green light in federal court to intervene in a $8.5 billion settlement proposed by Bank of America to make up for losses by investors on hundreds of mortgage-backed securities picked by Bank of New York Mellon.
Successfully stepping into the middle, he argued the settlement amount is too low, representing only a small part of the losses piled up by investors in what later turned out to be toxic assets as defaults and foreclosures began piling up.
Schneiderman was already investigating the role played by Bank of New York Melon and Deutsche Bank as trustees acting on behalf of investors who bought mortgage-backed securities.
Meanwhile, Schneiderman is also apparently targeting a New York law firm that, at its height, handled 40 percent of the foreclosure filings in the Empire State.
Already under scrutiny for allegedly improper foreclosure practices, Steven J. Baum P.C. recently announced it would be shutting its doors amid furor over photos of a tasteless Halloween party thrown by the firm. The New York Times recently published photos that showed members of the firm dressing up as homeless people against a mock backdrop of foreclosed homes.
“I think there will be quite a few investigations before this is over,” Schneiderman said on an appearance on the “Rachel Maddow Show” on MSNBC.
The attorney general’s widening probe also threatens to further drag out a resolution to the long-running foreclosure mess, some industry experts say. By forging a national settlement to settle allegation of shoddy foreclosure practices, banks have been hoping to get back on track with the tough business of working through the glut of troubled properties on their books, notes Mermelstein. Already it can take, on average, more than two and half years for banks in New York to complete a foreclosure.
“I do think all these efforts to slow down foreclosures, torment the banks and torment the lawyers who do foreclosures … ensures that the residential real estate market will take much longer to recover, notes Joshua Stein, chair of the education committee for the New York Mortgage Bankers Association.
While there were certainly case of shoddy paperwork and “gotcha loans,” at the end of the day there are simply too many people in homes that they will eventually have to move out of, Stein said. There are still “a lot of people living in houses they can’t afford and don’t really own,” he said.
Still, while executives at New York’s biggest banks may wince at the mention of Schneiderman’s name, there is a certain logic to the actions of the New York’s latest activist attorney general. And Schneiderman is simply following a playbook well established before he got to office by a pair of aggressive state AGs who later became governor of the Empire State – most recently Andrew Cuomo, but also Eliot Spitzer, according to Mermelstein.
The New York AG’s office provides a grand platform that ambitious politicians find hard to resist.
“It gives you a platform not just in New York, but nationally,” Mermelstein notes.
As the third largest state in the U.S., New York may very well have the heft needed to strike a better deal for itself, notes.
Mermelstein sees the top financial institutions ready to meet Schneiderman’s price, if and when he sets one.
“Most likely he will get a better deal for New York,” he said.


Posted on Thursday, December 29, 2011 (Archive on Wednesday, March 28, 2012)
Posted by Scott  Contributed by Scott
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