State and federal officials will aggressively investigate misconduct in the bundling of mortgages into securities following a settlement with banks over foreclosure abuses, the New York and Delaware attorneys general said.
The $25 billion agreement announced last week was crafted to allow further probes of banks to proceed by states and federal agencies, including inquiries into possible criminal violations, New York Attorney General Eric Schneiderman and Delaware’s Beau Biden said today.
“We are all committed to pursuing real investigations for all the areas that we are still able to investigate, specifically and most importantly on the securitization side,” Biden said in an interview. “You’re going to see a real effort on our part and the New York attorney general to pursue the securitization pieces of this to wherever it takes us.”
The U.S. Justice Department in January announced the formation of a joint state-federal group that will investigate misconduct that led to the financial crisis through the bundling of mortgage loans into securities sold to investors. The group is led by officials from the Justice Department, the Securities and Exchange Commission and Schneiderman’s office.
The group will share resources and information, Schneiderman said in a remarks today at a breakfast sponsored by Crain’s New York Business. Schneiderman and Biden have been cooperating in an investigation of bank mortgage practices.
“Our goal is to cut through a lot of confusion, identify what the misconduct out there was -- criminal or subject to civil liability -- and come up with a comprehensive solution,” Schneiderman said.
The $25 billion settlement reached between 49 states and Charlotte, North Carolina-based Bank of America Corp., New York- based JPMorgan Chase & Co., New York-based Citigroup Inc. (C), San Francisco-based Wells Fargo & Co. and Detroit-based Ally Financial Inc (ALLY). will provide mortgage relief to homeowners and sets requirements for how the banks conduct foreclosures and service loans.
The banks in return were granted liability releases protecting them from certain claims. Biden and Schneiderman said the releases are narrowly tailored to allow further investigations of bank practices.
Years of Litigation
Even after agreeing to resolve the government’s investigation into banks’ handling of foreclosures, which included so-called robo-signing of mortgage documents, lenders still face years of litigation and billions of dollars in liability over their practices, experts said earlier this month.
Biden, who was among a group of attorneys general who pushed to narrow the scope of the liability releases, said the amount of money dangled in front of state officials played a role in their decisions on whether to back the deal. The 43- year-old Biden was one of the last attorneys general to sign on to the accord.
“It was difficult for many attorneys general to stare millions upon millions of dollars for relief of homeowners in their state in the eye and turn it down,” he said.
A major focus of the probes going forward will be alleged misrepresentations about the mortgage-backed securities made in information sent to investors, said Biden, son of U.S. Vice President Joe Biden. The Delaware attorney general and Schneiderman pushed to ensure those claims weren’t covered by the nationwide foreclosure settlement.
Biden said he’s “increasingly hopeful” the federal-state group investigating mortgage securitization will have enough resources to do its work.
Lawyers in Biden’s office will press ahead with a lawsuit filed in October against Merscorp Inc., which operates a national mortgage registry used by banks, he said. Delaware officials contend the network used deceptive practices to hide information from borrowers.
“MERS is the nervous system of the entire industry,” and the state is asking a Delaware judge to allow the suit challenging its practices to proceed, he said.
Law-enforcement officials haven’t been aggressive enough in their efforts to hold institutions and people accountable for conduct tied to the financial crisis, Biden said.
“Some of the body language on our side of the table hasn’t been aggressive enough,” he said. “Everything has to be on the table, from lawsuits to criminal action.”
Delaware’s top lawyer acknowledged many homeowners are frustrated with the pace of investigations. He said he will “redouble his efforts” to zero in on potential securities- fraud claims.
“People should be itchy. People should be frustrated. People should demand action and at least some answers,” Biden said.
“Many more people went to jail in the S&L crisis than have been held accountable in this crisis,” he said. “And this crisis makes the S&L crisis look like a walk in the park.”
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