New York Loses Foreclosure Panel Post for ‘Undermining’ Deal

New York Attorney General Eric Schneiderman was removed from a leadership role in negotiating a nationwide foreclosure settlement with U.S. banks because his office “actively worked to undermine” the effort, a state official said.

Schneiderman, who doesn’t want a settlement to bar further investigations of mortgage practices by individual states, was removed from the executive committee of state officials working on the deal, Iowa Attorney General Tom Miller said yesterday in a statement.

“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.

Attorneys general from all 50 states last year announced their investigation into bank foreclosure practices after reports that faulty documents were being used to seize homes. Since then, a group of attorneys general and officials from federal agencies, including the Justice Department, have been negotiating a settlement with the five largest mortgage servicers in the U.S.

Government officials are seeking an agreement that provides funding for writedowns on mortgage loans for borrowers and sets standards for how the banks service loans, interact with borrowers and conduct foreclosures, according to terms proposed in March.

Negotiation Leaders

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.

Other States

The attorneys general who want to continue their own probes after an agreement include Martha Coakley in Massachusetts, Delaware’s Beau Biden and Catherine Cortez Masto in Nevada. Delaware is also a member of the executive committee.

The companies involved in the talks are Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc.

Separately from the settlement talks, Schneiderman has asked a New York judge to reject Bank of America’s proposed $8.5 billion mortgage-bond settlement with investors, a deal he called unfair.

The attorney general accused Bank of New York Mellon Corp. of violating state law in its role as trustee for the mortgage-securitization trusts that are covered by the agreement, and he said he has potential claims against Bank of America.

Bank of New York has called Schneiderman’s allegations “baseless” and said it would fight the claims.

‘Active Voice’

Schneiderman is committed to a settlement that provides relief to homeowners and allows the housing market to recover, and he will work with state and federal officials to achieve those goals, his spokesman Danny Kanner said in an e-mailed statement.

“Ongoing investigations by attorneys general cannot be shut down by efforts to settle quickly and those responsible must be held accountable,” Kanner said. “While it is Attorney General 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.”

Schneiderman has raised “important and legitimate concerns” about the scope of the liability releases demanded by the banks, Delaware’s Biden said yesterday in a statement.

“I believe that the events leading up to the mortgage crisis must be fully investigated, including origination and securitization practices, before any broad immunity is granted -- the American people deserve an investigation,” Biden said.

Greenwood declined to elaborate on how Miller thought Schneiderman has undermined the state group.

“It has not been helpful to have a member of our executive committee undermining our effort, and therefore Attorney General Miller made his decision,” Greenwood said in a phone interview. “We are moving forward with our committee, and our efforts continue.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE