Obama Administration and Banks Near Deal on Mortgage
Fraud Legal Liability
by Sam Stein and Zach Carter
Posted: 1/27/12 12:19 PM ET |
Updated: 1/27/12 07:04 PM ET
WASHINGTON -- The Obama administration, state attorneys
general, and, perhaps, the nation's largest banks are
close to a final settlement on the years-long struggle
over allegations of massive foreclosure fraud, according
to several sources familiar with the talks. And the
final details of the arrangement, according to the
source who revealed them, will apparently not preclude
prosecutors and regulators from taking legal action
against many of the common abuses during the house
bubble. It remains to be seen whether all parties will
ultimately sign off on the language.
The settlement is worth $25 billion, a sum which will be
distributed to homeowners who were wrongfully foreclosed
on as well as those who remain underwater. In addition,
banks could still face future legal action over 12
According to someone intimate with the negotiations,
there will be no legal release of the banks with respect
1 Criminal liability.
2 Tax liability
3 Fair lending, fair housing, or any other civil rights
4 Federal Housing Finance Agency or the GSEs [Fannie
Mae and Freddie Mac]
5 CFPB claims for the period after they came into
existence in July 2011
6 SEC claims
7 National Credit Union Association Claims
8 FDIC claims
9 Federal Reserve Board claims
10 MERS claims
In addition, the source said, there will be preservation
of the vast majority of securitization claims including
all claims regarding state pension funds as well as the
vast majority of the origination fraud claims from HUD,
the VA and the USDA.
According to Mike Lux, who originally reported the
settlement for The Huffington Post, the release will be
"almost entirely confined to robosigning cases" --
meaning that banks will likely not see further
punishment from the states for foreclosure fraud.
Robosigning fraud is perhaps the easiest type of
misconduct for prosecutors to target.
That said, their legal liabilities on the federal level
remain vast, even after handing over $25 billion for
The announcement is, in some regards, a victory for the
few state attorneys general who, over the course of
several months, refused to sign off on a quick and
limited settlement with the big banks.
"I think it is fair to give [New York Attorney General]
Eric Schneiderman and the other progressive attorneys
general a lot of credit for holding the line," said a
source intimate with the negotiations. "This is a big
victory for them."
The announcement comes just two days after President
Obama announced the creation of a mortgage crisis unit
to be headed by Schneiderman and other prosecutors.
Federal claims, such as those that will be permissible
under the negotiated settlement, have not been
aggressively pursued over the last three years despite
widespread evidence of abusive lending. The emergence of
the unit as well as the final language of the settlement
suggests that the administration is refiguring its
approach to future litigation.
The lingering question is whether the banks will sign
off on the final language. Agreement from all 50 state
attorneys general has also not been finalized.
Schneiderman was not the only attorney general who spent
months unhappy with the deal, and after Obama's State of
the Union speech, Delaware's Beau Biden and California's
Kamala Harris reiterated their opposition to the deal as
Tom Kelly of Chase's media relations office declined to
comment. "No input from us," he said.
Schneiderman's office did not immediately respond to a
request for comment from The Huffington Post.
UPDATE: 7:00 p.m. -- According to the Associated Press,
"New York Attorney General Eric Schneiderman says one of
his major objections has been resolved in a proposed
settlement between U.S. states and the nation's biggest
mortgage lenders over deceptive foreclosure practices."
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