Could Mortgage Investigation Unit Move Settlement Forward?
WASHINGTON — Amid lingering questions about the fate of a broad mortgage servicing settlement, many see the creation of a joint task force to probe mortgage abuses as offering hope that those negotiating the settlement can work out their differences.
The investigative unit, announced in President Obama's State of the Union address Tuesday, is short of a comprehensive deal. But observers said it could help nudge some holdouts in the settlement back to the table. The creation of the unit appeases some state attorneys general who are facing political heat and have called current proposed settlement terms lax. It could do the same for liberal groups that want only the toughest deal possible.
One key holdout in the settlement is New York Attorney General Eric Schneiderman, who was named a co-chairman of the new task force.
"I think this move allows Schneiderman to come in from the cold" and "makes him part of the team, which in my opinion makes the AG settlement on robo-signing much more likely, because it gives political cover to some of the stragglers," said Isaac Boltansky, an analyst at Compass Point Research and Trading in Washington.
Liberal groups have hailed the announcement of the task force. They had wanted a national settlement to still allow expanded investigations going forward, an effort that large banks opposed, and say Schneiderman's participation in the task force gives it credibility.
"Just weeks ago, this investigation wasn't even on the table, and the big banks were pushing for a broad settlement that would have made it impossible," MoveOn.org said in an email to its members Wednesday. "Your work changed all that. This is truly a huge victory for the 99% movement."
Yet although some observers say Schneiderman's inclusion in the task force could bring him into the settlement fold, he would not say whether he would participate in the settlement following a Washington press conference this week, focusing only on the work of the new investigative unit.
"We're undertaking a more coordinated effort to pull together all of the various strands of investigations relating to the conduct that created the mortgage-backed securities bubble and led to the market crash," Schneiderman told reporters. "There have been investigations going on in various states and branches of the federal government. We're now making a concerted effort to pull everything together and move forward aggressively to address these issues."
Just Wednesday another key holdout, California Attorney General Kamala Harris, reiterated concerns about the proposed settlement terms. In a statement, a spokesman for Harris called the current deal "inadequate." (The proposed terms are said to include total fines from the five largest servicers of $17 billion to $25 billion, as well as a commitment that servicers will forgive loan principal for troubled borrowers.)
"Our state has been clear about what any multistate settlement must contain: transparency, relief going to the most distressed homeowners and meaningful enforcement that ensures accountability," Harris' spokesman said. "At this point, this deal does not suffice for California."
But some say the task force could address one key sticking point in the negotiations. Some state AGs and liberal groups have all along wanted investigations of both origination and servicing practices to be part of the settlement, and were against any proposal that could preclude future investigations. Banks, however, have pushed for broad releases from future legal claims.
The investigative unit is seen as a way to continue the probes, while keeping them out of the settlement.
"If indeed you get help for homeowners and you allow for these investigations to hold people accountable, if you can do both, that would be a good balance," said Kathleen Day, a spokeswoman for the Center for Responsible Lending.
Some observers said the unit is not much of a change from the Obama administration's already-aggressive postcrisis approach.
"The mortgage fraud task force is simply a repackaging of the consistently stated view of government officials that there would be more enforcement activity around the housing crisis," said Andrew Sandler, a partner with the law firm BuckleySandler LLP.
Laurence Platt, a partner with K&L Gates, said an effort to ramp up investigations may have to do with officials needing to hurry claims against lenders before they are legally barred from doing so.
"So it doesn't surprise me that they're trying to do this one last hurrah and try to come up with claims before they're barred under applicable statutes of limitation," Platt said.
Although the White House has released few details about the unit, it will be housed within the Department of Justice's Financial Fraud Task Force — which was created in 2009 to investigate and prosecute actions that led to the financial crisis — so it will not be autonomous. Moreover, observers said it does not appear Schneiderman will receive any new authority that he didn't already have.
"They're not giving Schneiderman the store here," Boltansky said. "It's a commission setup. I think it's largely advisory."
Brian Gardner, an analyst with Keefe, Bruyette & Woods, said he expects the unit will focus on potential criminal cases, which are much more difficult to prove than civil charges.
Gardner said creating the unit appears to have more to do with political perception.
"If it was easy to bring these cases, they would have been brought already," he said.
Jaret Seiberg, an analyst with Guggenheim Partners LLC, said the task force may weaken the industry's support for the settlement, if it means investigations could still continue. "The whole idea of the settlement is to bring some legal certainty to the market, and this task force is throwing that rationale into doubt."