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NY AG Schneiderman: I’m Not Signing Onto Foreclosure Fraud Settlement

He’s not going for it.

In the strongest comments from a Democrat to date about the state AG settlement with top banks over foreclosure fraud, New York Attorney General Eric Schneiderman vowed to oppose the deal, striking a near-fatal blow to the effort.

New York Attorney General Eric Schneiderman expects to lead opposition to what he called a “quick, cheap settlement” of a 50-state investigation into foreclosure practices. Schneiderman put the monetary settlement being discussed with the largest U.S. mortgage servicers at $20 billion to $25 billion and said he will take “the hardest line” against it.

The probe began in October. New York launched its own investigation two months ago and, Schneiderman said, has found the problem is much deeper. He said he was “stunned” to find the multi-state probe so lacking that no documents or witness depositions had been obtained.

“We have no leverage,” Schneiderman said during a meeting Monday with the Democrat and Chronicle editorial board.

Schneiderman is one of the first AGs to come up with an actual number, one that’s a bit higher than I expected, actually. And yet he correctly points out that this has been one of the more investigation-free investigations in American history, and that we have no idea about the level of exposure for the big banks from the issues surrounding foreclosures and securitization. Schneiderman, just through his preliminary research, knows that a $20 billion settlement which releases claims on consumer protection violations and fraud upon state courts is woefully inadequate. And he’s not just opposing the settlement, he plans to take a “leading role” in fighting it.

Iowa AG Tom Miller’s spokesman Geoff Greenwood is quoted in the article as well, and while he gamely says that not every state needs to be involved in the sign-off of the settlement, he admits that New York is “very significant.” I’ll say. The banks won’t agree to any settlement that exempts New York, because practically all of their legal problems run through New York. They want blanket immunity and Schneiderman is entirely unwilling to give that. “I’ve told them I’m not going to give full release,” Schneiderman said earlier this week, referring to the release of claims against the big banks.

Schneiderman will be under enormous pressure to settle as the final deal takes shape. It’s good that he’s staking out this position right now. He’s one of the few public servants remaining in this country that appears to actually understand his mandate.

UPDATE: More on this tomorrow, but if one bank has to agree to deliver $8.5 billion to one set of investors on one group of mortgage-backed securities, can you see how a $20-$25 billion settlement is woefully inadequate?

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David Dayen

David Dayen