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The Shattered Foreclosure Fraud Settlement – An Unlikely Victory Against a Cartel of Oligarchs

There are so many people responsible for yesterday’s demise of the 50-state foreclosure fraud whitewash, I don’t quite know where to begin. And to be sure, we’re still in the early innings of this fight.

But I think we’ve all become inured to an era of “looking forward, not backward” and retroactive immunity for both official and corporate crimes, that it’s hard to even process what happened here. The Bush Administration and their private military and intelligence contractors committed acts of torture and murder, and nobody but low-level officials gets prosecuted. Indefinite detention is found to violate the Constitution, and Congress passes a law immunizing the government for that crime and effectively suspending habeas corpus for non-citizens. The government partners with the telecom industry to capture a massive web of the private communications of US citizens without a warrant, and Congress passes a law letting the industry off the hook for the crimes. Financial misdeeds lead to a near-collapse of the US economy, and Congress rewards the firms responsible with a bailout. The culture of no accountability has been the signifying feature of the last decade.

And it looked as if this movie would play once again with respect to foreclosure fraud. All of the elements were there. In this case, the perpetrator of systemic fraud was again the banking industry, perhaps the most powerful lobby in Washington. They were caught, through depositions of their own employees, allowing people to sign off on foreclosure documents without any knowledge of the underlying mortgages. The robo-signing scandal, which temporary shut down the foreclosure machine that has been chewing up homeowners for years, soon became clear as a cover-up of a much bigger scandal, the systemic fraud in securitization of mortgages, which confused the chain of title on millions of properties and broke the largest market in the world, the US residential housing market.

Absolutely nobody in Washington wanted to come clean with that information. The federal regulators quickly moved to contain the damage with toothless consent orders and pathetic task forces. Nobody wanted to actually investigate the situation because they were afraid they would find something. This was true on the leadership end at the state level, too. A 50-state “investigation” turned almost immediately to settlement talks with the largest banks, that would trade a relatively small sum of money, a number plucked out of thin air because of the lack of serious investigation, in exchange for a broad release of liability by every state in the nation over every aspect of the fraud.

That’s where we stood last winter, and it looked like things were inexorably moving in that direction. Foreclosure defense attorneys, who had been working against the abuses of the banks on these matters since at least 2004, were valiantly fighting in courts with renewed vigor after the robo-signing revelations, but they were outgunned. Some judges were starting to become receptive to the arguments of false documentation and forgery, but they were few in number. Registers of deeds bravely plumbed their offices for evidence of the depth of the fraud, but they were also a lonely few at the beginning. Investors in mortgage backed securities had every right to sue the banks over misrepresentations in the securitization process, but they were hesitant. And without the investigations at the state level, private actions would be more difficult to come by.

It took a grassroots movement and allies at the leadership level to close this circle, to say no to another bank bailout, to demand accountability and justice for corporate crimes. The grassroots and netroots leaders started agitating. People like Yves Smith at Naked Capitalism and other finance bloggers, along with reporter types like Shahien Nasiripour at the Huffington Post, provided the information that detailed the fight. Reporter Abigail Field’s report for fortune, simply looking at the mortgage documents in one community in New York City and finding a high degree of fraud, produced a better investigation that any state or federal agency. Lawsuits eventually identified Field’s report and other revelations dredged up by reporters and commentators as proof of bank crimes.

Faith and community groups like Pico and ACCE and National People’s Action and The New Bottom Line and countless others got to work. It wasn’t really the traditional housing advocacy groups that led this fight, but a second wave of more aggressive groups which participated in direct action. They got Iowa AG Tom Miller on the record saying “we will put people in jail” for foreclosure fraud, an admission he almost immediately walked back. They started pressuring their own AGs in their home states, asking them not to sign on to a whitewash settlement that would deprive them of their ability to conduct a real investigation.

There were some allies in more official positions. The Congressional Oversight Panel was an early ally that took many of the banks – and Administration officials – to task. Hearings in the relevant House and Senate committees were informed and often piercing on the issue. Members of Congress like Jeff Merkley and Brad Miller were reliable allies. The Financial Crisis Inquiry Commission and the Senate Permanent Subcommittee on Investigation reports gave more knowledge to activists to push against a whitewash.

The big breakthrough was when New York Attorney General Eric Schneiderman decided he would not be a party to facilitating crimes, and initiated his own investigation. At first, he only found one ally, Delaware’s Beau Biden. But this signaled that the political class would not go quietly. It led to a halt to the rush to settlement, a cascade of bad news for the banks on mortgage-related issues, and a series of escalating lawsuits, including some from large institutions. The dynamic completely shifted away from “deadbeat borrowers versus the banks” to a broad movement opposed to total amnesty.

And the momentum between community groups and netroots figures and progressive organizations grew. This issue was a backwater until recently, but in the last few weeks, CREDO, MoveOn, Progressives United, Color of Change, PCCC (a group with a wildly different electoral focus) and probably a half-dozen more I can’t think of stepped up big, demanding of state AGs to stop this move to a settlement. Some activists dismiss point-and-click activism and constituent petitions and calls, but in this case, the target, state Attorneys General, are not used to hearing from their voters in such a direct way. This became a bright line for the progressive movement. It became a campaign issue in selected races. Before long, Nevada, Minnesota, Massachusetts, Kentucky and now California signed on, saying they would not release the banks from liability without a serious investigation.

In sum, a series of groups, on the inside and outside, stood up to a proposed amnesty of the most powerful interest group in the nation, in conjunction with Democrats in the White House and the leaders of the state AGs, and stopped the whitewash cold. The White House publicly and privately pressured AGs to agree to the settlement. The banks tried every trick they could think of and used their willing tools in the media. None of this worked.

That’s because the activists fighting this from the outset realized the strategic value of stopping the banks on an issue with major resonance for millions of homeowners, but also a cultural resonance. Because as I said, we’re living in this era of no accountability, and nothing raises the ire of the movement that has been built over the last decade in reaction to that than another bailout, another amnesty, another whitewash.

While this isn’t over – there are dozens if not hundreds of cases working through courts – and the pressure needs to continue on AGs to follow through on their investigations and force the banks into an uncomfortable set of options, this is a major victory for the rule of law and the progressive movement more generally. I couldn’t be more proud of these efforts to at least put up a roadblock against a decade-long rush to stop accountability against a certain class of elites.

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David Dayen

David Dayen