Eric Schneiderman’s profile lately has been to go where federal regulators fear to tread, to actually do the jobs of the federal government when they fail to do so. In foreclosure fraud, he undertook the investigation that the feds would not. Now he is applying that to military foreclosures, although the authority here is a little murkier.

To sum up quickly, the banks have systematically violated something called the Servicemembers Civil Relief Act, which protects military members serving overseas from having to appear in court cases; it also mandates a ceiling on mortgage interest rates. Even the bank friendly Office of Controller of the Currency (OCC) has found up to 5,000 cases of possibly illegal foreclosures. These are criminal violations punishable by up to a year in prison.

The banks have admitted wrongdoing, both in open testimony before Congress and in a series of camo-washing settlements, where they have poured an ocean of relief onto those military members affected. The Justice Department won’t even call these actual violations of law, even while announcing the settlements, calling them “alleged violation of the Servicemember Civil Relief Act (SCRA).” They don’t want to prosecute on the letter of the law, because they know it mandates prison time.

In steps Schneiderman. But how? The SCRA is a federal law. Well, he’s using state consumer protection laws, and in New York they are considerable:

Eric Schneiderman, New York attorney-general, has launched an investigation into possibly unlawful foreclosures on the mortgages of active-duty members of the US military […]

Mr Schneiderman’s probe is part of a larger investigation into banks’ mortgage practices, a person familiar with the matter said. Armed with the Martin Act, a powerful state law that gives prosecutors broad powers to investigate fraud, New York state’s top lawyer has contacted about a dozen banks and insurers as part of an investigation into the securitisation and marketing of mortgage securities, according to people familiar with the matter.

It looks like even Congress is getting involved, or at least a few of them, because systematic illegal foreclosures on everyday people can be ignored, but systematic foreclosures on members of the military cannot. Jack Reed, a member of the Senate Banking Committee, will request a hearing on the matter. Brad Miller, who has actually been great on this issue and who sees it as a lever to open up a host of inquiries on foreclosure fraud, had a great statement yesterday:

It is hard to see this as anything except a flagrant disregard for a law that has been on the books continuously since the First World War. The Servicemembers Civil Relief Act is very clear: if you’re in harm’s way in our nation’s military, you can devote your whole energy to our nation’s service without worrying what’s happening in a courthouse back home. And if you have a claim against someone in our military, you can wait until they get home and can defend themselves.

The SCRA is not some obscure legal technicality that might just have escaped the attention of mortgage servicers. Those servicers are all affiliates of the biggest banks, but they’re huge and specialized. Servicing mortgages is all they do, and they really don’t have that many laws to keep up with. They have got to have known what the law required, yet they consciously decided that they could just ignore it, the same way they apparently decided it was okay to file false affidavits in legal proceedings.

The continued failure to pursue criminal charges in the face of flagrant violations of the criminal law is destroying Americans’ faith in their government and democracy. In a democracy, no one is too big to prosecute.

Absolutely. And when Eric Holder won’t, Eric Schneiderman is at least willing to give it a try.

David Dayen

David Dayen