Mortgage Settlement Still Very Much Up in the Air

There’s been a lot of back and forth over the past week as to whether or not the proposed mortgage settlement is imminent.  Late last week and early this week, it appeared that a deal was close.  Later, Iowa Attorney General Tom Miller, ostensibly the head of the investigation, said that no deal would be reached this week.  The proposed deal, which may or may not include a settlement of around $25 billion in various concessions was decried in many circles for not pursuing criminal charges in the case of fraud, for passing much of the losses to pension fund holders, and for generally not going far enough in investigating the events that occurred during the credit bubble and in the subsequent foreclosure crisis.

There is a group of attorneys general that are holding out from signing on to the settlement.  Specifically, the AGs from Delaware, Massachusetts, Nevada, California, New Hampshire, Hawaii, Missouri, Maryland, Kentucky, Mississippi, Minnesota, Oregon, and Montana.  New York AG Eric Schneiderman, who formerly promised to take “the hardest line” against a “quick, cheap settlement”, has been appointed the co-chair of the Obama administration’s Unit on Mortgage Origination and Securitization Abuses.  He has promised to take aggressive action on financial fraud.  Many are skeptical of the motives of the Obama administration and are openly questioning if Schneiderman has been co-opted.

Yesterday, California Attorney General Kamala Harris called the proposed settlement “inadequate for California“.  I believe that as long as AGs from large states hold out from signing onto this deal, it will not be able to proceed.  My great fear is that political pressure will be applied to these AGs to make them fall in line.  I am sure that many of these AGs have greater political aspirations, and those aspirations could be used as leverage to force their acquiescence to this settlement.

I am cautiously hopeful that this is not the case, but I do question why there was no investigation for the first three years of the Obama administration, and suddenly one is started in an election year.  This seems to me to be largely political (of course, all things are political to a degree).  I do not know why the administration would press to continue with the settlement while investigating at the same time.  Although I am not a lawyer or prosecutor, it seems to me that one would want to investigate prior to settling with anyone, on any matter whatsoever.  I would be more confident that the new task force and the administration plan to do something about mortgage foreclosure and securitization fraud if they totally squashed the settlement talks and started a genuine investigation.

I don’t know what will happen here – nobody does, but I hope that we will still see a real investigation of the alleged fraud that helped bring down the largest financial market in the world, as well as a genuine investigation into foreclosure fraud, and mortgage origination and securitization activities.  I am hopeful, but if I had to bet, I would definitely take the under.