ALBANY, N.Y. — Attorney General Eric Schneiderman on Wednesday promised to keep investigating the collapse of mortgage-backed securities that contributed to the national economic downturn, praising President Barack Obama's creation of a new investigative effort Schneiderman is expected to chair.
"The American people deserve a robust and comprehensive investigation into the global financial meltdown to ensure nothing like it ever happens again," Schneiderman said. His office will work with federal authorities to hold accountable those responsible for the economic crisis, "providing meaningful relief for homeowners commensurate with the scale of the misconduct," he said.
In his State of the Union speech Tuesday night, Obama said he is establishing a new special unit of federal prosecutors and attorneys general "to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans."
The new Unit on Mortgage Origination and Securitization Abuses will be established through the president's Financial Fraud Enforcement Task Force. Other co-chairmen are expected to be Lanny Breuer, assistant U.S. attorney general; Robert Khuzami, Securities and Exchange Commission enforcement director; John Walsh, U.S. attorney in Colorado; and assistant U.S. attorney Tony West.
"In 2008, the house of cards collapsed. We learned that mortgages had been sold to people who couldn't afford or understand them. Banks had made huge bets and bonuses with other people's money. Regulators had looked the other way or didn't have the authority to stop the bad behavior," Obama said. "It was wrong. It was irresponsible. And it plunged our economy into a crisis that put millions out of work, saddled us with more debt and left innocent, hardworking Americans holding the bag."
According to a background document, the unit will focus on misconduct by financial institutions in the way mortgages were written and guaranteed. At the same time, federal enforcement agencies, state attorneys general and some of the nation's largest financial institutions will continue negotiations to reach a settlement to resolve misconduct, including so-called robo-signing, in servicing home loans.
It's a turnaround of sorts for Schneiderman, who was a guest at Obama's speech.
He was removed from the executive committee of federal and state officials negotiating a nationwide foreclosure settlement with U.S. banks in August because of his tough stance opposing any deal that would end investigations into wrongdoing. This week, states began reviewing a 110-page draft agreement with the nation's five largest banks to overhaul their industry.
The settlement with Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial would apply to privately held mortgages issued from 2008 to 2011, not the 31 million held by government-controlled Fannie Mae or Freddie Mac. About 750,000 Americans — about half the households who might be eligible — would likely receive checks for about $1,800. About 1 million homeowners could also get the principal amount of their mortgages written down by an average of $20,000.
In December, Schneiderman and Steve Linick, the inspector general of the Federal Housing Finance Agency, signed an agreement to share documents and findings. A month earlier, New York's top court ruled that Schneiderman's office can pursue allegations that First American Corp. and its former subsidiary, eAppraiseIT, inflated property appraisals under pressure from client Washington Mutual. In 2008, Washington Mutual collapsed and became the nation's largest bank failure ever.
At the same time, a federal judge allowed Schneiderman and Delaware Attorney General Beau Biden to intervene in the proposed $8.5 billion Bank of America settlement of investor losses from 530 mortgage-backed securities proposed by trustee Bank of New York Mellon Corp.
In court papers, Schneiderman said that the settlement is unfair, that it represents a fraction of the investor losses suffered and that BNY Mellon breached its duty to investors and broke state law. New York's Martin Act prohibits deception in offering securities to investors.
BNY Mellon has called the allegations baseless.
Associated Press writer Derek Kravitz in Washington contributed to this report.