Mortgage Crimes are Focus of New Task Force
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Mortgage crimes are focus of new task force
WASHINGTON (CNNMoney) — A new special task force to investigate and prosecute those responsible for bad mortgages during the housing boom will be part of President Obama’s 2012 agenda.
Obama announced Tuesday that he’s asked the Justice Department to create a special unit of prosecutors and state attorneys general to investigate abusive lending and packaging of risky mortgages that led to the housing crisis. And he’s tapped an avowed Wall Street enemy, New York Attorney General Eric Schneiderman, to help run the crime unit, according to a White House official.
“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,” Obama said in his State of the Union speech.
The new unit’s goal will be to investigate banks, financial firms and mortgage originators that broke the law, and to compensate victims and provide relief for homeowners, the White House official said.
Although the housing bust is more than four years old, this is the first time the Obama administration has indicated it will go after mortgage originators and Wall Street banks that got homeowners into loans they couldn’t afford — actions seen as a key culprit of the financial crisis.
The mortgage industry has often been blamed for its role helping homeowners get lines or credit and bigger mortgages during the housing boom. The industry saw little downside, unloading the risk that the loans would go bad on to the financial markets.
With Schneiderman, who has been working on his own investigations into big banks, Obama is signaling he’s ready to go after financial crimes. And left-leaning progressive groups cheered the news.
“Schneiderman has shown himself to be a courageous hero in his defense of the struggling underwater homeowners in his state and across the country,” according to a statement released by a coalition of left-leaning advocates such as MoveOn and New Bottom Line.
The news came as a surprise to the financial industry, which had been predicting Obama would tout a proposed settlement under discussion among federal regulators, state attorneys general and the largest bank mortgage servicers under investigation for improperly foreclosing on homeowners.
“We believe the industry is worried that this new task force will go after the banks for the origination of many of the mortgages that have defaulted or are now underwater,” said Jaret Seiberg, a senior policy analyst for the Washington Research Group.
The state attorneys general, the Justice Department and the Department of Housing and Urban Development have been in talks for nearly a year with big bank servicers that stand accused of using robo-signers to service home loans. The five largest mortgage servicers involved in the talks are: Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Ally Financial (GJM).
According to people familiar with the talks, a draft settlement would result in those banks paying $20 billion to $25 billion toward housing relief. About 1 million underwater homeowners would be eligible for an average $20,000 off the principal owed.
In return, state attorneys general would not be able to file future lawsuits against the bank mortgage servicers that agree to the deal. The amount of relief available for homeowners depends on how many state attorneys general agree to the deal.
Obama didn’t mention the talks in his State of the Union speech. A White House official said Wednesday that the new task force would not prevent progress that has been made on that deal.
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