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A new federal federal task force, dubbed the "Residential Mortgage-Backed Securities Working Group" led by New York Attorney General Eric Schneiderman has sent subpoenas to the 11 largest financial institutions in the past few days as part of its investigation into possible residential mortgage-backed securities fraud. 

Attorney General Eric Schneiderman who was cast off the central negotiation committee of Attorneys General trying to crack down on several securitization issues related to the major banks, seems to be gaining a foothold in his attempt to forge his own settlement with the major banks outside the realm of the federal regulators and AG Tom Miller's crew. 

Schneiderman will be joined by Delaware AG Beau Biden, Massachusetts AG Martha Coakley, Nevada AG Catherine Cortez Masto, California AG Kamala Harris and Illinois AG Lisa Madigan, several of whom refused to bow to continued pressure to try and settle legacy issues surrounding the robo-signing scandal and other securitization issues.

It is very interesting that President Obama allegedly formed this task group, which he announced during his State of the Union address Tuesday.  President Obama has come under increasing pressure to do something substantive about the ongoing foreclosure crisis, which has not been curtailed in the slightest by the introduction of yet another acronym. 

U.S. Attorney General Eric Holder said 15 lawyers and investigators are working with the group. The FBI will add 10 agents, and another 30 lawyers and staff will join the group, along with the

The SEC will also participate. SEC Director of Enforcement Robert Khuzami said there "would be no stone unturned, no dark corner unexposed to the light."

Schneiderman, in a clear shot across the bow to the major banks commented: "We have jurisdiction to go after every aspect of the mortgage bubble and the crash of the financial market . . . We have jurisdiction over every MBS issued over the last decade with Delaware and New York joining the group."

Secretary of the Department of Housing and Urban Development, Shaun Donovan, has also made clear the investigation and ongoing settlement negotiation between other state AGs and mortgage servicers over foreclosure problems would be separate and any charges would not release the banks from liability in the robo-signing scandal.

"It became clear very quickly that Eric [Schneiderman] and I shared a vision that it would be a grave injustice to hold these institutions accountable and potentially have hundreds of billions be paid to private investors and pension funds but not make sure homeowners who hold those loans who depend on being able to get those loans fixed to be able stay in those homes," Donovan said.

Iowa Attorney General Tom Miller, who has been heading up the mortgage servicer investigation, has said the resulting settlement would not release the banks from securitization or lending liabilities.

This is going to produce a very interesting political sideshow as AG Tom Miller tries to keep his band of AG's together, while Schneiderman forges ahead with the new found support of the Obama administration, which it seems only recently, was looking to help the major banks and servicers find a quick settlement to documented abuses that have been alleged by the AG's for some time now. 

The task force represents the Obama administration’s attempt to address complaints from the "Occupy" part of his constituency that it has simply failed to address the housing crisis or bring banks to account for causing it through subprime home loans that were repackaged and securitzed and sold to investors. Critics correctly point out that the Obama administration's attempts to solve the problem through government-sponsored refinancing programs and gentle begging to the banks, have been ineffective.  This is going to be a campaign issue and if the Obama administration is not going to try to spin, the Republicans certainly will.  It has been over three years since the credit crunch in earnest and the housing market had started its full-force downward spiral, and little has changed.  Not surprising to see yet another attempt by the administration to try and appease another part of the base. 

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Arizona Attorney General Terry Goddard announced that on December 17, 2010, his Office filed a lawsuit against Bank of America and its affiliated companies  alleging violations of the Arizona Consumer Fraud Act and violations of the consent judgment entered in March 2009 between Arizona and the Countrywide companies owned by Bank of America.

The lawsuit, filed in Maricopa County Superior Court, was triggered by hundreds of consumer complaints and follows a year-long investigation into Bank of America’s residential mortgage servicing practices, particularly its loan modification and foreclosure practices.

Goddard stated that Bank of America, the nation’s largest residential mortgage loan servicer, should be leading the way out of the country’s foreclosure crisis. Instead, he said, “Bank of America has been the slowest of all the servicers to ramp up loss mitigation efforts in response to the housing crisis. It has shown callous disregard for the devastating effects its servicing practices have had on individual borrowers and on the economy as a whole.”

The complaint asks the court to hold the defendants in contempt for violating the consent judgment and to order them to pay restitution to eligible consumers and civil penalties, attorneys’ fees, and costs of investigation to the State. It further asks the court to order the defendants to pay up to $25,000 for each violation of the consent judgment and up to $10,000 for each violation of the Arizona Consumer Fraud Act.

Goddard noted that Arizona has been particularly hard hit by the foreclosure crisis, as evidenced by recent reports ranking the state second behind Nevada in foreclosures. Nevada plans to file a similar lawsuit against Bank of America today.

The consent judgment was entered into on March 13, 2009 to resolve the Attorney General’s allegations that Countrywide had engaged in widespread consumer fraud in originating and marketing mortgage loans. In the judgment, Countrywide agreed to develop and implement a loan modification program for certain former Countrywide borrowers in Arizona. Bank of America acquired Countrywide on July 1, 2008 and has assumed responsibility for Countrywide’s compliance with the consent judgment.

The complaint filed today alleges that, since the consent judgment was entered, Bank of America has repeatedly violated the judgment’s provisions related to loan modifications. Instead of providing the relief to which eligible homeowners were entitled, Bank of America has failed to make timely decisions on modification requests and proceeded with foreclosures while modification requests were pending in violation of the agreement.

The complaint also alleges that Bank of America has violated the Consumer Fraud Act by misleading Arizona consumers about its loss mitigation process and programs, including matters such as:
• Whether homeowners must be delinquent on their mortgage payments to be considered for a loan modification.
• How much time it would take to receive a decision from Bank of America on a modification request or a short sale request.
• Whether foreclosure would proceed while a modification or short sale request was pending, or while a homeowner was making trial payments.
• Whether the homeowner had been approved for a loan modification.
• Failure to provide valid reasons why the homeowner was declined for a modification.
• Whether the homeowner would be approved for a permanent modification if the consumer successfully made all trial modification payments.

As a result of Bank of America’s deceptive practices, many homeowners who were already contending with other financial hardships have been led to unnecessarily deplete their dwindling savings in futile attempts to obtain the promised relief and save their homes. Many homeowners who tried to obtain a modification from Bank of America ended up owing more principal on their loans or having less equity (becoming more “underwater”) in their homes. Others gave up their chances to pursue other financial options, such as short sales, while trying to modify their loans with Bank of America. These consumers endured months of frustrating delays, not knowing whether or when they would lose their homes. They called Bank of America and resubmitted their paperwork over and over again in futile efforts to get the help they were promised.

“I am filing this lawsuit today because, after years of delay and broken promises, Arizonans should not have to wait any longer to seek redress,” Goddard stated. “Our homeowners and communities need and deserve relief. Bank of America must be held accountable for its deceptive conduct and failed commitments.”

For anyone in the front lines of the foreclosure debacle, this should come as little surprise.  The Attorney's General's lawsuit joins many across the country seeking class-action status, alleging that Bank of America regularly falsely informs borrowers that it did not receive requested information and demands that documents be re-sent.  Bank of America is not exactly alone here.  The entire loan modification "extend and pretend" system is flawed and implicitly intended to allow servicers of loans the opportunity to make more money while stringing people along with the false hope that they will receive a permanant loan modification.

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