As other Attorneys General took the lead in efforts to fight foreclosure fraud, with lawsuits from Delaware’s Beau Biden, Massachusetts’ Martha Coakley and Nevada’s Catherine Cortez Masto, we hadn’t heard as much from New York’s Eric Schneiderman lately. But he’s back in the news, teaming with a federal Inspector General on an investigation:
The federal watchdog overseeing US mortgage giants Fannie Mae and Freddie Mac is joining forces with New York’s attorney-general to investigate banks’ mortgage securitisation practices, a partnership that could make it easier for authorities to bring fraud charges against Wall Street companies.
Eric Schneiderman, New York attorney-general, and Steve Linick, the inspector general supervising Fannie and Freddie and the Federal Housing Finance Agency (FHFA), the unit responsible for the taxpayer-owned home loan financiers, signed a co-operation agreement in recent weeks that allows the two investigators to share documents, findings and to pool their resources, according to people familiar with the matter.
The collaboration escalates Mr Schneiderman’s probe into roughly a dozen banks and mortgage insurers as part of a broad investigation into whether banks properly bundled hundreds of billions of dollars worth of home loans into now-soured securities sold to investors.
This is pretty big news. Schneiderman has the Martin Act to allow him to investigate securities fraud with a lower barrier of proof than even federal regulators need. He need not prove intent, only that fraud was committed. So now, he can access the FHFA Inspector General’s documents and depositions to find that evidence of fraud.
It’s also a huge move for Steve Linick, as Yves Smith explains:
I’m not certain of the precise scope of powers of the FHFA inspector general. But typically, federal inspector generals have limited scope of action. They can only subpoena documents and cannot subpoena witnesses. And, of course, they are not prosecutors and cannot launch cases. The theory of IGs is that if they uncover something unsavory, they’ll hand it off to the Department of Justice. But as a former IG has pointed out, the DoJ does not take case leads from the IGs unless they are fully fleshed out, and that is well nigh impossible to do in the absence of speaking to witnesses.
The Department of Justice has AWOL on the mortgage and banking beat, no doubt to avoid ruffling powerful possible Obama donors. Inspectors general are in theory independent, and on top of that, the FHFA is an independent agency and is not running the Administration playbook (I’ve been told by people involved in bank regulation that Geithner has tried pressuring FHFA acting chief DeMarco to no avail).
So what does the FHFA inspector general do, certain that Eric Holder will ignore any misdeeds he finds? Turn to another prosecutor who can bring cases that . . . are national in scope.
So Linick just made an end-run around the Justice Department, finding a willing partner in Schneiderman, and now the two can join forces on prosecuting fraud. Recall that Linick has recently come out with some explosive reports, including a report that the GSEs knew about foreclosure fraud back in 2003. So that’s a wealth of knowledge from which to draw, and the IG can compel some more of it, though as said above they are somewhat limited. If Schneiderman sought these documents and depositions by himself, federal regulators could have overruled him. Now he can just use Linick as a conduit.
The FHFA, over which Linick monitors, sued 17 banks for securities fraud earlier this year. So you’re almost seeing a consolidation of lawsuits and actions between Schneiderman and a rogue independent housing agency. It’s really nice to see.





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This is huge. Schneiderman is a terrific inspiration, particularly at this time of crisis and lackluster, even craven and corrupted, “leadership”.
I would PAY to see Holders face when he was informed of this. I would pay more to see Obama’s face. But I would pay the most to see Dimon’s face.
Boxturtle (It’s not difficult to make Holder & Obama look weak and corrupt, but it’s still fun!)
I;ve been too busy to see the other news today.
DAVID! Thank you. This is definitely good news and Lord knows we need some now.
I wouldn’t waste my money on Holder or Obama, but Dimon DEFINITLY! After what they put my sister through I’d eternally love the surprise for him!
I don’t understand that. Isn’t fraud by definition intentional? How can fraud be proved if intent isn’t part of it?
Requesting smart lawyer commentary:
The clock on the statute of limitations is running, so what can be expected?
It would be helpful if the AG’s and IG’s could figure a way to get the IRS to join them, as IRS fraud has no SOL?
You ain’t kiddin’!!!!!
After four years of fence-sitting and watching people suffer, some State Level Pols have recognized that pursuing lenders for Fraud is popular with voters. In spite of Party Leadership.
Me: What will make the real estate market turn around?
Right Wing Real Estate Entrepreneur (Lost several $million, but has $2M left): Getting rid of Obama. Obama helped the banks, but he forgot about us.
Me: What will a Repub do to improve RE? Romney sez he wants to speed up foreclosures.
RWREE: He said that? That’s stupid. That will only make matters worse. Prices will plummet even further. Both Parties suck.
David, thank you for the report! The news on this front has been very encouraging. I would love to see these corporations in jail and fined billions upon billions.
It is incredible that these AGs have to do an end run around this Administration for any justice to be attempted, much less meted out. Obama Inc. is truly a beast.
Even if we’re just chipping at the margins, it’s a start.
I agree – “intent” needed.
Also in 2003 we ended loan fraud by ending the need for documentation for anything – the homeowner to be would get a “no doc 5/1 arm” and lie about everything and the Bush folks said no problem, no need to check for lies. That was our market in 2003 to 2008, being renamed these days as “predatory lending” despite giving the same loan terms to everyone, because it is predatory if the folks that took out the loans were victims of being allowed to act on their greed, in this new scenario.
so I guess the problem is foreclosure fraud and robo-signing/illegal signing of court documents, and the AG’s are trying to prove that foreclosure errors were not correctable errors but were standard procedure and thus were fraud. Don’t recall a foreclosure problem in 2003 – so that date seems strange.
The Financial Times quote “The collaboration escalates Mr Schneiderman’s probe into roughly a dozen banks and mortgage insurers as part of a broad investigation into whether banks properly bundled hundreds of billions of dollars worth of home loans into now-soured securities sold to investors” is not available to the common man (I don’t subscribe to FT, and have not registered for the privilege of reading 8 articles a month). But it appears to be a re-hash of Congressional testimony about the intent to investigate the situation.
I should have mentioned the 17 US and EU banks being sued is not about the properly conveying of the notes….
instead, FHFA says that FIT rules were broken on REMIC requirements.
I am beginning to learn how to read Susan’s (Yves’) blog! :-)
There may be some confusion among the reporters: the FBI had testified to Congress in 2003 about mortgage fraud, or words to that effect.
Cynic in me says bullshite.
Either this becomes a fine issue or becomes nothing.
Either way, none of those responsible will see jail time. Robo-signing? Any convictions? Fuck, any indictments?
Just more fines. Fines that amount to a pittance of what was stolen.
Schneiderman for Present. dump Obama
Constructive Fraud does not require intent:
Constructive fraud is considered fraud under the law although deceptive intent is missing because it has the same consequences as an actual fraud would have. It is a finding imposed in the interest of fairness and justice, such as to prevent violation of a public or private trust or confidence, the breach of a fiduciary duty, or the use of undue influence.
It’s hard to know what they really think. They may actually welcome it. Obama gets the dough from the banks, and when Schneiderman slams them for fraud he can say, it’s not in my court. If he believes in reform (doubtful), it is win-win for him.
The inhumanity at the heart of Obama’s policy responses to the housing debacle should be grounds for impeachment not simply the fulcrum issue ending his Presidency after 4 years.
Home prices are now expected to fall further in most ZIPs while some others remain frozen at current values. $14 trillion lost and/or stolen and Obama has the audacity to declare that no crimes were committed.
On another note, does anybody actually know what it is that Eric Holder does for a day job?
An Inspector General is a walking, talking search warrant, as in “I want all of your backup tapes for the past five years.”