NEW YORK -- As government officials work to settle claims that the nation's biggest banks illegally foreclosed on American homeowners, Minnesota Attorney General Lori Swanson has joined a group of law enforcers pushing for a narrow deal that would leave banks exposed to potential legal action in the future.
In a letter obtained by The Huffington Post, Swanson said any settlement with the group of banks over mortgage practices should exclude a release from claims over the creation of mortgage-linked securities. Swanson's support for a narrow settlement unites her with New York Attorney General Eric Schneiderman and attorneys general from three other states, who have said the banks' alleged wrongdoing hasn't been investigated thoroughly enough to merit a broader release from legal liability.
"[T]he banks should not be released from liability for conduct that has not been investigated and is not appropriately remedied in any settlement," she said in a Friday letter addressed to Schneiderman, Iowa Attorney General Tom Miller and Associate United States Attorney General Thomas Perrelli. "For example, a settlement that focuses on mortgage servicing standards should not release the banks or their officers from liability for securities claims or conduct arising out of the securitization of mortgages."
"[A]ny settlement between government regulators and the mortgage industry should have 'teeth' -- holding the banks accountable for their wrongful conduct, enjoining future unlawful activity, and helping injured homeowners," she continued.
The federal government, along with attorneys general from all 50 states, launched an investigation into big banks' mortgage and foreclosure practices after it emerged last fall that mortgage companies employed so-called "robo-signers," who signed thousands of foreclosure documents without reading them. Banks temporarily halted foreclosures last October, saying they would review documents for errors.
Settlement talks, which began in the spring, seemed to be moving toward a conclusion during the summer months, even though government officials had initiated only a limited investigation into the banks' alleged wrongdoing, The Huffington Post reported in July. Elizabeth Warren, a staunch consumer advocate and recently a senior Obama Administration adviser, told a congressional panel that claims of illegal foreclosures may not have been fully investigated.
The banks, which include Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial, have pushed for a speedy resolution, as uncertainty over a legal penalty that could reach $20 billion has contributed to persistent slumps in their stock. "When we get that call we'll be on an airplane, we'll be down there, we'll be signing up," JPMorgan chief executive Jamie Dimon said during a conference call in July.
Schneiderman, who has firmly supported a narrow deal, was last month kicked off the committee leading the 50-state talks at the behest of Iowa’s Miller, who is leading the state group, The Huffington Post reported. That news broke a day after the New York Times editorial board voiced support for New York's attorney general, saying Schneiderman "should stand his ground in not supporting the deal."
The skirmish among government officials highlights divisions that have emerged, as federal officials and some state attorneys general advocate for a quick resolution, while others are urging the parties not to settle unless there has been a more thorough investigation. Some attorneys general, including Schneiderman, are also pursuing their own investigations.
Law enforcers recently proposed a deal that would effectively release banks from legal liability for securitization practices, the Financial Times reported earlier this month. The banks, which want the broadest possible immunity, called the latest proposal a "non-starter," according to the FT.
In addition to Swanson and Schneiderman, the attorneys general from Delaware, Massachusetts and Nevada have also raised concerns about a broad release of legal liability for the banks.
"We have received Attorney General Swanson's letter and agree that any agreement must not prevent attorneys general investigating the mortgage crisis from following the facts wherever they lead," Danny Kanner, spokesman for the New York attorney general, said in an emailed statement.
"Every single American has paid a very heavy price for the behavior of the financial industry. Ordinary people have lost homes, jobs, income, and financial security because of the actions of this industry," Swanson said in a statement emailed to The Huffington Post by a spokesman. "I welcome and embrace all efforts to investigate the banks and their executives and to hold them accountable for unlawful activity."
UPDATE 6:15p.m.: A spokesman for the Iowa attorney general said in an emailed statement: "We share a lot of common ground with Attorney General Swanson and we appreciate her input."READ The Full Letter:
This report has been updated to include statements from Minnesota Attorney General Lori Swanson, and from the office of the Iowa Attorney General.