The Obama Administration fears that the New York Attorney General Eric Schneiderman’s probe of the nation’s biggest banks during the mortgage meltdown will hold up a national settlement that could bring billions of dollars of relief to homeowners, sources said.
For months, federal regulators and the nation’s attorney generals had been pursuing a universal settlement with the banks.
Schneiderman launched an investigation this summer to see if their were any criminal or civil laws broken by the banking industry leading up to the 2008 mortgage meltdown.
The conflict was first reported by the New York Times.
In an interview with WNYC last month, Housing and Urban Development Secretary Shaun Donovan said it was a priority of the Obama administration to use the national settlement with the banks as a way of winning relief for stressed homeowners.
“That is clearly part of the discussion in the settlement we have been negotiating,” Donovan said.
Donovan said cutting a deal with the banks that would mean real home owner assistance “was a critical step in helping strengthen the housing market so that we can see a sustained recovery.”
In the immediate aftermath of the collapse, the federal government’s emphasis was on re-capitalizing the nation’s banks — not on any forensic examination of the mortgage industry that was at the center of the meltdown.
Former Governor and Attorney General Eliot Spitzer said now was not the time to take any pressure off the banks and that Schneiderman should press on with his probe.
"He is standing up for the public," Spitzer said."He is standing up for the need of transparency — for the need for full disclosure about what got us into this absolutely horrific mess."
Kathryn Wylde, who leads the New York Partnership and is the public member of the Federal Reserve Bank of New York, told the Times she alerted Schneiderman that Wall Street was concerned his actions would not resolve the mortgage banking issues but rather would be “throwing a wrench into it” – comments confirmed to WNYC through a spokesman.
She said that Wall Street was New York’s Main Street and that they had to be supported unless “they are doing something indefensible.”
For months, pressure has been building on banks like Bank of American, JP Morgan and Wells Fargo to reach a universal settlement with federal regulators and the 50 state attorneys general to resolve outstanding dubious foreclosure practices. The banks have consistently refused to comment on the settlement talks.
Disclosure: Schneiderman’s father, Irwin Schneiderman, is a member of the WNYC Board of Trustees and has been a long-time donor to the station