If Schneiderman were to get his way, his critics warn, homeowners could end up at the same table as massive asset and investment management firms such as Pimco and BlackRock. The interests of ordinary homeowners could end up competing with those of financial heavyweights. Even more thorny legal issues, such as those related to the way pools of mortgages were bundled and sold to investors, would be injected into the discussions.
Critics say such an approach would delay a final settlement, with no guarantee of helping homeowners at the end of the day.
Schneiderman insists on a comprehensive settlement that would both help homeowners and put the ailing housing market back on a stronger footing, said his spokesman, Danny Kanner. In addition, he said, Schneiderman’s efforts to investigate securitization have “produced results, and we are moving forward in an expeditious fashion.”
Kanner warned that the proposals being discussed by the Iowa-led group “would unequivocally preclude Attorney General Schneiderman and other state prosecutors from following the facts where they lead.”
People involved in the settlement talks insist that they support Schneiderman’s separate investigations and have no intention of releasing banks from claims related to issues beyond servicing — such as how mortgages were originated and turned into securities. Still, there’s no final agreement on how to word the settlement so that it gives banks a release only on claims related to servicing.
“We don’t want to stop them from doing their investigation, and even if we wanted to, we couldn’t,” Madigan said. “All states are sovereign.”
Schneiderman’s opposition to the settlement talks has won him widespread support. The New York Times editorial board recently wrote that he “should stand his ground in not supporting the deal” under consideration. The St. Louis Post Dispatch said Schneiderman’s opposition made him “look like a leader.”
On Tuesday, 21 members of New York’s congressional delegation wrote to Miller, saying that they were “deeply troubled” by his decision to remove Schneiderman from the group overseeing negotiations and that the action “sets a dangerous precedent for other attorneys general who, out of fear of what might happen, may choose silence over voicing valid concerns.”
Schneiderman’s absence from a final deal threatens to change the terms to which banks are willing to agree and could undermine the settlement altogether. Behind the scenes, acknowledged one person, “there is some serious cat-herding going on.”
Still, those leading the effort say that, for now, they are pressing ahead with the current approach.