In the last decade, the United States experienced the biggest housing bubble in the history of the world. When the bubble burst, Americans lost $7 trillion in household wealth, millions of jobs disappeared and the nation was plunged into the deepest and longest recession in 70 years.
There have recently been some mischaracterizations of the mortgage-backed securities working group created in January by President Obama to investigate the roots of this crisis — a working group I am proud to co-chair.
Here are the facts.
My office — along with the Justice Department, the SEC, the Consumer Financial Protection Bureau, the IRS and our other partners — is working aggressively to provide accountability for any misconduct that contributed to the bubble and crash in the housing market. More than 50 attorneys, investigators and analysts have already been deployed to support our investigations, with many more on the way. The President has requested a congressional appropriation of an additional $55 million to ensure that we have the resources to do a thorough job.
However, this is a law enforcement exercise, not a public policy decision, and must proceed in a rigorous and deliberate fashion. Like any ongoing investigation, the details about the scope of our inquiry are confidential. But I remain committed to following the facts wherever they may lead.
The reckless deregulation and irresponsible conduct that brought down the American economy must be systematically investigated. At the same time, we must deliver as much immediate relief as possible to protect families whose homes are at risk now.
New York has a pretty good set of laws to protect against wrongful foreclosure. But those laws are of little use to the many New York homeowners — about half — who faced foreclosures in recent years without a lawyer.
That’s why, when I joined my fellow state attorneys general to negotiate a settlement with the five largest mortgage servicing banks over abusive servicing and foreclosure practices, I made it a top priority to get immediate funding for legal services for homeowners facing foreclosure.
On April 5, our office received court approval of a settlement that comprehensively reforms mortgage servicing and the foreclosure process, and commits the banks to reaching out and working with New Yorkers whose homes are underwater. Thousands of New York families should receive reduced interest rates or actual reductions in principal owed.
And my office succeeded in obtaining funds to expand legal services and housing counseling to help troubled New York homeowners avoid foreclosure.
Services like this have a long record of success. In one recent case, a grandmother and her five grandchildren in Brooklyn were facing foreclosure until a legal services agency negotiated a loan modification, reducing her interest rate from 9.55% to 2.13%. This made the loan affordable enough for them to stay in their home.
Help like that is life changing, but state funding for these programs was set to expire on April 1, leaving desperate homeowners nowhere to turn. My office was able to provide $15 million from the settlement to fill this gap in New York’s current budget. These funds will allow lawyers and housing counselors to keep their doors open and continue the work of keeping families in their homes.
And we will now fund these essential services for three more years, ensuring that foreclosure prevention aid doesn’t once again get caught in the crossfire of Albany’s annual budget wars.
Some have argued that the multistate settlement is inadequate to address the problem of foreclosures and underwater mortgages.
I agree that if this settlement were the end of the story, it would not be enough. But it’s not the end. It’s a down payment.
The most important part of the settlement is what’s not included. When I joined the multistate negotiations with the banks in January 2011, the banks wanted broad civil immunity from all legal claims related to the housing bubble and crash. Along with several other attorneys general, I took a very hard line against letting anyone off the hook for conduct that took down the economy.
The final settlement preserves a broad range of claims — both criminal and civil — for investigation and prosecution, including all securities fraud claims. This allows the joint state and federal task force to build upon existing investigations and launch new ones.
We are now committed to moving forward on both of these tracks: providing legal services, housing counseling and loan modifications to homeowners who are at risk, and continuing our investigations into the conduct that caused the foreclosure crisis. Both are needed if we are to do justice and put our hard-hit communities on the road to economic recovery.
Schneiderman is New York’s attorney general.
