Left vs. White House Over Mortgage Deal
President Barack Obama’s liberal base says he’s on the verge of selling out to the banks again.
This time, the problem is a subprime mortgage settlement that his administration is pressuring state attorneys general to sign off on — a deal that could stop many state investigations and prosecutions about mortgage lending practices.
That settlement, a collaboration between the Justice Department and the 50 state attorneys general much like the one that produced the landmark 1998 agreement with tobacco companies, would mean a lump-sum payment from the banks in exchange for a release from liability. But with negotiators in Washington this week trying to finalize a deal, it’s become the latest flashpoint of left-wing disenchantment with Obama.
“The least charitable view ties it directly to campaign donations,” said Adam Green, co-founder of the Progressive Change Campaign Committee, which this week began mobilizing its 700,000 supporters against the broader deal. “The most charitable view, it’s a bunch of Wall Street hacks in the position of economic advisers who truly believe that giving billions to banks will trickle down to the middle class. The most charitable view is that they’re just wrong.”
For Obama, a settlement would be a chance ahead of next year’s election to claim progress on a key kitchen-table issue that’s particularly pronounced in several swing states — and tout it as an example of rare bipartisan success to boot.
For liberals, the fight over this issue — how much responsibility lenders have for the mortgage crisis — is an opportunity to put the banks on trial, forcing greater consumer protections and bigger payouts along the way. Between the bailouts and financial regulations, they say Obama’s already caved to the banks too much.
“There are a lot of progressives, and frankly everyday voters, who wish this White House would cut their ties with Wall Street, stop the sucking up to Wall Street,” Green said.
And the fear that the White House is pushing for an agreement that doesn’t go far enough is fitting into the larger frustration with Obama for how he’s handled negotiations over everything from health care to the debt ceiling.
“Yes, we have to get something done, but we’re not going to accept the false choice that requires us to take a settlement that doesn’t meet the scale of the problem — and it’s another example of the White House not knowing how to bargain effectively,” said one labor official, who asked not to be named because of ongoing involvement with the discussions.
For the past year, the 50 attorneys general and federal government have been negotiating a settlement with Bank of America, Citigroup, JPMorgan Chase, Ally Financial and Wells Fargo. While the terms of the settlement aren’t finalized, a draft release submitted by the coalition to the banks — details of which were obtained by POLITICO — shows an agreement that addresses more than the original target of “robo-signing,” the practice of lenders signing mortgage documents without sufficient review of borrowers’ credit or ability to pay back the loans.
The problem, critics say, is that the settlement is being done without any investigations of the banks, which means that the extent of their wrongdoing isn’t known. The critics are not willing to sign away their own rights to get involved and bring their own cases for a possible deal that they see as a “slap on the wrist,” as MoveOn called the possible settlement, or “a nice, big gift to the banks,” as former Wisconsin Sen. Russ Feingold of the group Progressives United predicted.
“If you as a state haven’t investigated because you’ve relied on someone else to do your investigation, then I think states fear they could be accused of not doing their due diligence,” said Kentucky Attorney General Jack Conway, who became the latest official to raise concerns with the deal. “It goes against the DNA of an AG to say, ‘I’m going to agree to a waiver of liability without investigation.’ ”
Eliot Spitzer, who made a name for himself browbeating financial institutions into concessions through the threat of prosecution during his time as New York attorney general a decade ago, urged against a broad settlement.
“Given the reality that every time you turn over a new leaf or turn over a new rock, there’s a new layer of impropriety … why give up the right to continue investigating, for what doesn’t appear to be dramatic or radical givebacks on the part of the banks?” Spitzer said.
The administration has quietly been trying to rally support for a faster and fuller agreement by turning up the heat on supporters of Delaware Attorney General Beau Biden and current New York Attorney General Eric Schneiderman, who have been leading the resistance to any agreement that’s too broad or done without more investigation. With the number of banks based in those two states, they’ve got the jurisdiction to throw off the entire agreement.
Biden’s resistance has sparked speculation that there’s division within the administration about making the deal that’s being back-channeled through the vice president’s son, while Schneiderman, who’s new in the office, is being accused of playing politics in the interests of making a name for himself.
The White House has been trying to stop them both through leaning on their political supporters with a variety of sticks and carrots. The Treasury Department has gotten involved, as has the new Bureau of Consumer Financial Protection. There have been a barrage of phone calls, as well as a closed Washington meeting in mid-August that HUD Secretary Shaun Donovan and Illinois Attorney General Lisa Madigan — whose ties to Obama go back to their simultaneous rise in Chicago Democratic politics and is known to have her eyes on his old Senate seat — in which community, minority and labor groups were told that they were risking blowing up the whole deal by sticking with Biden and Schneiderman.
“The political pressure is huge. The danger is, I have not seen the administration or the other attorneys general talk about the releases [of liability]. That seems to be Biden’s and Schneiderman’s story to tell, and they come out as heroes,” said Janis Bowdler of the Latino civil rights organization the National Council of La Raza, who participated in the Aug. 19 meeting.
But Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller — a Republican leading the multi-state effort in tandem with Tom Perelli, the No. 3 official in Obama’s Justice Department — said there was a need to go for a broad settlement that effectively ends legal action for the states for foreclosures.
“It’s simplistic to say that this is all about robo-signing. Robo-signing was the catalyst, but this case goes beyond robo-signing. That being said, we’re not here to address everything under the sun — our main focus is homeowners, not investors,” Greenwood said. “It’s about servicing and foreclosure, past, present and future. Our concern about broadening the case is that it would add potentially months, if not years, to a potential resolution.”
The Federal Housing Finance Agency’s coming lawsuit against 12 mortgage banks has only further incensed the left — if the Obama administration thinks there’s enough cause for a federal lawsuit, the effort to stop a group of Democratic state attorneys general from pursuing their own efforts makes even less sense, they say, especially with the federal government trying to get all the attorneys general on board with a settlement before they’ve even seen it.
“We’ve got to look under the hood of this deal. We don’t want to do it without checking the details on it,” said Massachusetts Attorney General Martha Coakley, who’s pursuing some of her own negotiations and has already signaled that she’s likely to join Biden and Schneiderman in holding off. “It’s not just about getting the job done — it’s about getting the job done right.”
A settlement of $20 billion to $25 billion is expected to be included in the deal, which the Biden-Schneiderman camp points out is only a fraction of the underwater assets in the country. That figure could drop the more states opt out, especially if they’re joined in the no column by California AG Kamala Harris — who many expect to sign on but whose office declined to comment on its current position.
Schneiderman’s fight with the Iowa attorney general has gotten so intense that he was kicked off the executive committee of attorneys general overseeing the negotiations in August.
That’s only led to him going more public with his fight, enabling him to round up support among progressive groups and editorial boards.
And rather than getting them to fold, the White House pressure has managed to strengthen the resolve of many of the Biden and Schneiderman supporters they’ve been leaning on.
The result: a growing number of attorneys general have joined the resistance. In addition to Conway and Coakley, Minnesota’s Lori Swanson and Nevada’s Catherine Cortez Masto have now said publicly they’re against the broader deal. Masto’s pursuing her own open case against Bank of America amid her concerns that the federal government hasn’t done nearly enough on the mortgage crisis so far, and says she’s not signing off on anything that limits her own prosecutions.
Masto — who’ll be term limited out of her current office in 2014 and is seen as a rising political star in the state — says she’s determined to give people in Nevada the action they’re eager to see.
“If you’re somebody who’s impacted because you’re losing your home, you’re paying attention,” she said. “You’re watching, wanting to know if there’s relief out there for you or not.”