Obama Administration Pressuring New York Attorney General To Drop Mortgage Fraud Investigations

The Attorney General of New York has been on the receiving end of what seems like an unusual amount of pressure from Obama Administration officials to accept a settlement with mortgage lender rather than pursue the criminal fraud investigation that he opened several months ago:

Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.

In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks.

Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

But Mr. Donovan and others in the administration have been contacting not only Mr. Schneiderman but his allies, including consumer groups and advocates for borrowers, seeking help to secure the attorney general’s participation in the deal, these people said. One recipient described the calls from Mr. Donovan, but asked not to be identified for fear of retaliation.

Not surprising, the large banks, which are eager to reach a settlement, have grown increasingly frustrated with Mr. Schneiderman. Bank officials recently discussed asking Mr. Donovan for help in changing the attorney general’s mind, according to a person briefed on those talks.

In an interview on Friday, Mr. Donovan defended his discussions with the attorney general, saying they were motivated by a desire to speed up help for troubled homeowners. But he said he had not spoken to bank officials or their representatives about trying to persuade Mr. Schneiderman to get on board with the deal.

“Eric and I agree on a tremendous amount here,” Mr. Donovan said. “The disagreement is around whether we should wait to settle and resolve the issues around the servicing practices for him — and potentially other A.G.’s and other federal agencies — to complete investigations on the securitization side. He might argue that he has more leverage that way, but our view is we have the immediate opportunity to help a huge number of borrowers to stay in their homes, to help their neighborhoods and the housing market.”

Jonathan Turley comments:

Various organizations have denounced the actions of the Obama Administration as caving into this powerful lobby — as it has caved into the oil/gas lobby on offshore drilling, pharmaceutical lobby on health care legislation, and telecom lobby on immunity from privacy lawsuits.

Schneiderman and other state prosecutors want to hold bank officials liable for the harm that they have caused. They believe there are strong cases for criminal prosecution. Shaun Donovan, the secretary of Housing and Urban Development, and various other Administration officials have been pressuring the states to give the industry a pass on any crimes. Bank officials are known to have contacted Donovan and other Administration officials to pressure prosecutors. The industry (and the Obama Administration) wants to force attorneys general to grant waivers from criminal liability in exchange for civil fines.

Among other possible cases, Schneiderman objects to giving a pass to New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing allegedly fraudulent Countrywide Financial loans.

I’m sure the large amount of donations coming from the financial sector into the coffers of the Democratic National Committee and Obama For America have nothing to do with this pressure. I also believe the guy who tells me he has a bridge in Brooklyn to sell me.


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Doug Mataconis
About Doug Mataconis
Doug Mataconis held a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.


  1. JKB says:

    Well, of course, they want this to go away. These fraud investigations can unravel a lot of connected people. A friend investigated a low level misuse of a vehicle which intersected with an FBI investigation which ended up perp walking a couple dozen state legislators. The initial fraud was low level but it was the thread to larger political corruption.

    This investigation could tangle up half the Democratic National Committee if they aren’t careful. A lot of strings were pulled to keep the mortgage “investments” going.

  2. Rob in CT says:

    Indeed. This is a legit problem w/the Obama administration. Sadly, it’s even worse on the GOP side (unless ya’ll nominate Ron Paul or something).

    But apparently we can’t do anything about it.

  3. Sam Stone says:

    Obama does not want to cut off all his top funders if they are in jail!

  4. Sam Stone says:

    @Rob in CT:

    Republicans starting with Pres Bush tried reining in Fm and FM but were rebuffed by the Democrats who controlled congress and the committees. Here is a great report on the issue.


  5. Fiona says:

    @Sam Stone:

    Given that the Republicans controlled both the House and the Senate when the hearings highlighted on that video initially occurred, why didn’t they pass legislation to better regulate Fannie and Freddie? Apparently, Bush and other Republican leaders didn’t try too hard. It’s also amusing to hear the Randian Greenspan call for greater regulation of Fannie and Freddie when he was urging people to take out ARM loans and pretending the housing bubble was going to last forever.

    At any rate, it’s not so much the problems with Fannie and Freddie that were at the heart of the 2008 meltdown, but the creation and sale of mortgage-backed securities and the over-leveraging of major banks and investment houses. The whole thing was a giant house of cards waiting for a strong wind.

    Both parties get a lot of funding from the financial services industry and I’m sure a thorough investigation would turn up wrong-doing not only among the banks but also on both sides of the aisle. It’s disappointing to see the Obama administration pressure the NY Attorney General for trying to investigate this issue.

  6. OzarkHillbilly says:

    I want somebody here to say that a President McCain would not be doing exactly the same thing. How deep is wall street into the pockets of the GOP? Every bit as deep as the Dem, if not even deeper (take note their latest position of cont tax breaks for the rich, but raising taxes on the poor and middle class)

    The above is truly disgusting, but most of you commenting here have nothing but pure partisan hackery to offer.

    When are you going to wake up? What the hell do you think GWB did for his 8 yrs?

  7. john personna says:

    Kudos to Schneiderman. As can be seen above, it’s much easier to find pols of either party beholden to the financial industry.

  8. OzarkHillbilly says:

    Oh yeah, one more thing: I am not at all surprised by this from the Obama admin. Remember when he first got elected? When he refused to investigate the “torture memo’? Gitmo? Baghram? He said, “I want to look forward, not backward.” Sweep it all under the rug. “Move along now. Nothing to see.”

    Why? Because he is afraid that if he actually looks into what went on during the Bush years he will find ample evidence of criminal malfeasance (probably on both sides) that he can not ignore. Every one would accuse him of politicizing the justice dept and nothing will get done.

    But he wants to do big things.

    Guess what? He didn’t investigate. But he is still being accused of politicizing everything, and nothing is getting done.

    This, to me, is the biggest disappointment of the Obama admin: The inability to recognize that in todays political climate, he will not be allowed to do the “big things”. And their inability to change course.

    But, exposing the corruption in our political system would ensure him as a 1 term president. This way he can tell Wall Street, “I got your back.”

  9. OzarkHillbilly says:

    And Doug, this should be a front page post.

  10. PD Shaw says:

    I for one am willing to cut the adminitration some slack on this. We’ve got to find a way to move forward, a fresh start, and the notion of a general settlement may be in the best interest in the economy as whole. I can see contrary arguments, but if the administration believes that this is in the best interest of the economy, even if its unpopular, the more power to them.

  11. OzarkHillbilly says:

    I can see contrary arguments, but if the administration believes that this is in the best interest of the economy, even if its unpopular, the more power to them.

    PD, hats off to you. I disagree, but once again you have shown youself to be beyond partiasan hackery.

  12. @Fiona:

    Given that the Republicans controlled both the House and the Senate when the hearings highlighted on that video initially occurred, why didn’t they pass legislation to better regulate Fannie and Freddie?

    Same reason the Democrats didn’t expire any of the Bush tax cuts, pass a budget, or raise the debt ceiling when they controlled everything: controlling the Senate doesn’t mean anything anymore thanks to the constant fillibustering.

    The only things more annoying than the constant obstructionism is that both parties then want to blame the other for not being able to overcome it.

  13. Jay Tea says:

    @Stormy Dragon: Same reason the Democrats didn’t expire any of the Bush tax cuts, pass a budget, or raise the debt ceiling when they controlled everything: controlling the Senate doesn’t mean anything anymore thanks to the constant fillibustering.

    Bad example in there. The Democrats didn’t pass a budget because they didn’t want to be on the record as supporting the huge spending increases.

    Proof? The budget process starts in the House, and filibustering isn’t allowed there. Nancy Pelosi, if she really wanted to, could have introduced and passed a budget with every single Republican virulently opposed. It might have been hung up in the Senate, but it could have passed the House easily — just like the now-Republican House passed two budgets this year alone, only to have them die in the Senate.

    The Republicans didn’t prevent those budgets from passing. The Democrats never even tried.


  14. Jay Tea says:

    @OzarkHillbilly: Does the same reasoning apply to dropping the New Black Panther Party voter intimidation case after the Justice Department had already won a conviction?


  15. Norman H Salesky says:

    That’s a bunch of BS. Why don’t you go LOOK at what Bush proposed IDIOT. Go do some research. What a stupid UNINFORMED propagandist.

    I am so sick of uninformed fools parroting the propaganda that is fed to them by FOX and the right.


  16. sam says:

    @PD Shaw:

    I wonder if this has something to do with it, U.S. May Back Refinance Plan for Mortgages:

    The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help a broad swath of homeowners, stimulate the economy and cost next to nothing.

    One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.

    A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere.

  17. Jay Tea says:

    @Norman H Salesky: You might get a response or two if you actually included some specifics — who you were addressing, just what you consider “BS,” and whatnot. As it stands, it looks like just some blathering BS boilerplate.

    And that privilege is reserved for WR.


  18. mattb says:

    @Jay Tea:

    @OzarkHillbilly: Does the same reasoning apply to dropping the New Black Panther Party voter intimidation case after the Justice Department had already won a conviction?

    In the interests of representing “all the facts” the “winning” was not based on a finding of fact but rather a proceedural issue – the defendants didn’t show up. Further, of the “dropping” the charges brought against the National Chairman and the National Organization were dropped. The charges against the two individuals in Philadelphia though being narrowed, were largely upheld.


  19. PD Shaw says:

    @sam: It looks like Megan McArdle thinks they are connected in her link to this post .

    I’m skeptical of a quid pro quo because I think the administration’s past experiences with smaller refi programs was not terribly good. The houses they purchased are too expensive, and their income too small. (BTW/ I can refi at 4 1/8 %, so I’m guessing this is not targetted broadly, but to people stuck underwater with 6 or 7 % rates)

    No, I think the administration believes the only way to start a recovery in the housing market is to clear it and these fraud allegations have slowed the foreclosure process to a crawl. I think the refi program is simply to provide a friendly face to a distasteful reality.

  20. bitterclinger says:

    “An initial term sheet outlining a possible settlement emerged in March, with institutions including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo being asked to pay about $20 billion that would go toward loan modifications and possibly counseling for homeowners”

    Now that Big Democrat Warren Buffet just injected 5-billion into Bank of America, the pressure will really build for a settlement. Obama needs a bunch of those bucks for his campaign. Even a writer of novels couldn’t make up the amount of corruption in this administration.

  21. Katherine says:
  22. Mary Malone says:

    The DOJ is severely compromised by AG Holder’s conflict of interest in the mortgage fraud investigation.

    What’s the conflict?

    Eric Holder was a partner at Covington & Burling, the white shoe law firm, before joining the Obama White House. Covington & Burling wrote the legal opinion that justified MERS business model to the lending and title communities.

    If the settlement goes kaput, MERS, Holder and all Covington & Burling partners are exposed to civil and criminal litigation.

    He should have recused himself from the mortgage fraud investigations announced by DOJ in October 2010.

    Instead, he doubled down on the fraud and directed his top lieutenants(also Covington & Burling alumnae) to steer investigation away from MERS and its members (all banks, title companies, financial firms) under suspicition and toward consumers and flim flam artists.

    The result?

    No indictments and convictions of the bad actors who created and implemented largest financial fraud in world history.

    We have actionable intelligence that detailed extensive mortage fraud and the FBI agents told us to pound sand and lose their number.

    It’s Eric Holder’s FBI – so we have to focus on the state level.

    We can stop this settlement – but you have to act. Call your state Attorney General, tell them that they MUST NOT settle. Tell them Holder is compromised and no settlements should occur until the scope of damages is uncovered. If you have evidence of robo-signing, fraudulent assignments, contact the local prosecutor’s office. Demand they open an investigation into fraud and perjury.

    Call Rep. Issa’s office and demand an ethics investigation into Holder and his top DOJ lieutenants.

    The Covington & Burling legal opinion for MERS is listed on scribd. Check it out, pass it along and post it on your sites.

    The truth must be told and the guilty punished.

  23. Burke says:


    A reform bill passed the House in 2005, but was blocked in the Senate by Chris Dodd, who threatened a filibuster. The filibuster was supported by Sen. Barack Obama.

    Bush continued to try and get reform though Congress, but after 2006, it was controlled by the Democrats. He spoke/wrote to Congress on the subject 18 times in 2008.

  24. LA Reynolds says:

    These are not fraud allegations, they are criminal actions of land record fraud which
    is not a federal matter. Too big to fail is not too big to jail. Of course the rule of law doesn’t
    mean jack now.

  25. Rob in CT says:

    @Sam Stone:

    Fannie and Freddie were far from the only problem (indeed, they were secondary to the 2008 crash).

    That said, the fact that the Dems coddled Fannie & Freddie doesn’t really address my argument. I’m saying that it’s a real problem that the Obama Administration coddles Wall St. The GOP will also coddle Wall Street. So the GOP might not coddle Fannie & Freddie (all to the good), but they’ll coddle others. It’s coddling all around, as far as I can see.

    As for the speculation that this has to do with a new mortgage plan… obviously the Admin (as pointed out by Ozark) is still in “look forward” mode. Sweep the mistakes and malfeasance under the rug and throw money at the problem, for fear that actually exposing the rot will bring everything crashing down (this same approach was taken with TARP, first by the Bush Admin and then continued by the Obama Admin). Don’t look behind the curtain – that might blow it all up again.

    I honestly don’t know if they’re right about that. Even if they are, squashing a criminal investigation can’t be the right answer.

  26. Rob in CT says:

    @Mary Malone:

    Interesting stuff about Holder. I’ve never liked him.

  27. Mary Malone says:

    @Rob in CT:
    With good reason, Rob.

  28. DC Lovell says:

    Because they were cowards and did not want the race card thrown upon them.

  29. Richard says:


    I think this comment is spot-on – there is a nest of vipers in the HUD/Fannies and the banks are going to turn the rock over if they get hooked by a criminal investigation –

  30. luagha says:


    The Dems indicated that they would filibuster any attempt by the Republican Congress to rein in Fannie and Freddie. The Repubs didn’t have 60 votes in the Senate to stop the filibuster. So it never happened.

  31. percival says:

    If memory serves this “fraud” involves the affidavit process where the officers may have delegated foreclosure related tasks but signed documents indicating proper processes were observed. If so to date there haven’t been any foreclosure roll-backs that I am aware of related to this process. Additionally all loans identified were well beyond the delinquency level sufficient to warrant foreclosure initiation. The consent orders investigate this adequately as far as I can see.

    Now foreclosure rescue scams, strategic default, short sale flips, and fraudulent lien challenges are worth investigating. Don’t hear much of that

  32. Mary Malone says:


    Actually, this is not a paperwork issue – it’s an ownership issue. The scheme resembles story line of “The Producers”.

    There are multiple parts to the fraudulent scheme but in essence it went like this:
    -Arbitrage to beat Community Reinvestment Act in 1992
    -Big Banks forced by Big Gov. to make loans to minority customers – lowered underwriting standards
    -Big Banks refuse to accept the risk
    -Financial firms package the loans into securities that are sold to investors (pension funds, institutional investors, town in Norway)
    -Angelo Mozillo conjures up an electronic database to “register” all property sales that occur on secondary market called MERS bypassing town registrars and violating 400 years property law
    -MERS separates the Note from the Deed/Mortgage, clouding title on 60-80 million homes
    -Fed’s low interest rates inflate property bubble
    -Independent appraisers inflate property values to siphon enormous sums of money out of market
    -Americans are encouraged to use their homes as ATM’s
    -Huge sums of money flow into mortgage backed securities
    -Investors promised high returns, steady revenue stream
    -The loans in the securities were supposed to meet very strict NY Security Law and have all the paperwork processed and slammed into The Trust in 90 days
    -If stringent guidelines were not met, the investor could get ALL their money back
    -MBS was a tax-avoidance vehicle – if the investors open the trusts, they are taxed up the waz

    Fast forward:
    -Evidence of massive fraud surfaces in 2008
    -There are no mortgages to back mortgage backed securities
    -Investors are holding pools of unsecured debt
    -Firms like Bear Sterns, Lehman, Goldman, Citi, JP Morgan, Countrywide, Wells Fargo took enormous sums of money (Trillions) from investors and home-owners and NEVER met the strict NY Security Law Guidelines
    -Investors suing to get their money back (Bank of America settles with investors for $8.5 billion) one of many – google investors sued MBS
    -Home-owners who purchased or re-fied their homes from 1995-2008 are totally screwed
    -Inflated appraisals – produced bogus values
    -Homeowners who had equity and conventional mortages and lost their jobs cannot sell the home (upside down)
    -The fraud is revealed inforeclosure
    -The financial firms are dummying up documents – presenting them to the courts – pretending to have ownership in the property. They don’t. Committing perjury, wire mail fraud

    -90% of foreclosures are illegal. Why? Because the financial firm foreclosing never lent the home-owner 1 thin dime. They are stealing the home – because they can. The investors, who are the true creditors don’t want the home. Why? Becuase the investors know that they have NO evidence of ownership. When the firms failed to follow NY Security Law, they broke the chain of title. The home-owner has a wild deed. They owe a debt – have a real obligation, but not to the financial firm that wants to steal their home.

    60-80 million homes are foreclosure proof. They do not have mortgages – they have unsecured debt – which can be and is being wiped out in bankruptcy.

    And Eric Holder is in on the scam. Misprision of felony anyone?

  33. JR says:


  34. Ellen Chmiel says:

    Bring back Schneiderman, the only rational adult on commitee. Banks will keep doing borderline transactions if they aren’t nailed NOW. Pres. Obama should stop pressuring for a settlement before investigations are done. Banks always cry “WOLF” when money is involved.