As the administration struggles to get on top of the spreading foreclosure scandal, State Attorneys General threaten to make Washington look feckless Wednesday by announcing a 40-state joint investigation into whether big banks and their associates forced people from their homes using questionable foreclosure documents.
The foreclosure furor emerged initially from a deposition in a court case in Florida last month that alleged that at least one company had submitted false affidavits in support of summary judgments for foreclosure against homeowners who were in fact either current on or capable of paying their mortgages.
Alerted by media reports to the possible foreclosure short-cuts by big banks and mortgage servicers, State Attorneys General began looking into the practice and found that banks and mortgage servicers had been engaging in the practice all over the country. In an effort to coordinate their investigations, the state AGs decided to work together.
Several states called for a partial freeze by some of the biggest banks allegedly involved in the faulty foreclosures, including Bank of America, J.P. Morgan Chase and Ally bank. All three eventually agreed to a partial freeze. The partial freeze has snow-balled into calls from senior Democrats like Senate Majority leader Harry Reid for a national freeze on foreclosures.
The White House now finds itself in an election season bind. The administration must either take an unpopular position siding with banks against a broad freeze in foreclosures just weeks before the midterm elections, or it must reverse months of work encouraging banks to clean up their balance sheets and start lending again. “There are, in fact, valid foreclosures that probably should go forward,” Obama’s senior advisor David Axelrod said Sunday on CBS.
While Washington tries to get the tone right, the states are steaming forward. The man at the head of the joint investigation is Iowa Attorney General Tom Miller. Miller has been elected to seven four-year terms in Iowa and has a history of taking on big opponents. In 2001 he led a multi-state anti-trust case against Microsoft and in 2007 he filed a suit against 79 drug companies alleging they illegally profited by inflating prices for drugs purchased through Medicaid.
The Miller-led group will start by identifying which mortgage servicers and banks are implicated in filing faulty paperwork. They’ll then decide whether to limit the investigation to ‘robo-signing’–the practice of mortgage servicers signing affidavits without reviewing foreclosure case files–or whether to broaden it. Eventually, they’ll propose remedies or punishments. For now, the AGs are viewing the multi-state effort as a civil investigation, not a criminal one, says Miller’s communications director Geoff Greenwood.