New York AG Opens Big New Investigation Into Banks And Their Mortgage Businesses

Eric Schneidermen

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New York Attorney General Eric Schneiderman is opening up a new investigation on the role of the country’s biggest banks in the financial crisis, according to The New York Times.Gretchen Morgenson reports that the Attorney General’s office has asked for meetings with officials from Bank of America, Morgan Stanley, and Goldman Sachs. Three other, unnamed banks, have been asked for information on their mortgage businesses.

Currently, there is no clear angle on the investigation other than it centres on these banks’ mortgage businesses, including everything from lending to the creation of mortgage backed derivative products.

The news comes just hours after the Huffington Post reported on Federal audits of Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial. These audits centre on mortgage activity as well, this time in the “defrauding” of taxpayers while engaging in government backed lending activities.

From the Huffington Post:

The resulting reports read like veritable indictments of major lenders, the sources said. State officials are now wielding the documents as leverage in their ongoing talks with mortgage companies aimed at forcing the firms to agree to pay fines to resolve allegations of routine violations in their handling of foreclosures.

The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.

Two of the firms, including Bank of America, refused to cooperate with the investigations, according to the sources. The audit on Bank of America finds that the company — the nation’s largest handler of home loans — failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.

Financial stocks have underperformed the market in 2011, partially due to continued uncertainty about regulation and legal issues. Note the SPDR banking sector ETF, KBE (blue), versus the S&P 500 (red).

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