The Obama White House has attempted in the past to investigate the abusive practices of the mortgage industry that contributed heavily to the housing mess and the battered economy. The effort has yielded little so far, for homeowners, the housing market or the economy. In his State of the Union address last week, the president relayed that he would try again. He announced the creation of “a special unit of federal prosecutors and leading state attorneys general” that will “hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans.”
What will prove different? The leadership matters, the president tapping as a co-chairman Edward Schneiderman, the New York attorney general who has been determined to hold accountable the mortgage industry. Notably, he has been stubborn in negotiating a settlement with the country’s five largest mortgage servicers. He has resisted the idea of granting banks as part of a deal a broad release from future claims of liability.
If the Department of Justice and others in the federal government already have pursued the industry, here is an attempt to pull together the efforts, adding focus and energy. Now Schneiderman and his colleagues must have sufficient resources and authority to perform the task.
The formation of the task force represents a triumph for U.S. Sen. Sherrod Brown and others on Capitol Hill who grasp the importance of telling the complete story of the bad behavior that contributed to jolting so many Americans. The fallout resides in depleted savings and pensions, in houses underwater, in an economy lacking the necessary mobility to help add momentum.
The White House pushed hard for a settlement between the banks and the attorneys general, its eye on the State of the Union audience, an agreement worth, say, $25 billion that would include a large sum for reducing the principal of homeowners facing foreclosure. Yet, an adequate resolution must include a higher public profile for what has been emerging from private lawsuits.
The discovery process in litigation has produced information about bankers keenly aware of the toxicity of the mortgage-backed securities they were peddling. More, many knew well the processes for evaluating the quality of the assets did not involve sufficient diligence.
To be sure, government authorities already have applied fines, almost $2 billion to the industry. Yet the sum barely has made an impression. In that way, if the task force results in criminal prosecutions, fair enough. Go where the facts lead. Know, too, that there is much public value in sharing what happened in a full, detailed and understandable way. So, good that the president has tried again. Those who did so much to drive the mortgage calamity must be held accountable.
