Senator Maria Cantwell (D-WA) issued a blistering letter calling on the Department of Justice to investigate big banks for fraudulent foreclosure practices before agreeing to any settlement deal which would grant them immunity for these practices. In her letter to Attorney General Eric Holder, Cantwell writes:
I am concerned that recently reported settlement proposals will effectively absolve these financial institutions of substantial civil and criminal liability in one of the largest alleged fraud schemes during the financial crisis. Specifically, I am concerned that the proposed settlement includes a release from liability that may be far too sweeping, does not adequately compensate victims, does not require enough of banks to reform the system that led to the crisis in the first place, and is being made before all the facts are known and without the backing of a full inquiry into the size and scope of the alleged fraud.Boom goes the dynamite.
Without a thorough investigation, it is impossible to truly estimate just how pervasive the defects in the foreclosure and securitization process are. Continued reports of wrongful foreclosures, forged documents, and an inability of servicers and banks to prove chain of title and the legal right to foreclosure, raises the very alarming possibility that these defects were endemic to the mortgage servicing industry across the country. The sheer magnitude of the potential fallout from these defects demands that we undertake a full investigation to uncover the true scope of wrongdoing before providing blanket immunity to the perpetrators.
I am also concerned that reports of a settlement in the range of $20 billion, as recently reported, may not adequately compensate the victims of the foreclosure crisis. As a result of the pump-and-dump scheme perpetrated by the nation’s largest banks that inflated – and burst – the housing bubble, an estimated 14 million Americans are underwater, owing $700 billion more on their homes than those homes are worth. A $20 billion settlement is woefully inadequate to compensate the wrongfully evicted or homeowners struggling to stay in their homes. Much more should be required of banks to provide meaningful help underwater homeowners and compensate foreclosure fraud victims.
Washington is an important state in the context of the foreclosure crisis and the ongoing settlement talks between AGs and banks. Washington's Republican Attorney General Rob McKenna is running for governor and has long been viewed as being a potential get for people trying to stop a bad deal. McKenna's Democratic opponent in the gubernatorial race is Congressman Jay Inslee. Inslee has made stopping a bad settlement a major campaign issue and is collecting signatures on a petition against the rumored deal. Inslee is trying to wedge McKenna - either by making him look like a tool of the banksters or forcing him to do the right thing and help his constituents who were defrauded of their homes by the banks. It looks like Cantwell is aiding Inslee in that squeeze play, but the politics are really secondary to the potential outcome. Simultaneously, we are seeing another major politician standing up to the banks and demanding a halt to the consideration of a bad settlement deal. This is a very good thing.