At long last, there may be a serious investigation into the mortgage mess â?? the kind that results in clarity as well as big fines and maybe even accountability.
Gretchen Morgenson reported in The Times on Tuesday that Eric Schneiderman, the New York attorney general, wants to discuss mortgage operations during the housing bubble with executives of Bank of America, Goldman Sachs and Morgan Stanley. He has also requested documents and information from the banks, examined material given to his predecessor, Andrew Cuomo, and studied issues raised in lawsuits against the banks.
Mr. Schneiderman would not comment on the investigation. What is needed is a broad inquiry into how banks inflated the housing bubble, profiting as it expanded and getting bailed out when it burst â?? leaving investors and homeowners devastated.
Any serious investigation must take a close look at â??securitizationâ? â?? the pooling of thousands of home loans into securities that were sold to investors the world over. Three years after it all imploded â?? and even after Congress vowed to get answers and names â?? Americans still donâ??t have answers to vitally important questions.
Topping the list: Did the big banks know (if not, why not?) that billions in loans and related securities were destined to fail? Did they intentionally mislead investors and insurers or were they just incompetent?
An investigation must also figure out the extent of wrongdoing in Wall Street practices that fed the securitization pipeline. By extending credit to mortgage lenders, Wall Street allowed them to make loans far longer than they otherwise could have. Did Wall Street purposely inflate the bubble when it enabled loans to uncreditworthy borrowers for unreasonably priced homes?
All indications are that last yearâ??s robo-signing scandal, in which banks were found to have filed false court documents in foreclosure cases, was just the tip of an iceberg. A growing body of Congressional testimony, academic research, court cases and other evidence suggests pervasive defects, and potentially vast lawbreaking, in the securitization and foreclosure process.
It has also been suggested that federal and state officials have ignored or played down allegations of widespread illegality, a charge that is all too easy to believe. A recent federal investigation into banksâ?? foreclosure abuses ended with a wrist slap. Talks between state attorneys general and banks over those abuses appear hamstrung, in part, by the apparent failure of state officials to do a thorough investigation on which to base demands for meaningful reforms and stiff penalties.
It is critical that someone stand up and say â??noâ? to allegations that go unexamined, to wrongdoing without redress. Mr. Schneiderman, itâ??s up to you.
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