With unusual unanimity across the political spectrum, all 50 state attorneys general announced a coordinated investigation on Oct. 13 into recent revelations that mortgage servicers routinely used “robo-signers” to approve hundreds of thousands of foreclosures without scrutinizing the underlying documents. Because state law governs the mortgage lending industry for the most part, consumer advocates and experts believe this investigation will be the most effective way to resolve the foreclosure mess and compensate homeowners.
[Congress1] “The fact that all 50 have launched an investigation into potential fraud speaks for itself,” said Kathleen Day of the Center for Responsible Lending.
But after the midterm elections, the individuals holding those offices could vary wildly, and some of the leaders of the investigation, as well as the most aggressive advocates for consumers and against banks, could find themselves out of a job.
Consider this: Of the 12 state attorneys general on the executive committee of the coordinated investigation, only two of them — Roy Cooper in North Carolina and Rob McKenna in Washington — aren’t up for re-election this year. Several of them — Jerry Brown in California, Richard Blumenthal in Connecticut, Terry Goddard in Arizona, Andrew Cuomo in New York and Bill McCollum in Florida — are running for higher office and will not return to their posts. And other races are closely contested.
Currently, 32 of the 50 attorneys general across the nation are Democrats, to 18 Republicans. According to Governing Magazine, the GOP is poised to pick up anywhere from six to 13 of those seats after November, dramatically changing the makeup of the attorneys general across the country — and potentially the nature of their investigation.
“There are good AGs and not so good AGs,” said Ira Rheingold of the National Association of Consumer Advocates. “The question is, who will be the leaders of the investigation and who will drive the decisions they make?”
Take Ohio, for instance. Attorney General Richard Cordray (D) was the first to sue a major mortgage servicer, GMAC Mortgage, over faulty foreclosure documents. “Nobody’s very comfortable with the notion that people are committing fraud upon the courts on a deliberate and systematic basis,” said Cordray of his attorney general colleagues. He seeks not only damages of $25,000 per fraudulent document, but restitution for homeowners who may have been illegally evicted from their homes. But he faces former Sen. Mike DeWine (R) in a re-election battle on Nov. 2, and a Suffolk University pollfrom early October showed DeWine ahead 44-38 among likely voters.
Or look at Iowa, where Tom Miller, who has been Attorney General off and on since 1978, heads up the 50-state investigation. He has been investigating abuse in the mortgage lending industry for years, and is widely recognized as one of the best attorneys general on consumer protection in the country. “Tom Miller being involved is a really good thing,” said Rheingold. “Tom has been doing this for years, and has a demonstrated record on consumer protection.”
But Miller is being challenged strongly by Brenna Findley, a Sarah Palin-endorsed 34-year-old who previously spent seven years as the chief of staff for conservative Republican Rep. Steve King. She’s raised twice as much money as Miller and has campaigned more energetically in the state. There has been no public polling since August, but with the Republicanleanin statewide races in Iowa, most experts see Miller’s odds as a tossup at best.
While no attorney general candidate, Democratic or Republican, has actually pledged to drop out of the investigation into foreclosure fraud, many of the GOP candidates have focused their attention elsewhere, saying little about the issue on the campaign trail. In Iowa, Findley has run almost entirely on her vow to join the lawsuit against the federal government over health care legislation, and on an aggressive effort to crack down on sexual predators. In Florida, Republican candidate Pam Bondi has a section of her website labeled “Protecting Our Consumers” that talks generally about consumer protection and barely mentions mortgage fraud or housing at all.
While the investigators for the probe are likely to be career bureaucrats at the staff level who would probably not change from one administration to the next, the decision-makers at the top play a central role. Reuters reported last weekthat banks have already initiated talks with the attorneys general to reach a quick resolution to the matter. State attorney general settlements in the recent past, with lenders like Countrywide and Wachovia, have included mandates for mass mortgage modifications that would allow homeowners to stay in their homes.
“Those who understand the issues know what the remedy needs to be,” said Rheingold. “Other AGs may have political calculations. For example, they might want a one-time pot of money to give out to homeowners, so they can do a press conference and declare victory. That wouldn’t be a serious move. This should be about what you make the lenders do to comply with state law.”
Several attorney general candidates on the Democratic side have boasted of their consumer protection credentials. In California, one of the states hardest hit by foreclosures since the housing bubble popped, San Francisco district attorney and statewide candidate Kamala Harris touted her past efforts, including the formation of the first-ever stand-alone mortgage and investment fraud unit in the district attorney’s office. She has already made several indictments through the unit, which has a $1 million grant from the Justice Department to investigate fraud. Harris trails Republican Steve Cooley in public polling, and Cooley has raised more money as well, while getting support from million-dollar independent expenditure campaigns led by former RNC Chair Ed Gillespie. Cooley has stressed public safety in his campaign more than consumer protection.
The campaigns for Cooley, Findley and several other Republican attorney general candidates did not respond to repeated requests for comment about their views on foreclosures and the 50-state investigation.
In New York, a key state because of the presence of Wall Street and the fact that New York trust law governs some thorny national legal issues which may determine whether or not servicers even have the standing to foreclose, Democratic candidate Eric Schneiderman said he would strongly support investigations into the banks’ activities. “I held the first hearing in the history of the state about the under-prosecution of mortgage fraud,” said Schneiderman, who supports a moratorium on foreclosures while the investigation proceeds. “The economic meltdown was driven by pools of bad mortgages. A lot of New Yorkers got stuck with those bad mortgages. Everyone in the state of New York should get a fair hearing before they’re foreclosed on.”
Schneiderman’s race in particular is emblematic of the stark difference between Democratic and Republican attorney general candidates on the issue of the financial industry, including the foreclosure crisis. His opponent, Daniel Donovan, has derived around 25% of all his campaign contributions from one hedge fund, Elliott Management, according to The New York Times. Donovan has been quoted on several occasions saying that he “doesn’t want to be anybody’s sheriff,” a reference to former New York Attorney General Eliot Spitzer, nicknamed the Sheriff of Wall Street. “Dan Donovan has said that we shouldn’t ‘disturb the garden’ of Wall Street,” Schneiderman said. “The central tenet throughout my career, as a public interest lawyer and a public servant, is that I have sought to do justice and fight against unfairness. I don’t like bullies. I don’t like when people use their power to take advantage of people who are weaker.” Donovan, on the other hand, writes on his website that “Wall Street is the financial backbone of our state, and we must ensure that it continues to create jobs and remain the economic generator our state depends on.” Although New York Democrats are running away with races at the top of the ticket, Donovan has cut into Schneiderman’s lead, trailing in a recent Siena College pollby just seven points, 44-37. Similarly, Florida Republican nominee Pam Bondi, who led Democrat Dan Gelber in an October Mason-Dixon pollby five points, criticized her opponent as an “activist” who would prosecute too cavalierly. (Gelber, like Schneiderman, supports a foreclosure freeze as allegations are investigated.) She told the St. Petersburg Times, “Unlike Mr. Gelber, I understand the difference between using the attorney general’s office to responsibly protect consumers vs. attacking businesses as an activist AG in the mold of Eliot Spitzer.”
An attorney general with this kind of measured, pro-business worldview, in the midst of a politically charged national investigation against the biggest banks in the country, can change the focus of the probe. “The bureaucrats won’t change over the years,” said Rheingold, “but sometimes they have to keep their heads down” when their new boss doesn’t support their actions.
“The emphasis can change with a new AG,” he added. “The goals change.”
And that would have wide-ranging effects for what Rheingold described as “the most important game in town,” the investigation by the 50 attorneys general. “After all, it’s their laws being broken,” he said. “Congress is not going to do anything. The administration has not been strong thus far. The most important challenge to the banks comes from these attorneys general.”
Correction: This story initially stated that the campaigns of Pam Bondi and Brenna Findley did not respond to requests for comment. Steve Cooley should have been listed here, not Bondi, whose campaign was not contacted. We regret the error.
David Dayen writes for the News Desk at firedoglake.com. His work has been cited by the Los Angeles Times, The New York Times and The Washington Post, and he has been a guest on NPR, Pacifica Radio and Air America.