naked capitalism

The Administration had thrown its weight behind getting the mortgage settlement deal done shortly after the State of the Union address. Eric Schneiderman joining a Federal task force that seemed unlikely to accomplish much, given its staffing and the history of Federal investigations, seemed to secure it getting done, as Schneiderman, the de facto leader of the opposition, moved first into a neutral stance and then rejoined the talks over the weekend.

The deadline had been first set as February 6, then moved to the 3rd, then late last week moved back to its original date. There was no announcement of a pact today, which in and of itself would not necessarily mean that things might be going pear-shaped. After all, the participants could be wrangling over fine points.

A fresh Reuters report indicates that the Administration messaging and cheerleading (witness the Shaun Donovan interview reported by Dave Dayen and Shahien Nasiripour) may have been ahead of events. In addition, as I indicated, the Schneiderman MERS suit exposed, as I indicated, that the widely reported exclusion of MERS from the waiver in the deal allows for what amounts to robosigning suits to be filed as MERS suits. Reuters indicates that the banks aren’t happy with that. Schneiderman’s suit may have exposed a difference in views as to what certain language in the deal meant. If so, the two sides may be further apart than the cheery “We’re about to have a deal!” PR indicated.

If the reports from Administration sources on MERS not being included in the deal was accurate, I’m still surprised that they didn’t contemplate that a deal like Schneiderman’s might be filed. This is the sort of thing big ticket lawyers are paid to anticipate. However, it is one thing to face a potential risk, and another to have it show up before you sign, particularly since Schneiderman’s lawsuit could probably serve as a template for similar suits in other states. Even though the stealth bailout now embedded in the deal (it has the effect of increasing the value of their large portfolios of second liens) looked to be a big win, the banks now seem to be rethinking the wisdom of having a narrower release to get the attorneys general on board.

Key sections from Reuters:

But on Monday, as a close-of-business deadline loomed, many states had not yet reached a decision….

California Attorney General Kamala Harris, whose state would see homeowners get some $6 billion to $8 billion if it participates, was not expected to issue any statement on Monday, a person familiar with the matter said.

On Friday, Harris told Reuters she was “less concerned with the timeline than the details” of the settlement…

A New York lawsuit filed on Friday against JPMorgan Chase , Bank of America and Wells Fargo has also become a stumbling block, according to a person briefed on the negotiations.

This person said on Monday that the banks are balking at the lawsuit from New York Attorney General Eric Schneiderman that accuses them of fraud in their use of the electronic mortgage registry MERS..

Let me stress: the big deal is whether California and the banks stonewall. Obama still really wants this deal badly and can always go ahead with Federal regulators and the minimum of 36 states which seem fine with the deal. If California is out, that will provide air cover for a lot of the other fence sitting AGs.

Harris’ point about relief not going to the most troubled borrowers is a deal point. The banks get less credit for modifying loans with LTV ratios of over 175%. Harris appears to object to that. That may prove to be a serious bone of contention.

Dylan Ratigan interviewed Beau Biden on the status of the settlement. Biden indicated he will sign on only if he can continue to pursue MERS and not be precluded from adding the banks from the suit. He also pointed out how tempting the settlement numbers were to budget-starved states.

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Update: There have apparently been been other defections from the dissenting AG group, which was reported as being as high as 15. It was announced last week that Oregon was joining the deal, which would reduce the total to a maximum of 14, and Housing Wire reports that Tom Miller’s office says “at least 40″ are willing to join the pact. Miller, as we have indicated repeatedly, is not the most credible source, and it is hard to understand how attorneys general can have agreed to a deal while terms are still being negotiated. But the flip side is it it not hard to imagine that some of the fence-sitters have given in to Administration pressure. Even Biden in the video above was much less firm about not joining the deal than he has been.

Update 1:30 AM: Aha, the plot thickens! The banks ARE unhappy with the Schneiderman suit. From Bloomberg:

Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. made a last-minute demand that New York drop claims filed against them Feb. 3 as a condition of the settlement, a person familiar with the matter said.

Hhm, well the banks can’t really force Schneiderman to withdraw his claims against them. It would be a PR disaster for him. So this may just allow Schneiderman an excuse not to join the deal and to still have his Federal task force. This will be interesting, but the deal does seem to be lumbering to a conclusion, sadly.