What's the worse than Bank of America acting as if it deserves immunity from all its  bad foreclosure behavior? A presidential administration that agrees.

President Obama's administration is putting pressure on New York Attorney General Eric T. Schneiderman to give into a deal with big banks that would block him from bringing future mortgage investigations, Grethchen Morgenson reports in The New York Times today.

For months, Schneiderman has said he will not agree to any nationwide agreement with banks that would block individual states from investigating the mortgage-servicing industry on their own. At one point Bank of America was said to be in talks to with state and federal officials without the involvement of Schneiderman. But now the pressure is on Schneiderman to join the agreement, say 'okay' and move on.

Schneiderman's position on the matter was of course not sitting well with banks that would rather shell out a huge sum of money (reportedly $20 billion) than deal with ongoing suits. Bank of America,JPMorgan Chase, Citigroup and Wells Fargo are among the banks being investigated for foreclosing on struggling homeowners without proper paperwork and procedure.

When the nation's 50 state attorneys general joined forces in the fall to look into the matter the probe seemed to have some teeth. The AGs were appalled at some of the alleged behavior by banks with Connecticut Attorney General Richard Blumenthal saying at the time. “At the best, banks engaged in careless negligence, at worst, outright fraud.”

Now though, an investigation that once  felt like it might end in prosecution for some in the mortgage service industry is turning into a joke. There are only a handful of AGs still looking to thoroughly investigate exactly what banks did wrong and how they should be punished. AG Schneiderman is the leader among that group, and as I pointed out last week is a big thorn in struggling Bank of America's side.

Unfortunately there aren't enough thorns willing to look into what was once believed by the AGs to be "outright fraud." Instead, officials are working with banks to work out a deal, and anyone who isn't on board risks being viewed as someone who is stalling a housing recovery. The most recent example of this is cited in Morgenson's story where she reports that "Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade" Schneiderman to a deal that would give banks a free pass over future foreclosure claims.

The problem, as The Big Picture's Barry Ritholtz points out this morning, is that the federal regime's interest is so closely tied to the banking industry that bad news for banks is inherently bad news for the administration. From Ritholtz:

Note that the Federal Reserve (and indirectly, the NY Fed) are conflicted players in this. On the one hand, they are supposed to be bank regulators (a task they have performed poorly). But they are also substantial investors in the banks, and their  regulatory oversight role is obviously conflicted.

 

There have been all manner of criminal and civil trespasses committed, and we should find out who ordered them, who committed them and why. AG Schneiderman should continue investigating the robo-signing, bring civil and criminal charges where necessary.

Recall that the original problems came about in large part due to Alan Greenspan’s Nonfeasance — the failure to perform his professional obligations of oversight and regulation. That any member of the Federal Reserve or NY Fed wants this closed before any investigation has been undertaken is a scandal of the highest magnitude.