Bank of America, the second largest U.S. bank, reached a record-breaking settlement totaling more than $16 billion dollars with federal and state prosecutors over alleged fraud that led to the financial collapse in 2008. The settlement was the work of the Residential Mortgage-Backed Securities Working Group.
Back in 2012, President Obama said the State of the Union was getting stronger, the country was getting a foothold in the economic recovery, and he announced what would later be called the Residential Mortgage-backed Securities Working Group.
"Tonight, I’m asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis," Obama said.
At the speech that night was New York Attorney General Eric Schneiderman, seated right behind Michelle Obama.
"I was named one of the co-chairs of the working group along with people from the Justice Department and the S.E.C. [Securities and Exchange Commission]." Schneiderman said.
Before Schneiderman took office in 2011, a number of attorneys general had begun negotiating a settlement with the banks over what's called robo-signing, essentially improperly rushing foreclosures after the housing bubble burst and the economy crashed.
Schneiderman says that the deal was flawed from the beginning.
"There had to be an investigation of the conduct that caused the crash before you could satisfy yourself with some of the conclusions of the post-crash abuses in the foreclosure process." Schneiderman said.
Schneiderman wanted to make the banks atone for financially damaging the country. But the other states had not yet negotiated with the banks an important piece of that atonement: what liability the banks would be released from in exchange for a settlement.
"They were talking a lot about how much money they were going to get in principle reduction and things like that," said Schneiderman, "and keep in mind how cash starved the states were then and how desperate for help they were in 2011. That was when they were slashing the budgets all over the country and people were losing their homes all over the country."
It was only a few months later that the states began negotiating what the banks would be released from, but Schneiderman had already quit the group and began campaigning to sue the banks for both the robo-signing and what's called securitization, or the packaging of bad loans and selling them to investors.
Multiple Attorneys General said doing both at the same time would have taken too long.
"If we were just reaching the settlement now in 2014 for both issues, hundreds of thousands of homeowners across this country would have lost their homes," said George Jepsen, Connecticut Attorney General.
New York has a unique role in regulating Wall Street. The state's financial rules are more far-reaching than any other state, so the banks did not see a point in settling without New York.
To get Schneiderman back on board, the Obama administration brokered a deal. Schneiderman would agree to the $25 billion dollar national agreement releasing banks of post-crash abuses. In return, Schneiderman would be named co-chair of the Working Group that would go after banks for the pre-crash securitization.
And Schneiderman would attend the State of the Union.
If you include Bank of America, the Working Group will have so far rung up roughly $37 billion in pre-crash settlements. This includes both promised housing assistance and cash.
But many are quick to point out that the number is not as big as it may seem.
Richard Eskow, an activist and fellow with the Campaign for American's Future, points out that about 40 percent of the bank's payouts are tax deductible and they had planned to spend the money regardless.
"In other words, if a bank was already in the process of renegotiating a series of homeowner loans because it has decided it's in its best interest to do that," Eskow said, "and then it's told it has to come up with billions of dollars in customer relief, it [the bank] will move money from one column to another."
Essentially, Eskow calls it an "accounting trick."
Of about $17 billion in the expected Bank of America settlement, New York is collecting about $800 million. 45 other states, including Connecticut, get nothing because they aren't participating in the investigation.
AG offices around the country gave different reasons for not participating. Some pointed to a lack of legal authority, some had less exposure to the bad loans the banks sold, and others did not like how New York went about reaching the settlement.
Connecticut has recently begun participating in the working group, and hopes to collect some money in the future.