The Obama MBS Task Force: 55 Dedicated Attorneys and Counting

The new collaboration between the federal government and certain states to investigate pre-crisis mortgage fraud will have 55 dedicated attorneys, investigators, analysts and support staff, officials said Friday.

The new task force — called the Residential Mortgage-Backed Securities Working Group — will also improve how various state and federal agencies share information, so evidence gets in the hands of the right office with jurisdiction in an investigation.

“You need three things to address an issue that’s this vast. You need resources. You need jurisdiction. And you need will,” said New York Attorney General Eric Schneiderman, the working group’s co-chair, who has sought to build cases related to the packaging and selling of MBS leading up to the crisis.

“We have jurisdiction over everything. We have the resources. And I assure you we have the will.”

Schneiderman and U.S. Attorney General Eric Holder, who both spoke about the task force at a Washington press conference, would not discuss exactly what information the participating offices will be allowed to share. But they said the goal is to share as much as the law allows.

“We’ve signed confidentiality agreements, and we can’t talk about specifics of the investigation,” Schneiderman said. “In the existing law there are some prohibitions related to grand jury secrecy and things like that, but we’re looking to share everything we can share.”

Regarding the secrecy rules surrounding federal grand-jury testimony, Holder said, “There are ways in which we can deal with those issues.”

President Obama announced the new federal-state working group Tuesday in his State of the Union address. It builds on the work of the Financial Fraud Enforcement Task Force, which Obama established in November 2009.

At Friday’s press conference, Holder attempted to describe the new effort as an important breakthrough while at the same time touting the earlier task force’s accomplishments.

“We are wasting no time in aggressively pursuing any and all leads,” Holder said. “And I can assure you that, if we uncover evidence of fraud or other illegal conduct, we will bring the appropriate criminal or civil charges.”

At the same time, Holder praised the accomplishments of the two-year-old task force. Those have included the April 2011 conviction of Lee Farkas, the former chairman of the now-failed Colonial Bank.

“The notion that there’s been inactivity for the last three years is belied by a troublesome little thing called fact,” he said.

But critics point out that despite evidence of widespread misconduct prior to 2008, not a single high-ranking executive at a large U.S. bank has gone to prison.

Asked whether he wishes that the new task force was established sooner, Holder said: “What we’re doing today builds upon the work that has already been done by the task force and by the states. So I think we’re doing this at the right time.”

Schneiderman is widely seen as a key player in the new task force, in large part because of his separate role in ongoing settlement talks between state attorneys general, federal officials and the largest banks over mortgage servicing practices.

He initially played an important role in those talks, which could yield a settlement of up to $25 billion, but he eventually dropped out because he believed that the deal under discussion was not tough enough on the banks.

Officials at Friday’s press conference tried to draw a clear line between the two issues, saying that the new working group will look at conduct that occurred before the housing bubble burst, and the settlement talks involve conduct that occurred afterward.

Housing and Urban Development Secretary Shaun Donovan said that the releases of legal liability for banks that could result from the settlement talks will not impede the work of the new initiative announced on Friday.

“We would not be standing here today if we weren’t absolutely confident that the releases that are being contemplated were quite narrow, focused on the conduct that was actually investigated, focused on the conduct that we have found significant problems with, and in fact, going beyond that, that those releases are narrow enough to allow us to go forward aggressively with what we’re describing today,” he said.

But some observers are skeptical that the new task force will accomplish much more than its predecessor.

Bill Black, a professor of economics and law at the University of Missouri-Kansas City and a former investigator of the savings and loan crisis, said that successful prosecutions of bankers almost always begin with criminal referrals by their regulators.

For that reason, he said, it is troubling that no one from the Federal Deposit Insurance Corp., the Federal Reserve Board or the Office of the Comptroller of the Currency attended Friday’s press conference, and that there was no discussion of overhauling the system for criminal referrals.

“This is building the super-structure on a foundation of sand, and it will not succeed,” Black said.

Thomas Gordon, a former senior counsel in the Securities and Exchange Commission’s enforcement division, who is now an attorney at Dorsey Whitney, said that he did not feel the key question about the task force was fully answered on Friday. That question is: How will the various agencies involved focus their resources?

“The mandate of the group and the way that they’ve described it is in very broad terms,” Gordon said, “The group could really be re-investigating to some extent what’s already been looked at. And that probably would not be terribly beneficial.”

But David Abromowitz, a senior fellow at the Center for American Progress, had a more optimistic take on the new law-enforcement effort.

“This high-level mortgage task force appears intent on shining a light on predatory private mortgage finance practices that contributed enormously to the foreclosure crisis,” he said in an email.

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