Whether you believe in Eric Schneiderman’s ability to deliver a legitimate investigation on mortgage securitization fraud or not, you have to admit that the united front on opposition to a settlement on foreclosure fraud collapsed the moment that he agreed to helm that federal investigatory task force. Now Iowa AG Tom Miller is publicly denigrating Schneiderman’s role in setting the terms, claiming he didn’t do much.

Shahien Nasiripous has posted two stories for the Financial Times about the intersection of the foreclosure fraud settlement and HAMP. I wrote previously about how HAMP modifications could count toward the settlement, meaning that banks would get partially paid out. Shahien confirms this.

This settlement arises from multiple abuses found in the servicing of loans and the foreclosure process over the past several years. At the height of the housing bubble, banks sliced and diced mortgages and traded them with little regard for the rules following land recording or securitization to such a sloppy extent that they lost track of the true owner on potentially millions of homes.

To cover up for this massive failure, banks and their servicing units have been found to have routinely forged, back-dated and fabricated documents at county recorder offices and state courts across the country. Furthermore, they employed “robo-signers,” who signed hundreds of thousands (if not millions) of documents and affidavits without any knowledge of the underlying mortgages. In addition, investigations uncovered massive servicing abuses, including illegal fees charged to borrowers, putting borrowers into foreclosure at the same time as they were working out loan modifications, failing to honor previous settlements where promises were made on modifications, and countless other errors that maximized servicer profits and gouged homeowners.

There are also cases of wrongful foreclosures where homeowners have been turned out of their homes without just cause, and servicer-driven foreclosures, where servicers illegally added late fees and applied payments inaccurately, pushing the homeowner into foreclosure. This is but a smattering of the examples of foreclosure fraud and servicer abuse found in a series of interlocking investigations, court depositions, reviews of documents in registers of deeds offices, and homeowner testimonials.

Housing and Urban Development Secretary Shaun Donovan mostly confirmed that private-label mortgage-backed securities investors, not banks or servicers, will end up shouldering the cost of much of the imminent foreclosure fraud settlement despite the risk of litigation from investors who are likely to challenge the forced losses on their securities in court.

On a small conference call for progressive media, Donovan claimed that the money available in the settlement for principal reduction for underwater borrowers would actually come to $35-$40 billion, over double the $17 billion in nominal principal reduction that has been widely reported.

This is a $25 billion settlement when there is $700 billion in negative equity in the country. This is a settlement that, according to HUD Secretary Shaun Donovan, will help 1 million homeowners, when 10.7 million are underwater and millions of others have been wrongfully foreclosed upon. This is a settlement that could put $17 billion of credits toward principal reduction (the rest of the money would go to legal aid, refis, short sales, token payoffs to foreclosed borrowers, and penalties), when there is more than twice as much sitting unused in an account as part of HAMP.

What hasn’t received enough attention is the extent to which we’ve already been down this road. In 2008, 12 AGs entered into a settlement with Bank of America over Countrywide lending practices. As part of the settlement, BofA agreed to modify as many as 400,000 mortgages, costing $8.4 billion, with a variety of types of mods, including principal reductions and refinancing. In addition, servicer practices were supposed to change and foreclosure operations on the affected homes suspended.

It was bad enough that the Feds stopped enforcing the law. Now they want the State Attorney Generals, including Eric Schneiderman of New York, to stop enforcing the law. But only as to banksters. Pot smokers are still fair game.

I don’t know if Gretchen Morgensen’s story on the backroom attempts at arm-twisting to get Eric Schneiderman to play ball with the foreclosure fraud settlement, and drop his efforts to actually investigate the depths of the abuse, should come as a surprise to anyone. I think we can actually be happy that it’s being made explicit and public, however, because the leak is certainly not coming from the Obama Administration, who look pathetic in this telling, completely in the pockets of the likes of “we’ll help you out” Bank of America.

Reckless Endangerment describes the players that helped create the housing bubble and bust that were at the heart of the financial crisis. Gretchen Morgenson and Josh Rosner focus on how regulators and other officials were complicit by promoting liberalized housing finance as a way to increase homeownership. Their account chronicles how a naïve vision of the American Dream, that of homeownership as the foundation of upward mobility and stable communities, turned into a nightmare in the hands of a growth driven and increasingly predatory mortgage complex.

The Obama Administration knows that they’re going to be cutting spending at some level over the next year, damaging economic performance coming into an election year. If it doesn’t happen on the debt limit deal, it’ll happen in the 2012 budget. So they’re looking elsewhere for how to use the power of the office to improve the economy and by association their political position in 2012. And they’ve hit on the point that the housing market is a giant lead weight on the economy.