Democrats call for broader investigation into banks’ foreclosure processes

“Rather than using its substantial investigative powers to protect American consumers from the abuses of banks, the committee has focused instead on attacking the new agency created by Congress to protect these same consumers,” Cummings wrote.

Miller said the settlement won’t likely include enough relief for those who are underwater on their mortgages. He and Brown said they don’t yet know what mortgages are subject to the settlement because negotiations are ongoing. 

The deal — concerning Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial — was sent to the states for review on Monday. 

Democratic state attorneys general were expected to meet Monday in Chicago with Housing and Urban Development Secretary Shaun Donovan and Justice Department officials while their Republican counterparts will discuss the pending agreement in a conference call on Monday night, the lawmakers said. 

A formal announcement could still be weeks away, although the White House had pushed for a deal by Tuesday’s scheduled State of the Union address.  

Donovan said last week that the settlement could help about 1 million homeowners reduce their mortgage principal — by about $20,000 — but he didn’t provide specifics of which homeowners would be included. 

He said the proposed deal would be “far and away the largest principal reduction of the crisis” and one that will provide a boost for the economy and the housing market.”

Brown and Miller said Monday that while they haven’t seen a copy of the president’s speech, they expect he will include a sentence or two about the settlement. They conceded, however, that he is unlikely to address the tougher questions they’re asking now. 

“He may mention the settlement but we hope something is mentioned about launching a deeper, wider investigation,” Brown said. 

“We know the problem is deep-seeded” and an investigation would provide greater details into banks’ practices instead of letting them off the hook with a “sweetheart deal that’s a slap on the wrist.”

Simon Johnson, former chief economist at the International Monetary Fund, called it “good economics” to investigate big banks accused of breaking the law and “mistreating millions of homeowners.”

A settlement, which has been in the works since the robo-signing issue emerged in the fall of 2010, shouldn’t be a deal focused solely on that practice, he said, nor should it include “blanket immunity for banks.” 

“It makes no sense at all,” Johnson said. 

The AFL-CIO also urged the White House to closely examine any potential settlement and ensure that banks take responsibility for any illegal actions. 

“State attorneys general have been investigating bank fraud, and these critical investigations must not be undermined by a premature and inadequate settlement,” said AFL-CIO President Richard Trumka on Monday.

“We call on the administration to reject any deal that insulates banks from full responsibility,” he said. 

Trumka said it is critical that the Justice Department lead a “comprehensive investigation together with the state attorney generals to prevent banks from engaging in future unlawful and deceptive practices that could exploit homeowners and put the economy further at risk.”

He said any investigation must include a full and thorough look into problems tied to the residential mortgage-backed securities market and should include a guaranteed minimum amount of money set aside for reducing the mortgage principal of “underwater” homeowners.

“Relief on a massive scale is needed to lift home values and stimulate the economy by increasing consumer demand,” Trumka said. “A comprehensive settlement must force banks to write down underwater mortgages,” he said. 

“A sum significantly larger than the rumored $25 billion is needed for the economy to grow and create jobs.” 

Last week, Brown sent a letter to lead negotiators urging that banks not be permitted to write down the value of mortgage-backed securities owned by investors, including pensions funds, without requiring servicers to reduce principal on the mortgages and second liens that they own.