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Mortgage deal draws detractors from all sides

foreclosed_home_091410

In this Sept. 14, 2010 file photo, a house in Homestead, Fla. sits empty, for sale as a foreclosure home in a neighborhood where half of the houses were empty and up for foreclosure.

A draft settlement between states and mortgage companies that would let the nation's biggest banks pay out billions to compensate for a raft of foreclosures has public interest groups across the political spectrum hopping mad over a deal they say was forged behind closed doors and is being strong-armed by the Obama administration. 

The draft proposal, which was sent to state officials Monday for approval, is supposed to overhaul the mortgage industry and help homeowners. In it, the country's five largest mortgage lenders offer to pay out as much as $25 billion to cover new terms for homeowners driven out by foreclosure. But people who lost their homes are unlikely to get them back or see much financial benefit from the deal. 

Advocates and watchdogs on both sides of the political aisle are fighting the deal, although for very different reasons. 

On the left, complaints about the agreement being pushed by the administration center on whether the federal government is letting the banks off the hook for a foreclosure crisis that critics say could've been avoided had the banks been more upstanding about their deals. However, President Obama's supporters also credit him for his plans to launch an investigative unit on abusive lending to be led by the Justice Department, a move announced in the State of the Union Tuesday night and formally launched Friday. 

The argument from the other side claims the administration is trying to fast track a deal that amounts to extortion of banks that followed federal government rules to expand access to loans.
Judicial Watch announced this week that it is suing the Department of Justice and the U.S. Department of Housing and Urban Development in an effort to get more information about the settlement offer and the audits that purport to prove the banks defrauded consumers. 

"What's going on here is there's this really incredible pressure that's being brought to bear on the banks," said Tom Fitton, president of Judicial Watch. "All Americans deserve to know the full truth about the Obama administration's effort extort $20 billion from the nation's banking industry." 

Fitton said selective leaking of information related to the settlement amounts to a "gangster government." 

"This is another game on secrecy the Obama administration is playing," Fitton told FoxNews.com. "It is this type of gamesmanship that has resulted in the Obama administration's transparency crisis." 

Liberal groups like Moveon.org and Campaign for America's Future are criticizing the Obama administration for agreeing to what they say is a weak deal that doesn't hold banks accountable.
Color of Change is circulating a petition asking Obama and Attorney General Eric Holder to "reject a settlement deal that lets Wall Street banks off the hook, protecting them from legal prosecution, and instead, push for a full investigation, compensation to homeowners and real accountability for those responsible." 

At Obama's State of the Union Tuesday night, the president said he was having the Department of Justice create a special unit federal prosecutors and state attorneys general to expand investigations "into the abusive lending and packaging of risky mortgages that led to the housing crisis." 

"This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans," Obama said. 

The president's supporters called the investigation a "clear victory" for those allegedly cheated by the system, but warned the draft settlement "must not infringe" on that probe. 

The outcome must also include a "guaranteed minimum amount of money set aside for reducing the mortgage principal of 'underwater' homeowners in key states impacted by the foreclosure crisis." said MoveOn Executive Director Justin Ruben. 

State officials first learned the details of the draft settlement on Monday, and Iowa Attorney General Tom Miller, who is leading the settlement negotiations, said the states "won't reach a settlement any time this week." 

While the deal includes changes in foreclosure practices -- a major goal of the Obama administration -- some states are not receptive because they are concerned about being able to pursue separate claims, situation the administration would like to avoid. 

New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden last year started their own investigation into the mortgage crisis. Massachusetts Attorney General Martha Coakley in December sued five national banks for their role in the foreclosure crisis. 

On Wednesday, Schneiderman would not indicate how close the two sides are to a deal on the latest proposal. 

"Well my concern has always been to make sure that we're not releasing claims that obviously are now even more important than me, because I'm investigating," New York Attorney General Eric Schneiderman said Wednesday. 

Monday evening, the director of the Delaware attorney general's fraud division said Biden is "opposed to the proposed settlement as drafted." 

"This position, given his prior public comments, should come as no surprise," spokesman Ian McConnel said in a written statement. "The settlement is currently confidential and when it is made public he will speak more specifically about it." 

The attorneys general of California and Nevada late last year also launched a joint investigation into "misconduct and fraud in the mortgage industry." 

"The mortgage crisis is a law enforcement matter, and we will prosecute to hold accountable those who are responsible and also protect the homeowners who are targeted for fraud," California Attorney General Kamala Harris said in December. 

A banking executive familiar with the talks told Fox Business Network this week that the five banks and the attorneys general want California in on the agreement because the state is home to many foreclosures and lawsuits there could get expensive. 

According to terms of the deal, the five major banks -- Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial -- would apply the settlement only to privately held mortgages issued between 2008 and 2011.