Is New York Attorney General Andrew Cuomo using the subprime mortgage crisis to boost his chances at becoming the U.S. attorney general in a Democrat-controlled White House? Cuomo's highly publicized investigation of a major savings institution and an appraisal company appears to be more focused on calling attention to himself instead of calling attention to dubious practices that sped the mortgage banking industry into its worst crisis since the Great Depression.
The targets of Cuomo's probe are Washington Mutual, the nation's largest savings and loan, and the appraiser First American eAppraiseIT. According to Cuomo, Washington Mutual pressured First American eAppraiseIt to pump up appraisals on mortgage loans to overvalued dimensions, which the bank would then sell to the secondary market.
On Nov. 8, Cuomo upped the ante by issuing subpoenas to Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchased billions of dollars in Washington Mutual loans. Cuomo has already slapped a lawsuit against First American eAppraiseIT, but no subpoenas have been issued against Washington Mutual.
So what's wrong with this picture? Well, consider a few dubious facts:
1. None of the companies under Cuomo's spyglass is headquartered in New York. Washington Mutual is based in Seattle, First American eAppraiseIT is in Poway, Calif., and Fannie Mae and Freddie Mac are Washington, D.C.-area entities. Why did Cuomo go after out-of-state players instead of New York-based corporations (particularly the Wall Street firms that tried to muscle Fannie and Freddie aside in their pursuit of secondary market power)? Is this a coincidence, or does it help to gain national media attention by reaching far and wide rather than keeping the probe close to home?
2. Cuomo's investigations are stretching beyond his bailiwick, and he is proceeding in an unusual solo journey. Washington Mutual's operations are overseen by the Office of Thrift Supervision, while Fannie Mae and Freddie Mac are monitored by the Office of Federal Housing Enterprise Oversight (OFHEO). Neither agency was informed in advance by Cuomo's office about his investigations. James Lockhart, the OFHEO chief, openly berated these developments in a public letter to Cuomo, which accused him of bullying Fannie and Freddie to ‘cease doing business with a major federally chartered bank, which you have not charged or subpoenaed, unless certain conditions stipulated by you are met.’
Likewise, Cuomo has not enlisted aid from the attorneys general of any other state in his investigation. This is peculiar, because Washington Mutual and First American eAppraiseIT have operations across the country.
3. The Washington Post quoted Cuomo as accusing the Washington regulatory agencies as being ‘asleep at the wheel’ in regard to this matter. It is highly unusual for a state attorney general to openly slam his federal counterparts. Perhaps it is not surprising, given his counterparts are Republican appointees within an increasingly unpopular administration.
In any event, Cuomo became attorney general in January 2007, but only is now getting around to investigating mortgage fraud in his state. Is this his idea of speedy justice?
4. Cuomo is clearly stealing thunder from New York Governor (and fellow Democrat) Eliot Spitzer, who was attorney general before Cuomo. Spitzer, who was no slouch as a headline grabber during his attorney general days, has been a disaster-prone governor and is currently at the center of a controversy about issuing drivers licenses to illegal immigrants. With Spitzer sputtering and stumbling with unpopular issues, Cuomo is hitching his wagon to an issue that has little in the way of public polarization.
5. Finally, Cuomo is obviously not going to settle on a career as New York's attorney general. Cuomo was Secretary of Housing and Urban Development in the second terms of Bill Clinton's presidency, and he was primed to step up to a higher-visibility position when he ran for governor of New York in 2002. But his campaign short-circuited, thanks to crass comments he made about then-governor George Pataki's handling of the post-9/11 crisis.
Being the attorney general of New York is clearly a step down for someone as openly ambitious as Cuomo – and assuming Spitzer will get his act together by the time he faces re-election in 2010, there will be no place for Cuomo to go for some time. (It is highly unlikely that Spitzer or anyone in Albany will allow Cuomo to snag the vacant Senate seat in the event Hillary Clinton is elected president.)
To date, Washington Mutual and First American eAppraiseIT have vigorously denied any criminal actions – Washington Mutual, in a press statement, even noted that subprime lending constitutes a mere 5% of its lending.
Still, Cuomo's highly publicized probes seem to have less to do with bringing justice to a troubled industry and more to do with calling attention to an elected official who is eager to move beyond Albany into a wider political arena.
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com)
