New York's Attorney General Eric Schneiderman may be late to the party, but he's acclimating himself very quickly - holding meetings with and requesting documents from Bank of America, Morgan Stanley, Goldman Sachs and others about the way they may have packaged toxic mortgage loans into securities.  Mr. Schneiderman has said for months that he intends to pursue investigations related to the mortgage meltdown, and has expressed concerns over the mortgage-servicing talks that a broad deal could allow companies to escape liability for future legal claims.

The New York inquiry comes just as banks are trying to resolve mortgage related problems on various fronts.  Federal officials and other state attorneys general are well into their investigations and, in some cases, are already negotiating settlements with these same banks and financial institutions that allegedly used questionable mortgage servicing practices - like, "robo-signing" - which came to light last fall.  This also comes on the heels of a report in the Huffington Post on Monday that the inspector general of the Department of Housing and Urban Development (HUD) has concluded that BofA, JPMorgan, Wells Fargo, Citigroup, and Ally Financial defrauded the government in seeking reimbursements for mortgages on properties they improperly foreclosed upon.

Banks also are edging closer to resolving civil-fraud charges related to mortgage-bond deals.  The SEC is in settlement talks with several major Wall Street firms over allegedly fraudulent sales of collateralized debt obligations (CDOs).  Wall Street's $1 trillion sales of these complex pools of mortgages and other loans lay at the heart of the financial crisis.

    Muscle Behind New York State's Probe.   Mr. Schneiderman's office has a most powerful legal tool at their disposal - the 1921 Martin Act, which was revived by Eliot Spitzer.  As a weapon against Wall Street, it's seen as one of the most potent prosecutorial tools against financial fraud.  The sweeping definition of fraud in the Martin Act doesn't require prosecutors to prove intent to defraud, in contrast to federal securities laws.  The act has been used to prosecute Wall Street firms for securities manipulation, improper allocation of IPOs of stock and misleading stock research on Wall Street.  The New York attorney general has also broadened his scrutiny of the mortgage industry, investigating firms that have profited from the foreclosure boom.   [WSJournal, Reuters, 5/17/11]