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Obama administration officials are pressuring New York State Attorney General Eric Schneiderman to settle with banks over unlawful foreclosure practices. Doing so would inhibit Schneiderman and top prosecutors in other states from prosecuting illegal activity, including the bundling of securitized mortgages, which precipitated the unabated foreclosure crisis.

From the NYT:

Eric T. Schneiderman, New York’s attorney general, is under pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, say people briefed on discussions about the deal.

Shaun Donovan, secretary of Housing and Urban Development, and Justice Department officials have been campaigning to persuade the attorney general to support the settlement, the people said. Schneiderman and top prosecutors in other states have said the proposed settlement would restrict their ability to prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

The administration has been contacting not only Schneiderman but his allies, including consumer groups and housing advocates, seeking help to secure the attorney general’s participation, the people said.

Katherine Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public, said that she had told the attorney general:

“it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

Mr. Schneiderman declined to comment on the encounter.

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