Spitzer says chance to probe banks was lost

By Joseph A. Giannone

NEW YORK (Reuters) - Former New York Governor Eliot Spitzer hailed the Supreme Court's decision on Monday that allows the state's mortgage lending probe, one initiated by Spitzer in 2005, to finally proceed after a protracted legal battle with federal regulators.

Yet the former attorney general laments the lost opportunity regulators had to question and possibly halt subprime mortgage activities that ultimately caused massive damage to banks and the economy.

"This is a big win for law enforcement and for those who believe that banks need to have an appropriate level of scrutiny," said Spitzer, who launched the investigation while attorney general and resigned as governor early last year.

Andrew Cuomo, the current New York attorney general, had brought the case wanting to revive Spitzer's probe into possible lending discrimination. The nation's highest court overturned an appellate court ruling that blocked the state from enforcing fair lending laws against national banks.

"The question that bothered us several years back when we began this case was whether banks were lending fairly and properly to people," Spitzer said in a telephone interview. "It was very clear people were being offered loans they were financially incapable of repaying."

While initially a case into lending practices biased against minorities, investigators were concerned that loans extended to people with weak credit were becoming problematic.

By the end of 2006, mortgage losses started to weigh on banks and by 2007, the housing market had collapsed, bringing mortgage markets and eventually the entire banking system down.

"We didn't quite know how much or in what form, but there was much there that was troubling," Spitzer said. "Obviously, it's a little late to forestall the cataclysm that emerged when the subprime debt fuse finally exploded."