Bank of America Will Skip a Foreclosure Deal Rally (Update 1)

Bank of America story updated to include information on a class action lawsuit in second to last paragraph.

NEW YORK (TheStreet) -- Bank of America(BAC) bulls are hoping a $25 billion deal with the Obama administration and attorneys general across the U.S. will help the bank get some of the baggage of the housing crisis off its back, but a deal won't shut the door on the bank's housing-related headache.

Bank of America and other giant lenders, including JPMorgan Chase(JPM), Wells Fargo(WFC), Citigroup (C) and Ally Financial are reportedly planning to settle a wide-ranging investigation into foreclosure-related abuses by attorneys general in all 50 states. A deadline for a deal came on Monday, but it was not clear late in the day whether one had been reached.

Past efforts to reach agreement have been held up as attorneys general in several key states, including California, New York, Massachusetts and Delaware, have expressed dissatisfaction with the direction of the talks. Though a report in The New York Times on Monday indicated California and possibly even New York might be warming to a deal, that would not be as significant for the banking industry as it might appear at first. That's because, according to the same report, "New York has been most interested in preserving its ability to investigate the root causes of the financial collapse."

Indeed, in an editorial in Politico in November, New York Attorney General Eric Schneiderman and his counterpart in Delaware, Beau Biden, wrote that the negotiations between the banks and the attorneys general are limited in their scope and that they would not sign on to any deal that prevented them from going after other alleged misdeeds by the banks related to the housing crisis.

In case anyone had any doubts about Schneiderman's resolve, he put them to rest on Friday when his office filed a lawsuit against Bank of America, JPMorgan, Wells Fargo and an electronic record-keeping business called Mortgage Electronic Registration Systems Inc. (MERS), arguing that the creation and use of MERS by the banks and other servicers has "resulted in a wide range of deceptive and illegal practices," including "foreclosures being filed against New York homeowners where the foreclosing party lacked the authority or standing to sue."