"New York Attorney General Eric Schneiderman has targeted Bank of America, the biggest U.S. bank by assets, in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures, two people familiar with the matter said.

The investigation, which began quietly in recent weeks, is part of a larger inquiry that is scrutinizing whether mortgage companies and Wall Street firms took the necessary steps under New York state law when creating mortgage-backed securities, these people said, who requested anonymity because they weren't authorized to speak publicly about the probe.

Court testimony and independent studies have raised questions over whether banks and other financial firms passed along the required documents to trusts, the independent entities that oversee securities for investors. In some cases where trusts moved to seize borrowers' homes, judges have determined the trusts lacked legal standing due to faulty documentation.

The inquiry could prove explosive: Wall Street's great mortgage securitization machine took millions of home loans and bundled them into securities for sale to investors. If the legal steps that guide securitization -- like taking mortgage documents from one party to another, a critical step under New York law -- were not undertaken, then the investors who bought the bundled loans could force the companies to buy them back, compelling them to eat enormous losses.

New York state investigators could also find that those securities aren't valid financial instruments at all and take action under state law."

Shahien reminds us that last year Sheila Bair said that potentially millions of mortgages that were chopped into derivatives may have no legal paperwork, and yet she, Giethner, and Shaun Donovan want a 'quick settlement', the one i which they are arguing about $5 billion and $20 billion in fines.

Schneiderman: Stay Safe, Stay Clean; don't get yourself Elliot-Spitzered!