California exits foreclosure talks
California Atty. Gen. Kamala Harris is bowing out of nationwide talks aimed at settling charges that banks wrongfully foreclosed on homeowners, vowing that her office would launch a more rigorous investigation.
The decision Friday is a major setback to negotiations that had been backed by the White House and dozens of national officials. The 50-state coalition, of which Harris had been a lead member before Friday, has come under fire for potentially letting off banks that include Bank of America Corp. and JPMorgan Chase & Co. too easily.
Harris said the nation’s five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered. She also objected to the banks’ demands that they be granted broad release from further investigations into Wall Street’s role in the mortgage meltdown.
“I have decided that we have to go our own course and take an independent path, and that decision is because we need to bring relief to Californians that is equal to the pain California experienced,” Harris said in an interview with The Times on Friday. “What is being negotiated now is insufficient.”
Industry experts said the removal of California from the discussions could spell the end of an11-month effort by the 50-state coalition to strike a deal with the banks. At one point, the coalition held out the hope of returning as much as $25 billion to homeowners nationwide. A person familiar with the ongoing talks said the banks would continue to negotiate with the remaining states, and a meeting among the remaining parties is set for next week.
Iowa Atty. Gen. Tom Miller, who has been leading the negotiations, vowed to press on.
“California has been an important part of our team and has made a significant contribution to this case,” Miller said in a statement. “However, the multistate effort is pressing forward, and we fully expect to reach a settlement with the banks.”
New York, Delaware, Nevada, Massachusetts, Kentucky and Minnesota have already signaled that they were unhappy with the proposed deal being discussed because of legal release from liability being offered to the banks. New York and Delaware have been cooperating in their own probes separate from the coalition.
“This whole concept of a settlement on foreclosure abuse is probably dead,” said Christopher Whalen, founder of Institutional Risk Analytics. “Nobody in their right mind is going to opt into a settlement right now.”
Harris’ rejection of the broader settlement talks undermines efforts by the Obama administration, which has been pushing for a fast resolution to the so-called robo-signing scandal that erupted last year.
For California homeowners, it means the likely end to any hope of relatively quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers. Key reforms to mortgage servicing and foreclosure practices advocated by the attorneys general may also be delayed, although Harris called on the banks to adopt such measure independently Friday.
But several groups working to help homeowners in California cheered Harris’ move, saying that a full investigation is more important than a quick solution.
“She stayed at the table on the settlement as long as was reasonable,” said Brian Heller de Leon, an organizer for PICO California. “It became clear that there was no longer a reasonable path for California to stay in these negotiations.”
Harris has faced increasing pressure in recent weeks to reject a deal that was considered too weak for homeowners, particularly as the foreclosure crisis in the Golden State appeared to be worsening. Among the states with the highest foreclosure rates, California led the pack last month in new foreclosure proceedings with an increase of 55% over July, according to RealtyTrac of Irvine.
Frank De Caro, 71, who said his Thousand Oaks home was scheduled to be sold at a foreclosure auction Tuesday, said he supported the move by Harris to pull out of the talks, given the reported concessions being made to the nation’s large banks.
“We need her to stand for the principles she was elected on, to really stand up to what is the biggest problem facing California, which is really a Democratic, liberal state and perhaps the last bastion of progressive thought,” De Caro said. “Stand up for what you were elected to do — go down swinging please.”
Harris’ decision will create further uncertainty and legal liability for the large banks involved in the discussions — BofA, JPMorgan Chase, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. — which have been struggling in recent months because of questions about their legal liability from the mortgage crisis and exposure to the weakening economy.
“It’s bad news for the banks — it’s in their best interest to reach a resolution,” said Ray Brescia, a visiting professor at Yale Law School who has followed the mortgage crisis.
Wells Fargo and Citigroup declined to comment. BofA, Chase and Ally did not respond to requests for comment.
The banks could still choose to settle with the remaining states. However, Brescia said the banks would have little motivation to do so without California and New York on board.
“From the banks’ perspective, they need to have all the attorneys general in the room for this to work at all,” Brescia said.
The decision to bow out from the talks came one week after Harris met face to face with banking representatives in Washington. At that meeting, according to people familiar with the discussions who were not authorized to speak, the main subject of contention was the banks’ request to be broadly released from potential future legal claims, particularly those surrounding potential misconduct in the packaging and selling of mortgage-backed securities.
In a letter sent Friday to Miller and to U.S. Associate Atty. Gen. Thomas Perrelli, Harris referred to the latest proposed settlement, which has not been released publicly, as “inadequate for California homeowners” because, “In return for this broad release of claims, the relief contemplated would allow too few California homeowners to stay in their homes.”
In her letter and in her interview with The Times, Harris said she planned to continue to investigate the mortgage practices that contributed to California’s housing crisis through the 25-person Mortgage Fraud Strike Force. The group has a mandate to look at all levels of mortgage fraud.
In rejecting the 50-state talks, California widens the rift among law enforcement officials nationwide over the best way to pursue banks for their mortgage misdeeds. New York Atty. Gen. Eric Schneiderman, who was originally part of the 50-state negotiations, has launched a wide-ranging investigation into Wall Street’s role in the mortgage meltdown, focusing on the institutions’ efforts to bundle low-quality mortgages into sophisticated bonds.
Harris met with Schneiderman in July and at that point told The Times that she was considering joining his investigation, but she said Friday that California would go its own way.
“California will definitely walk its own path, and to the extent that New York or any other state wants our assistance, of course we are happy to give it,” she said. “We do realize that we are the biggest state in the country and we are happy to help the smaller states.”
A spokesman for Schneiderman said he would work with California.
“Atty. Gen. Schneiderman looks forward to his continued work with Atty. Gen. Harris and his other state and federal counterparts to ensure those responsible for the mortgage crisis are held accountable and homeowners who are suffering receive meaningful relief,” said Danny Kanner, a spokesman for Schneiderman.
Schneiderman has been highly critical of the 50-state settlement and expressed concern that his counterparts in other states may let the banks off too lightly and provide release from liability from other efforts to bring them to account for their misdeeds. Schneiderman has also won support from attorneys general in Delaware, Nevada, Massachusetts, Kentucky and Minnesota, some of whom have launched their own investigations.
In April, federal banking regulators ordered the nation’s biggest 14 banks to overhaul their procedures and compensate homeowners injured financially by wrongdoing or negligence, but those moves were immediately decried by consumer advocates as too weak.
Now even those efforts are likely to take a year or more to complete because of the complexity of the reforms needed, according to recent remarks by acting Comptroller of the Currency John Walsh.