Atty. Gen. Kamala Harris announces the creation of the California Attorney… (Mel Melcon, Los Angeles…)
Reporting from Los Angeles and New York — 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.