Game Over: California Attorney General Breaks From “50 State” Mortgage Settlement

We’ve been saying for months that the 50 state attorney general settlement was not going to happen. Despite the vigorous efforts by people on the side of the Federal regulators involved in the negotiations and Tom Miller’s (the AG leading the negotiations’) office to make it seem as if the deal was moving forward, the content of the reports showed otherwise. There was a huge gap between the positions of the banks and even the bank friendly position of the state AGs at the table and the banking regulators. Like the Vietnam War, where negotiations of two fundamentally opposed dragged on till one side capitulated, there was not going to be a settlement that was anything other than an abject sellout with a 11 figure payoff to mask that fact. And there were too many attorneys general who were already troubled by the terms of the deal that Miller had put forward for that to happen.

Now that Kamala Harris, the California state attorney general, has officially abandoned the talks, they don’t mean much, at least from the state side. The departure of such a big state, in population, foreclosure exposure, and Electoral college terms, along with other states (New York, Delaware, Nevada, Massachusetts, Kentucky, Minnesota, likely Arizona) means any settlement has limited practical meaning from the state side and even less credibility. It also considerably raises the odds of other states bolting. And needless to say, this is a major repudiation of the Obama Adminstration “let’s sweep foreclosure fraud under the rug” strategy.

It’s also worth noting that Credo led a major campaign in California to pressure Harris to seek better terms or else abandon the talks. We’ve been generally critical of the left in the US, but it’s important to distinguish that our criticism is of what is probably best thought of at the “establishment left” or the “Rubin/Hamilton Project/Blue Dog/Third Way” let, which is pro corporate but less aggressively so than the right so as to maintain some credibility with the traditional Democratic base. There are some groups like Credo which stand for a just society and are effective operationally which are gaining traction as more people recognize that the Democratic party only occasionally stands up for their economic interests.

From the Los Angeles Times (hat tip Marcy Wheeler):

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation’s biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation’s five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, a person familiar with the matter said.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street’s role in the mortgage meltdown, the person said.

The removal of California from the discussions is a major blow to fraying efforts by the 50-state coalition that has been trying to strike a settlement deal with the big banks for months. The move by Harris to reject the settlement talks is also a key departure from 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, the move means that gone is the chance for quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers. Key reforms to mortgage-servicing and foreclosure practices pushed by the attorneys general may also be delayed, affecting hundreds of thousands of Californians facing the loss of their homes…

Among the states with the highest foreclosure rates, California led the pack in new foreclosure proceedings last month, with an increase of 55% over July, according to data from Irvine-based RealtyTrac. Metro areas in the inland parts of California posted big jumps in August, with Riverside and San Bernardino counties soaring 68%, Bakersfield 44% and Modesto 57%.

In rejecting the 50-state talks, California also widens the riff among law enforcement officials nationwide over the best approach to pursuing banks for mortgage misdeeds.

The Wall Street Journal points out that the issue that led Harris to leave the talks was the one that we highlighted, that the Federal/state effort had offered an unduly broad release of claims (draft language would, among other things, waive the Federal and State regulatory ability to prosecute chain of title abuses):

Some state and federal officials had been seeking as much as $25 billion in penalties that would be used, in part, to write down loan balances for underwater borrowers. But it will be difficult to come close to that amount without the participation of California. California has more underwater borrowers than any other state and has more borrowers that are behind on their mortgages or in foreclosure than any other state but Florida.

The move by Ms. Harris comes after eleven months of often frustrating negotiations between big banks such as Bank of America Corp. and J.P. Morgan Chase & Co.

One key point of contention has been the extent to which banks should be released from additional legal claims in exchange for signing on to an agreement. In recent months, attorneys general in New York, Massachusetts, Delaware, Massachusetts, Nevada, Minnesota and Kentucky have also expressed concerns about a potential settlement.

In a letter sent Friday to Associate U.S. Attorney General Thomas Perrelli and Iowa Attorney General Tom Miller, who have been leading the negotiations, Ms. Harris said her decision to break off from the group was driven by two key concerns. “It became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated,” she said.

Congratulations to the state attorneys general who were courageous enough to stand up to this whitewash early, particularly Eric Schneiderman, Beau Biden, and Martha Coakley.

Update 6:15 PM: Reader Deontos alerted us to a post by Matt Browner-Hamlin which adds to the list of the groups and elected officials that pushed Harris (who I’d heard early was the sort who blows with the wind rather than take tough stand) to abandon the mortgage negotiations cum coverup:

It looks like labor and community groups are starting a strong push to get California Attorney General Kamala Harris to have her reject a settlement with the nation’s five largest banks around their wrongful foreclosure and robosigning practices. The pressure is coming from the California Federation of Teachers, California Nurses Association, SEIU 721, and Alliance of Californians for Community Empowerment. The group also has high-profile Democratic elected officials like Rep. Maxine Waters and Lt. Governor Gavin Newsom.

Lt. Gov. Gavin Newsom has joined a group of California union leaders, activists and politicians in calling the direction of negotiations “a deeply flawed settlement proposal with the banks at the heart of the nation’s mortgage crisis.”

The coalition is called Californians for a Fair Settlement and it’s hard to imagine it not having a major impact on Harris. These groups are huge in the Democratic power landscape in California; Waters and Newsom are two of the highest profile Democratic elected officials in the state.

If you are in California, it would be nice to send the Harris, Waters, and Newsom a note thanking them for standing up for California homeowners. Dave Dayen, who has been a fellow persistent critic of the talks, tells me via e-mail that Credo led the push against the talks and was joined later by Courage Campaign, MoveOn and PCCC. He also points out that Gavin Newsom joined an informal effort yesterday opposing the settlement. Harris has her eyes on the governor’s office and Newsom is her most serious opponent.

Note it is important to keep pressure on Harris. Even though her repudiation of the Federal/state mortgage coverup effort is progress, she is the only AG not to align herself with the Schneiderman/Biden effort. Given her past stance (of going after mortgage abuses in a way that would generate headlines but not ruffle the banks), the odds remain high that she will try to craft a deal that is bank friendly but with better optics than the Federal/state effort.

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  1. PL

    Genuine & authentic Attorney Generals: Eric Schneiderman, Beau Biden, Martha Coakley, Katherine Cortes Masto and now Kamala Harris. For the people, not just bankers, finance, & LPS.

    1. Mike S.

      Coakley? No, and this one is so abhorrent I won’t give a synopsis.

      Harris? No. (failure to make required disclosure to defense re big big problems with DNA lab, Tox lab, Drug lab, police officers own prior records of wrong doing)

    2. pebird

      I know this will taste like castor oil to some, but a little thanks to the unions and community groups who maintained pressure on Harris.

    3. walt

      From yesterday’s email from CREDO:
      “Progressive blogs like FireDogLake and Naked Capitalism helped inform the debate and generate even more momentum.”

      It’s premature to declare victory. Note that Harris makes no mention of investigations by her office. Her predecessor, Jerry Brown, was elected governor in the same election last November that elected her in spite of the fact that he sat on his hands through the whole crisis. The state attorney-general’s office is one of several that politicians use on their way to higher office. While there, they keep their heads down. You’d think that in a state where it is so easy for Democrats to be elected that some of them would show some courage or at least a sense of responsibility.

      It should be clear to readers of this blog that state and local investigations of the mortgage industries would have gone a long way to dampening this crisis while it was ramping up. Under “W” national investigations were thwarted.
      As might say, “Reminder: you have no Republican friends.”

    1. Bronwyn

      started as Working Assets years ago. A long-distance phone company. My phone company, as a matter of fact. They include progressive action items and updates in their phone bills and allow customers to vote on where to donate a percentage of their profits which go to (usually progressive or left-wing) charities or groups.

      My only problem with them is that as a big national group, they sometimes organize in my locality without knowing much about it or getting in touch with somebody local to find out. But in that, they’re just like MoveOn and every other big national group.

  2. Woodrow Wilson

    What’s the point anymore? Just start “open season” on The Banking Cartel Members and the politicians that support them.

    Problem solved.

    1. watercarrier4diogenes

      This quote from the LA Times article kind of points to the inevitability of that solution “Key reforms to mortgage-servicing and foreclosure practices pushed by the attorneys general may also be delayed”.

      Fortunately, the courts are finding it harder to ignore robosigning and fraudulent documentation now that every real estate defense attorney has ready access to the evidence that these aren’t such “rare” mistakes, rather they’ve been standard practice in the entire industry for years (decades…?)

      1. Jane Doe

        Unfortunately, the issue is still depend on each trial court judge. Some will still pretend there’s not a problem. Some will not. The question comes down to who you get as the judge for your case. While there is that issue in every case, it is magnified here.

      2. lizinsarasota

        Yeah, well tell that to the judge in my case–who I won’t name because he’s irritated that my case has dragged on (and on and on), ruining his tidy docket. Yesterday he rescheduled the foreclosure sale on my property, despite enough fraud that you could choke on it. I’ve got robosigning, I’ve got stamped signatures, I’ve got phony affidavits, I’ve got a completely fabricated assignment of mortgage…
        The court says I should have known. The court says I should have investigated. The court says I should have taken depositions. Bull. Who the hell knew, back in 2006, that this scheme was going on? Who imagined–in their wildest dreams–that hundreds of thousands of fraudulent documents were being created specifically to commit fraud on the court? Who would imagine lawyers would file phony affidavits and fraudulent assignments of mortgage? Would would think that people would come in to court and out-and-out lie? Only the inner-circle people, people like Gerald Shapiro, the “Shapiro” the Shapiro & XYZ foreclosure mills that are in every state. Gerald knew. People who worked at Lender Processing Services, the affidavit mill in Mendota Heights, MN and Jacksonville, FL. They knew. The people at the banks, manning the phones, trained to string people along: they knew.
        Listen, I was CURRENT on my mortgage when this crap started, way, way, way back in 2006. For years I tried to act in good faith, trying to resolve this situation. I produced paperwork by the truckload. I spent hours on the phone.
        So, while it might sound good to say that judges are (finally) getting pissed off and put out by the fraud that has been perpetrated on their courts, undermining the very fabric of our American society, one judge–Judge Charles Roberts of the 12th Judicial Circuit–cares only that his docket contains a tired, old case from 2006, and, baby, he wants me g-o-n-e. Oh, shoot, I forgot I wasn’t going to mention JUDGE ROBERTS’ name. My bad.
        Some judges (bankruptcy judges, mostly) care about fraud on the court. Some judges whine and say their hands are tied. Some judges get all sleepy-eyed and stupid when faced with blatantly fraudulent documents. Some judges don’t give a rip. And, it shows.

        1. Jane Doe

          I think that the difference between foreclosure defense and bankruptcy is that the former is really stacked in favor of the creditor (even with this issue of not proving their claim), but, in bankruptcy, the issue is, even after 2005, seems focused on resolving debts. The later, in other words, is focused on the very issue at stake here. Whereas foreclosure seems primarily focused on keeping elites happy. It seems like foreclosure judges have a history of sidiing with banks rather than mulling over issues like these whereas bankruptcy judges are keenly aware that standing is critical. that without requiring standing, the whole system of alleviating debt grounds to a halt.

  3. Ray Phenicie

    I will keep saying this until the banks go down is a sea of read ink:
    Everyone who has even one cent owing to BofA, Citi, Wells Fargo:
    Stop Paying them NOW!
    If a debt holder revolution were to occur, we might see law and order restored in the Old Western Town of ours.

  4. Skippy

    I’m waiting for the *Ideological Sex*, Fed – Wall St. memo.

    Abstinence is the best protection, but, if unavoidable, use mental condom. Your job depends on it[!] (selfish randian meme), infection will result in quarantine or termination (for the good of the financial herd).

    Skippy…can’t wait for the naked protest…lol…I’ll be holding the “where are the showers?” sign.

  5. kravitz

    Notice how the LATimes piece used the same line Obama used to the Congressional Black Caucus – Tom Miller vows to press on?

    Good for Ms. Harris. Especially in light of this piece at 4ClosureFraud…

    “Bank of America Boldly Informs Florida Law Offices “BofA Will No Longer Follow Florida Laws”

    Obama’s people are not on the correct side of this issue.

    1. David

      I think the article you linked has it wrong. As I read the Florida law, it doesn’t say that the corp. MUST designate a Resident Agent within Florida. It just says that IF BAC has one, that one can be served.

    2. David

      But I fully agree “Mr. Smooth” Obama is on the wrong side of this. He just wants to grease this thing through and prevent any ordinary people from getting more than they are supposed to. The only ones he wants to have good luck are the banks.

      Not that he’s giving much good luck to them either. Their trading operations are under tremendous pressure to cut risk. If they take no risk, how can they make money?

  6. David

    The relief offered by the settlement was a nothingburger. A token payment, relative to the scale of the issue, and writing down underwater mortgages closer to the value of the collateral.

    Writing down underwater mortgages is the real nothingburger. People with underwater mortgages should generally default, camp until evicted, and use the money saved in payments to get their next place lined up. If it’s a purchase, buy it immediately if you have the 20% down, rates are very low now, and pay THAT loan down with the money saved by not making payments on the underwater loan.

    Why would someone pay on an underwater loan anyway? Writing those down provides just as much benefit to the banks as to the borrower: it can prevent the debtor from seeing the light and realizing that if he’s willing to give up the collateral, now worth less than he owes (and far less than the present value of his payments at today’s ultra low rates) he has no obligation to send monthly payments.

    1. No Know

      Writing down loans is good for the banks??? The writedowns when made will show the world their insolvency. How do they spin that one away?

  7. Jane Powell

    CREDO is great- switch your cell service to them and stop having your money go to right wing causes (in fact, every year you get to choose from a list of organizations and apportion your contributions however you want). They use the Sprint Network, which is probably only 2% less evil, but what can you do.. They don’t have the latest smart phones, but you can certainly have an Android phone through them, just not an I-phone.

  8. greggp

    Do either the LA Times or the WSJ still edit pieces that end up online? Take this for example: “In rejecting the 50-state talks, California also widens the riff among law enforcement officials nationwide over the best approach to pursuing banks for mortgage misdeeds.” Exactly how do you widen a repeated musical phrase?

    And then there’s this: “In recent months, attorneys general in New York, Massachusetts, Delaware, Massachusetts, Nevada, Minnesota and Kentucky have also expressed concerns about a potential settlement.” The attorneys general of both Massachusetts AND Massachusetts are concerned.

    1. Yves Smith Post author

      You’ve made my day. My all too frequent typos and proofreading fails are less out of the norm than they used to be. And I don’t have an editor, obviously.

  9. Stan

    If you’re looking for the Sex Scandal to derail Harris, you don’t have far to look and in fact, it may be
    impossible to blackmail her with a known and notorious
    fact: She slept her way to political office with San Francisco Mayor Willie Brown who became Speaker of the State legislature. Everyone know it, so what’s the shame? Harris is a category checkoff candidate for the progressive wing of the Do Nothing wing of the
    Democratic Party.
    It was widely expected that she
    would be tapped for a cabinet position by Obama but it is becoming clear that even he wouldn’t touch her with
    a ten foot poll and so this may be her revenge.

    She and Newsom are universally reviled in California and are sitting around searching for something to jumpstart their careers.If she does the right thing, it will
    because she sniffs opportunity, not justice.

  10. Justicia

    The LA Times, in an otherwise good article, puts the banks’ frame around the issue:

    “For California homeowners, the move means that gone is the chance for quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers.”

    Quick relief? For homeowners? by giving the banks a get-out-of-jail-free card. I think not.

    Bravo CA, NY, MA, DE and other state AGs who aren’t buying the BS.

  11. JTFaraday

    “We’ve been generally critical of the left in the US, but it’s important to distinguish that our criticism is of what is probably best thought of at the “establishment left” or the “Rubin/Hamilton Project/Blue Dog/Third Way” let, which is pro corporate but less aggressively so than the right so as to maintain some credibility with the traditional Democratic base.”

    Given how critical this group was in putting over much of the deregulation that permitted this entire crisis, it looks to me like they are Thomas Jefferson playing enlightened gentleman in the library, while they let someone else enthusiastically play plantation overseer.

    I don’t know if that still works with the serfs or not.

    1. Nathanael

      Difference is Jefferson was a genius. A man who invented the modern political campaign out of the whole cloth because he didn’t like what his *friend* was doing as President, and proceeded to win total control over the Federal government with massive popular support….

      …well, the DLC/Third Way types are just not that smart.

  12. Susan the other

    Karma doesn’t get any better than this: Now the incentive for the banks to come to an agreement with the 50 states is gone. And a new demand, to really do the right thing, has arisen. Both California and New York are doing their own investigations, and hopefully indictments. So this puts the banks in a position of doing nothing because they are have screwed themselves no matter what. THey have even threatened to ignore their instructions to shape up from the Fed and the Agencies. For an industry that is just trying to “make ends meet,” as Mayor Bloomberg says, this lack of action could quickly become too expensive to pretend to maintain. There must be 20,000 individual lawsuits ongoing today. But if the Banks do not have an alternative, what are they going to do? We all know they are hopelessly insolvent. This seems like a situation that cannot be resolved. Because if we don’t have the banks what are we going to do? Nationalize the entire system? An American Standoff. This is why Obama and Congress are such disasters.

  13. Stupendous Man - Defender of Liberty, Foe of Tyranny

    You know the banks just love this – the breakdown of the negotiations betwixt themselves and the 50 AGs.

    Yes, really.

    For the past 11 months as the negotiations have allegedly been taking place they have foreclosed on another couple of million homes.

    Now that this panel has proved itself to be as worthless as I expected (with Miller in charge there was no threat of anything meaningful or substantive occurring) the banks get even more time to continue foreclosing before any/many of the state AGs are able to get up to speed in their own investigations.

  14. SmartAlek

    Principal Reduction produces an affordable and sustainable mortgage payment that crates a more profitable financial asset/instrument.

    The alternative is repossession and obtaining of collateral tied to the defaulted loan. (Foreclosure)

    Basic NPV Models written by FDIC shows this via Excl sheet->

    Principal reduction is more profitable to lender/investor over the life of the loan rather than taking the collateral (home) and selling it into a distressed market.

    Try it : >

    Good day!

  15. mk

    “If you are in California, it would be nice to send the Harris, Waters, and Newsom a note thanking them for standing up for California homeowners.” ——- done, will go in the mail tomorrow. Also added note for Harris to align herself with Schneiderman/Biden. Good suggestion, thanks.

  16. ar

    I understand that the banks are everybody’s favorite whipping boy these days. But what about all the people that stopped paying the mortgages they were contractually obligated to pay? Isn’t that what usually has to happen in order for a foreclosure proceeding to begin?

    So many people are up in arms about “robosigners,” but how many of the foreclosures that were “robosigned” were in fact invalid? I also understand the concerns about mortgages being transferred without proper documentation. But, that doesn’t change the fact that THE PERSON LIVING IN THE HOUSE STOPPED PAYING THE MORTGAGE! Why are these procedural/technical issues more important than the factual issue of people welshing on their debts? Why aren’t the state attorneys general chasing after all the individuals who failed to uphold their side of the contract?

    Oh, that’s right – the people who stopped paying their mortgages are voters, and the attorneys general are politicians. Got it!

    One final comment – one of the terms that was being extorted, I mean negotiated, was reducing mortgage balances for people with “underwater” mortgages. What about all the people whose mortgages AREN’T underwater? Why don’t they receive any benefit?

    Once again, the only rewards are for those who consume in excess of their ability to pay. Those that are thrifty and live within their means get the shaft.

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