What was California Atty. Gen. Kamala Harris' role in the nationwide mortgage settlement?

State Atty. Gen. Kamala Harris was showered with applause at February’s California Democratic Party convention after spelling out how she went up against the nation’s five largest mortgage firms to help deliver a landmark $25-billion national settlement.

Harris spoke of the heat she took for briefly pulling the state out of settlement talks. Her hardball tactics paid off, Harris told her audience in San Jose, and brought $20 billion in financial relief to California homeowners flattened by the foreclosure crisis.

The mortgage agreement has become one of Harris’ signature accomplishments as state attorney general and, in her Senate campaign against Orange County Rep. Loretta Sanchez, has anchored her message of being a self-described “fearless” leader for California. She has received national acclaim for her tenacious negotiating during the settlement talks, which substantially increased the direct relief provided to her home state.

But the type of relief provided to California homeowners also fell short of initial promises.

One man in the audience that February told Harris that she had promised years before not only to deliver assistance to homeowners, but to lock up those responsible. 

“How many bankers went to jail?” he asked the attorney general and U.S. Senate candidate. 

Harris told the man she sympathized with his frustration and explained that the state did its best with the evidence it had.

Nationwide, many of the second mortgages that that were reduced or totally forgiven under the settlement were already delinquent. It was unlikely that the banks would have recovered much of that money, said economist Laurie Goodman, co-director of the Urban Institute’s Housing Finance Policy Center. 

“It’s clear that they were writing off loans that were essentially dead,” Goodman said.

Homeowners did benefit from having the weight of these debts removed and also from being able to sell their homes at a loss in a short sale, Goodman said, which allowed them to get out of homes they could no longer afford and spared neighborhoods from being blighted by foreclosures.

Forgiving second mortgages may not have inflicted much pain on the banks, Porter said, but it was a major benefit to many homeowners. With no second mortgage, their monthly payments were reduced, allowing them to keep their homes.

Kevin Stein of the California Reinvestment Coalition said that, under the terms of the mortgage settlement, very little information was publicly available about who received debt relief. Absent was any breakdown by race, income levels or neighborhoods, so there was no way to tell how much of the financial assistance was going to homeowners in Brentwood versus Boyle Heights, for instance.

“We serve lower-income people. People of color. We wanted to know, who is getting the help?” he said. “Those questions are hard to answer because there was not a tracking program.”

Rob McKenna, Washington state’s former state attorney general, said despite criticism that the settlement was too easy on the banks, real homeowners received tangible relief under the agreement.

“Even if we had gotten more money through litigation, it would have delayed the relief for years,” said McKenna, a Republican who was among the lead negotiators in the national settlement. “At some point you have to decide that it’s more important to get relief to consumers sooner than to get more through the court.”

One of the major victories that resulted from the settlement was the new loan servicing rules and requirements on financial institutions to prevent banks from using questionable foreclosure practices in the future, said Michael Troncoso, Harris’ senior counsel in the mortgage settlement negotiations. 

In 2012, Harris also helped push through a bill in the California Legislature that offered homeowners some of the strongest protections in the nation against aggressive foreclosure tactics by banks, which was credited in part for a plunge in foreclosures in the state.  The measure also gave private citizens the right to sue financial institutions if they violated the law.

Shortly after taking office, Harris created a mortgage fraud task force that not only assisted with the mortgage settlement, but also went after financial firms that targeted homeowners facing foreclosure. The task force also took legal action against the banks and financial ratings firms for the massive losses that California’s two giant public pension systems, the California Public Employees’ Retirement System and California State Teachers’ Retirement System, sustained after unknowingly investing in securities that included risky subprime mortgages. 

Harris’ office collected $921 million in mortgage-backed securities settlements with JPMorgan Chase & Co., Citigroup, Inc., Bank of America Corp., Standard & Poor’s and Goldman Sachs. 

Troncoso, who led the mortgage fraud strike force, said building a criminal case against bankers involved in the foreclosures that led to the national mortgage settlement would have been “extremely difficult.”

Harris acknowledges as much.

“I too, like most Americans, am frustrated. Clearly crimes occurred and people should go to jail,” Harris said. “But we went where the evidence took us.”


Twitter: @philwillon 


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