Oct. 1 (Bloomberg) -- A proposed nationwide settlement with banks including Bank of America Corp. and JPMorgan Chase & Co. is being rejected by California Attorney General Kamala Harris, who will pursue her own mortgage investigation in the state that had the second-highest foreclosure rate in August.
The proposed agreement is “inadequate” and would allow too few California homeowners to stay in their homes, Harris said in a letter yesterday obtained by Bloomberg News.
“After much consideration, I have concluded that this is not the deal California homeowners have been waiting for,” Harris, a Democrat who took office in January, said in the letter to the U.S. Justice Department and the Iowa attorney general, who is leading talks for the states.
All 50 state attorneys general last year announced they were investigating bank foreclosure procedures following complaints that the companies were using faulty documents in seizing homes.
State attorneys general and federal agencies have been negotiating a settlement with the five largest mortgage servicers, including Charlotte, North Carolina-based Bank of America and New York-based JPMorgan. They have sought a settlement that would fund loan modifications and set requirements for how the banks conduct foreclosures and interact with borrowers. Harris’s office has been negotiating directly with the banks on behalf of the states.
One in every 226 California housing units had a foreclosure filing during August, more than twice the national average and second only to Nevada, according to a RealtyTrac Inc. report. Harris said 2.2 million Californians are underwater in their mortgages.
Infighting Over Settlement
Harris’s move comes amid infighting by state attorneys general over the settlement effort. In August, Iowa Attorney General Tom Miller removed New York Attorney General Eric Schneiderman from an executive committee representing the 50 states. Miller said Schneiderman was “working to actively undermine” the multistate group and encouraged opposition to the negotiations, according a statement from Miller’s office and a Sept. 2 letter he wrote.
Schneiderman and other attorneys general who are conducting their own investigations into bank mortgage practices have raised concerns about liability releases that would be given to banks as part of any deal, protecting them from state and federal lawsuits.
The scope of the release has divided the two sides and is the main obstacle to reaching a settlement, a person involved in the talks said. The banks have sought broad releases that would go beyond claims stemming from their foreclosure practices, people familiar with the matter have said.
Several attorneys general, including Schneiderman, Delaware’s Beau Biden, and Massachusetts Attorney General Martha Coakley, have spoken out on the issue, saying the banks shouldn’t receive releases for matters that haven’t been fully investigated, including mortgage securitization and the use of a mortgage database known as MERS.
“Ongoing investigations by attorneys general cannot be shut down by efforts to settle quickly and those responsible must be held accountable,” Danny Kanner, a spokesman for Schneiderman said after New York’s removal from the executive committee.
Biden, who is investigating mortgage securitization and MERS, defended Schneiderman following his removal, saying the New York attorney general has raised “important and legitimate concerns” about the scope of the releases. Events leading up to the mortgage crisis “must be fully investigated,” Biden said at the time.
In her letter, Harris criticized the proposed releases.
“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 wrote.
Geoff Greenwood, a spokesman for Miller, said there is no agreement “on the scope of the release, and any suggestion otherwise is false.”
Harris in May announced the creation of a mortgage-fraud task force that she said would investigate “every step” of the mortgage process from lending to the sale of mortgage-backed securities.
“I am committed to doing as thorough an investigation as is needed -- and to taking the time that is necessary -- to set the stage for achieving appropriate accountability for misconduct,” she wrote in the letter.
Harris previously served at San Francisco’s district attorney and said in a Sept. 29 speech she views the damage caused by the mortgage crisis with the bias of a prosecutor.
‘See the Evidence’
“I’d like to see the evidence, I want to know that we are involved in a meaningful investigation,” she said during remarks at a housing market conference sponsored by the Public Policy Institute of California. “I’m reluctant to sign a deal where I haven’t seen the evidence.”
The group of states negotiating with the banks won’t agree to any settlement that releases the companies from state claims for securitization practices, an official with direct knowledge of their thinking said. Releases for federal claims are being separately handled by federal officials, the person said.
One state official who has had input on the release language said negotiators were previously contemplating releasing banks from liability for loan origination claims. That would undermine a potential securitization case, said the person, who declined to be named because the talks are private.
A recent proposal by the states included language that would have damaged a securitization case and would have protected the banks from claims tied to their use of the MERS database, said another person familiar with the matter who declined to be identified.
Besides JPMorgan and Bank of America, the other companies involved in the talks are Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc.
The multistate group will continue its negotiations and expects to reach a settlement with the banks, Miller, the Iowa attorney general, said in an e-mailed statement.
“This multistate is about foreclosures and mortgage servicing abuse, and we are 100 percent focused on providing relief to homeowners while it can still make a difference and save homes from foreclosure,” he said. “Providing relief after the foreclosure crisis is over would be a hollow victory indeed.”
--With assistance from Joel Rosenblatt in San Francisco. Editors: Peter Blumberg, Michael Hytha
To contact the reporter on this story: David McLaughlin in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Hytha at email@example.com