In a letter to Associate U.S. Attorney General Thomas Perrelli and Iowa Attorney General Tom Miller, Harris said the agreement would allow “too few…homeowners to stay in their homes” and shield banks from further investigations.
“After much consideration, I have concluded that this is not the deal California homeowners have been looking for,” she wrote in the letter.
Settlement negotiations between the 50 attorneys general and the nation’s five largest banks -- Bank of America, JPMorgan Chase and Co., Wells Fargo, Citigroup and Ally Financial, commenced last fall. Beginning over allegations of robo-signing, or the practice of bank employees notarizing or signing sworn documents without verifying or understanding them, they later expanded to include other abuses related to mortgage servicing and foreclosure practices.
A key reason for the pull-out, said Shum Preston, spokesman for the attorney general’s office, was a troubling "surge in foreclosures" between July and August. In Harris' letter, she wrote: "During the period we have been negotiating, more than 560,000 additional homes in California have fallen into the foreclosure process."
Taking a “different approach,” Harris pointed to efforts to broaden the enforcement powers of her newly-created Mortgage Fraud Strike Force to “investigate all stages of the mortgage lending process from origination to servicing and foreclosures to securitization of loans into investments in the secondary market.”
Since it was formed in May, the strike force has sued law firms and other companies that have defrauded homeowners. In August, California subpoenaed Citigroup Inc. and its banking subsidiary, Citibank, related to their selling and marketing of mortgage-backed securities in California, the Los Angeles Times reported.
Some troubled homeowners and housing advocates lauded the state attorney general’s decision, calling it “stunning” and “courageous.”
California Reinvestment Coalition’s Kevin Stein said the most troubling aspect of the pending 50-state settlement was the banks “wanting broad release from future claims, or to get off the hook for other related violations.”
Preston noted of the pullout: “There is a better chance for negotiation with more leverage. With blanket immunity we have no leverage.”
News media have reported the 50-state negotiated settlement was as much as $20 billion.
“I’m exceedingly glad she pulled out because the settlement is really just a drop in the bucket…what they were talking about settling for isn’t going to do anything to help homeowners,” said Peggy Mears, a Fontana, Calif., resident who fought for three years to stave off foreclosure.
Mears says she finally worked out a permanent modification with her lender, OneWest Bank (formerly IndyMac Bank), but says she’s still “cautious.”
“ I know others in [a] permanent modification, and [the] banks still foreclosed on them,” she said.
Oakland, Calif., resident Marilyn Reynolds said banks need to be held accountable. She recently demonstrated in San Francisco’s Financial District, along with other members of the Alliance of Californians for Community Empowerment, protesting corporate greed and calling on banks to use their bailout money to help people in need.
Reynolds bought a home for her daughter in Arizona, and alleges that her lender fraudulently appraised the property. She is delinquent on her payments, and has asked her bank to release her from her mortgage obligation in exchange for her property (deed in lieu).
"Consequences and accountability are just as important as restitution,” she said. “I don't want it swept under the rug."
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