As occupations and demonstrations in solidarity with “Occupy Wall Street” in the country’s financial center spread from city to city, a firestorm is brewing among the nation’s state attorney generals over charges that banks fraudulently foreclosed on homeowners.
Friday, California Attorney General Kamala Harris quit nationwide negotiations with the big banks aimed at reaching a broad settlement over their mortgage practices, characterizing bank proposals as “insufficient” and “inadequate” in bringing relief to Californians “equal to the pain California experienced.”
Meanwhile, a number of other states in the 50-state coalition, of which Harris had been a leading member, have already signaled dissatisfaction with the proposed deal because of the banks’ insistence on being released from potential future legal claims. They are New York, Delaware, Nevada, Massachusetts, Kentucky and Minnesota.
The banks want the waiver to cover practices like robo-signing as well as potential claims related to their creation of mortgage securities that led to the financial meltdown and triggered the on-going economic crisis. The banks involved in the nationwide negotiations are Bank of America, JP Morgan Chase, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.
“In return for this broad release of claims,” Harris said in a letter sent Friday to Iowa Atty. Gen. Tom Miller, who has been leading the negotiations, and to U.S. Atty. Gen. Thomas Perrelli, the relief contemplated in the latest proposed settlement “would allow too few California homeowners to stay in their homes.”
In breaking with nationwide talks, Harris said she will pursue a more rigorous investigation, including into the creation and sale of mortgage securities, through the 25-person Mortgage Fraud Strike Force which has a mandate to probe into all aspects of mortgage fraud.
For his part, New York Atty. Gen. Eric T. Schneiderman, among those most critical of the deal being contemplated, is conducting an expansive probe into Wall Street’s role in the mortgage crisis, targeting the institution’s bundling of low-quality mortgages into sophisticated bonds. New York and Delaware have been cooperating in their own investigations while remaining members of the coalition.
Harris’ action came on the heels of a letter from Californians for a Fair Settlement (CFS), a coalition of prominent union leaders, community activists and public officials, condemning the “deeply flawed settlement proposal with the banks at the heart of the nation’s mortgage crisis,” the Los Angeles Times reported.
The CFS coalition’s letter called on Harris to reject the proposed deal because it does little to reduce the mortgage principal of homeowners who owe more than their homes are now worth, releases banks from future liability and requires banks to come up with a meager $20 billion.
The coalition’s letter decried the figure as “outrageous” and one “which might not even be enough to cover damages for the state of California, let alone the entire country.”
The pressure comes as significantly more homes go into foreclosure during August in California and the West, as Bank of America increases its efforts in states where a court order is not required to take back a home.
The state has suffered one of the worst default rates in the country, with unemployment above the national average at 12.1 percent and two million residents who owe more on their mortgage than their home is worth.
In terms of foreclosures, 8 out of 10 hardest hit cities in the nation are in California. Harris said that in 11 months of talks, more than half-million homes had entered foreclosure in the state.