Monday, October 3, 2011

Mortgage Mess Continues

Yves Smith on her website naked capitalism calls it game over for any chance of a 50 state mortgage settlement after California pulled out of the talks. California has the power to force others to follow where the Golden State leads and this withdrawal will make any coordinated multi state settlement almost impossible to achieve. Decidedly impossible.

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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