Kamala Harris CA Withdrawal 10.1.11

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California Pulls Out of Foreclosure TalksMove Is Serious Blow to Federal and State Effort to Reach $25 Billion Deal With Banks OverQuestionable Practices

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By RUTH SIMON And NICK TIMIRAOS

California Attorney General Kamala D. Harris pulled out of settlement negotiations with the

nation's biggest banks over alleged foreclosure abuses, calling the proposed deal "inadequate

for California homeowners."

The decision by Ms. Harris delivers a serious blow to efforts by the Obama administration and 50

state attorneys general to forge a $25 billion settlement with the nation's largest banks over "robo

-signing" and other questionable foreclosure practices.

Her actions follow the withdrawal of New York from the talks. Without the participation of

California and New York in the negotiations, banks will be far less likely to agree to the

multibillion dollar settlement that federal and state officials have spent months pursuing.

California remained a critical constituent for any deal because it has more borrowers who are

underwater, or owe more than their homes are worth, than any other state. California also has

more borrowers that are behind on their mortgages or in foreclosure than any other state but

Florida.

The move by Ms. Harris, who took office in

January, comes after 11 months of often-

frustrating negotiations between big banks

such as Bank of America Corp., J.P. Morgan

Chase & Co. and Citigroup Inc.

Representatives for the three banks declined

to comment.

A spokeswoman for Ally Financial Inc., the

fifth-largest mortgage servicer and parent of

GMAC Mortgage, called the decision

"disappointing for borrowers in California"

who are in financial distress.

One key point of contention has been the extent to which banks should be released from

additional legal claims involving the mortgage crisis in exchange for signing onto the foreclosure

settlement.

In recent months, other states, including Delaware, Massachusetts, Nevada, Minnesota and

Kentucky, have also expressed concerns over the scope of any settlement. Some states and

critics of the banks argue that officials haven't done a thorough investigation of other potential

improprieties.

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California Exits Foreclosure TalksCalifornia's attorney general pulled out ofsettlement ne otiations with the nation's bi est

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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 in part by those 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.

She added that "the relief contemplated

would allow too few California homeowners to

stay in their homes." Ms. Harris also cited a

recent "troubling surge in foreclosures," which

had plummeted in the wake of the robo-signing scandal.

In a statement, Mr. Miller called California "an important part of our team" but said that the states

"fully expect to reach a settlement with the banks."

A Justice Department spokeswoman said that discussions would continue "to ensure that the

banks are held fully accountable for their actions."

The split highlights a broader disagreement between some government officials involved in the

negotiations. The Obama administration has argued that a settlement could help provide

immediate benefits to borrowers, while creating certainty for the housing market. "We are 100%

focused on providing relief to homeowners while it can still make a difference and save homes

from foreclosure," said Mr. Miller. "Providing relief after the foreclosure crisis is over would be a

hollow victory indeed."

Friday's decision by California wasn't completely unexpected. As the talks have dragged on,

political pressures have mounted, with both sides expressing unhappiness with any deal.

Conservatives denounced the settlement as a "shakedown" of banks, while labor unions andliberal political groups warned of a bank giveaway.

Ms. Harris and other Democratic state attorneys general have faced intense lobbying from

different factions, including critics who want the states to hold out for a bigger deal and the

Obama administration, which has shepherded the deal. A spokesman for Ms. Harris said the

attorney general made her decision based on "the evidence and the merits of the deal, not other

considerations."

The loss of California dims the Obama administration's push to force banks to write down loan

balances as part of any settlement. Even if the remaining states and federal agencies reach a

deal, it is likely to cover far fewer borrowers as the price tag drops. The settlement talks were

prompted by so-called robo-signing, where bank employees signed off on hundreds of loans a

day and falsely claimed they had personally reviewed documents to give the bank the right to

foreclose.

The mess deepened as judges raised questions about how banks documented their ownership

of loans and whether financial firms fabricated other paperwork. Regulators have found what

they said are widespread weaknesses in mortgage-servicing operations.

Over the past year, banks have sharply slowed down foreclosures. Foreclosure delays have

been most pronounced in "judicial" states where banks must foreclose on borrowers by going

before a court. California allows foreclosures through a non-judicial process.

Regulators and banks say they have uncovered very few cases where borrowers entered

foreclosure without missing payments. But the crisis has exposed numerous cases where banks

couldn't prove they had the right to take back homes or where borrowers believed they were

receiving loan modifications, only to lose their home.

The unraveling of any settlement also raises the prospect that banks will face separate legal

action from a handful of state attorneys general.

Ms. Harris traveled to Washington last week for a meeting with banks and state negotiators in an

effort to resolve her concerns. She said that her office will continue to investigate questionable

mortgage practices and will push for additional legislative and regulatory reforms. This year, she

announced the creation of a "mortgage fraud strike force" to study all stages of mortgage

lending, from origination to the servicing of troubled loans to the packaging of loans into

securities.

Write to Ruth Simon at [email protected] and Nick Timiraos at [email protected]

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Kamala Harris CA Withdrawal 10.1.11