Update on mortgage settlement talks

I first mentioned the Bank of America mortgage settlement talks in my Quote of the Week at the end of August, in which I portrayed New York Attorney General Eric Schneiderman as a lonely soldier fighting on behalf of the public versus the banks. Well now it seems that Mr. Schneiderman has some company, no matter what Kathryn Wylde may think about it.

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, Harris told The Times on Friday.

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, Harris said.

“It has been  a process of negotiating and sitting at a table in good faith, but ultimately I have decided that we have to go our own course and take an independent path. And that decision is because we need to bring relief to Californians that is equal to the pain California experienced, and what is being negotiated now is insufficient," Harris told The Times in an interview.

Harris delivered the news in a letter sent Friday to Iowa Atty. Gen. Tom Miller, who has been leading the 50-state coalition.

Good for her. With California and New York now out of the settlement talks, the whole concept behind the settlement is essentially dead in the water. As Naked Capitalism's Yves Smith writes,

Now that Kamala Harris... 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 Administration's “let’s sweep foreclosure fraud under the rug” strategy.

Indeed. For reasons known only to him, Iowa AG Tom Miller seems intent on pressing on with this zombie settlement, even though I can't even see why the banks would be interested at this point. The only benefit to the bank was coming from the wide indemnification that such a settlement would provide, and that benefit is now largely gone. Who cares about Iowa and Kansas when California and New York are out of the game? Just try winning a Presidential election while losing CA and NY--the math is pretty tough, even if George W. Bush did pull it off (twice).

At any rate, congrats to the AGs for standing up for themselves in this deal--even if they do end up negotiating their own state-specific banker-friendly deals down the road, it's important to show the federal agencies that backed this thing that the states refuse to let their rights be trampled on. Thank you, Kamala Harris.

[LA Times]  
(h/t Naked Capitalism)