California Attorney General Breaks From 50 State Probe

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California breaks from 50-state probe into mortgage lenders

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Posted by piggybankblog 09/30/11

Picture posted by piggybankblog.com

Cross linked story LA Times

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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.

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

The removal of California from the discussions is a major blow to fraying efforts by the coalition, which 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.

“This whole concept of a settlement on foreclosure abuse is probably dead,” said Christopher Whalen, the founder of Institutional Risk Analytics. “Nobody in their right mind is going to opt into a settlement right now.”

For California homeowners, the move means the probably end of an opportunity 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.

Harris has faced increasing pressure in recent weeks from inside and outside the state to reject any deal that was considered too weak, particularly as the foreclosure crisis in the Golden State appears to be worsening.

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.

New York Atty. Gen. Eric Schneiderman, who was originally part of the 50-state negotiations, has launched a wide-ranging investigation into Wall Street’s role in the mortgage meltdown -– focusing on the efforts to bundle low-quality mortgages into sophisticated bonds.

Schneiderman has been highly critical of the proposed 50-state settlement and expressed concern that his counterparts in other states may let the banks off too lightly and provide immunity from other efforts to bring them to account for misdeeds. Schneiderman has also won support from attorneys general in Delaware, Nevada, Massachusetts, Kentucky and Minnesota, some of whom have launched their own investigations.

A spokesman for Schneiderman, Danny Kanner, welcomed Harris’s move.

“Attorney General Schneiderman looks forward to his continued work with Attorney General Harris and his other state and federal counterparts to ensure those responsible for the mortgage crisis are held accountable and homeowners who are suffering receive meaningful relief,” said Kanner.

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RELATED:

New-home slump keeping door shut on U.S. recovery

Kamala Harris a key player in settlement over mortgage crisis

BofA, Chase must do more to help troubled homeowners, Obama administration says

– Alejandro Lazo and Nathaniel Popper

Photo: California Atty. Gen. Kamala Harris speaks at a news conference to announce the creation of the California Attorney General’s Mortgage Fraud Strike Force. Credit: Mel Melcon / Los Angeles Times

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Kamala Harris pressured to reject bank foreclosure settlement

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Piggybankblog posted 09/30/11

Piggybankblog posted picture

Cross linked latimes.com

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Lt. Gov. Gavin Newsom has joined a group of California union leaders, politicians and activists in calling the direction of foreclosure negotiations “a deeply flawed settlement proposal with the banks at the heart of the nation’s mortgage crisis.” (Allison Joyce, Reuters / September 30, 2011)

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California Atty. Gen. Kamala Harris is attracting increasing pressure from powerful Golden State players to reject a major settlement with U.S. banks accused of wrongful foreclosures.

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.”

Harris has emerged as a key player in pursuing the nationwide settlement with major U.S. banks accused of wrongfully foreclosing on homeowners. She has been urged to take a hard line by consumer groups seeking help for homeowners devastated by the mortgage crisis.

A spokesman for Harris, Shum Preston, declined to comment Thursday on a letter by the newly formed group Californians for a Fair Settlement. But last week he said the attorney general is “listening keenly to what the California public has to say on this issue and rigorously evaluating any settlement proposals.”

Harris has been negotiating with the five largest mortgage servicers for months as part of a coalition of attorneys general and federal agencies seeking to hammer out a deal surrounding allegations that banks committed widespread foreclosure errors. Those involved in the talks see Harris’ participation in any settlement as crucial because of California’s size and because so many home repossessions are concentrated in the state.

The letter by Californians for a Fair Settlement, which The Times obtained Thursday, calls on Harris to reject a settlement that lacks significant principal reduction for troubled California homeowners, has overly broad liability release language that would hamper future investigations into bank practices and would require banks to pay about $20 billion.

The group, in its letter, called that amount “outrageous” and “a figure which might not even be enough to cover damages for the state of California, let alone the entire country.”

Other signatures included those of Rep. Maxine Waters (D-Los Angeles); Joshua Pechthalt, president of the California Federation of Teachers; Zenei Cortez, president of the California Nurses Assn.; Richard Hopson, chairman of the Alliance of Californians for Community Empowerment; and Steve Matthews, executive director of Service Employees International Union Local 721.

The pressure comes as foreclosures in California and other parts of the West have begun to surge anew. Significantly more properties entered the foreclosure process during August in the nation’s hardest-hit markets, including battered parts of inland California and other areas in the West, as Bank of America Corp. stepped up its activity in states where a court order is not needed to take back a home.

alejandro.lazo@latimes.com

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Matt Stoller: 50 State Settlement Chatter – $65 Million of Fundraising and the Kamala Harris Network

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Piggybankblog posted on 11/15/11

Piggybankblog posted picture

Cross linked story with nakedcapitalism.com

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By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller.

California Attorney General Kamala Harris is one of the key players involved in the 50 state negotiations. The state was the seat of a good proportion of mortgage fraud nationally, and the California Attorney General’s office is one of the only state AG offices with enough legal resources to impact the national housing framework. Understanding how she thinks about politics matters, because this is how critical decisions are made. Harris’s decision-making seems to be driven by personal connections and fundraising networks. This is not at all unusual, but it does contrast a bit with other types of public servants, who often see their job as serving the law itself. So what do her personal connections and fundraising networks look like?

Well, largely she shares them with President Obama, who endorsed her late in 2010 for the AG office. Her brother-in-law, Tony West, was key fundraiser for Obama in California, having helped raise $65 million for Obama in the state, and he is considered a rising star in the Democratic Party. He now works at the DOJ and has expanded the Civil Rights department to take on some elements of mortgage fraud. The DOJ has an internal directive to make mortgage fraud a top priority, but what mortgage fraud means to the DOJ are mortgage modification scams and penny ante borrowers ripping off fly-by-night lenders. West, while not the direct actor in the DOJ’s settlement talks, is in all likelihood involved in pressure on state AGs to sign on to a settlement. And it’s simply inconceivable he hasn’t dealt with his sister-in-law and political ally on the matter. Harris and West are part of a coherent political network, and much of the strength of that network has to do with reinforcing the traditional bank-friendly policies of the Democratic elite and then using that to create political support.

The first indication that as California AG Harris was more sympathetic to the Obama side of the ledger on banking is that one of her first decisions as AG was to let off Angelo Mozilo without admitting to wrong-doing or personally paying a fine (the small money that went to restitution came from Bank of America shareholders). I suspect the issue is actually more personal to her than legal, not because she particularly cares about finance or foreclosures, but because her friends and allies are very concerned about ensuring that the banks get a release. In their view, this will cause the housing market to clear, the economy to recover, and then help reelection chances.

The political problem for Harris is that she was elected by liberal votes, and she’s getting enormous public pressure to resist signing on to a settlement that is perceived as favorable to the banks. While she backed out of an immediate settlement a few weeks ago, she refused to join the joint investigation by Eric Schneiderman and Beau Biden of the foreclosure fraud crisis. She has sat on the sidelines, trying to figure out what to do.

I pinged a savvy Bay Area political operative, and asked about Harris’s reputation. Here’s the response.

Kamala Harris is no Eric Schneiderman. What most people outside of San Francisco don’t know, is that she’s not a true progressive but rather a hack Democratic politician who plays to progressive audiences when it benefits her agenda.

When Kamala Harris got her start in big time San Francisco politics she was best known as the ex-girlfriend of Willie Brown. Willie Brown is a powerful figure in Calfiornia politics, having been longtime speaker of the state assembly until he was term limited out. At that point he ran for mayor of San Francisco and served two terms which were distinguished by corruption and personal patronage. For example, as mayor he increased the budget for “special assistants” from $15 million to $45 million and put a bunch of his friends on the payroll.

Harris dumped Brown shortly after he became mayor but he provided key help to her campaign for District Attorney in 2003. It was a tough race against a two-term incumbent. In that race she agreed to participate in a system that mandated campaign finance limits. In the last days of the race when it was clear she had a shot at winning, she ignored the mandated spending limits she had previously agreed to assuming that the fines would be well worth the expense of spending extra money in the home stretch if she won. And she did win. Her career as San Francisco’s District Attorney was marred by massive mismanagement of the city’s crime lab which was under her jurisdiction. As a result, hundreds of criminal cases had to be thrown out of court.

Though lifted up as a Netroots darling in her run for California AG in 2010, she’s really a classic Democratic party hack, though of the California variety which makes her better on issues like gay marriage and the death penalty than the average Dem. For example, she let the mortgage mauraders at Countrywide and its CEO Angelo Mozilo off the hook in February of 2011 when he paid a mere $6.5 million to get out of a predatory lending lawsuit filed by the state of California. [Actually he didn't, Bank of America paid it for him]

She has done some good things. She is fighing back against anti-gay marriage forces. And she joined the DOJ in opposing the AT&T takeover of T-Mobile. Under immense public pressure she pulled out of the 50-state settlement at the end of September. But now under tremendous pressure from the White House she may walk back her earlier promise to investigate the banks. This is not surprising. It’s worth noting that Harris won the Attorney General race in 2010 with the smallest margin of all statewide elected offices. She won by less than half a percent or 55,000 votes.

While we can’t count on Harris to do the right thing because she is a committed progressive, we can count on her to make the decision that she believes gives her career the most benefit (or conversely causes her the least pain). This means the pressure from voters who barely put her in office when Democrats like Jerry Brown and Barbara Boxer won by comfortable margins can possibly be a counterpoint to promises from the Wall Street banks and Obama Administration officials. Our only hope is massive pushback from voters.

I suspect that if she signs on to a settlement, it will ultimately damage her own political prospects among a certain slice of the electorate, and forever brand her as one of the 1%. But it could bring short-term political benefits, perhaps in the form of a potential cabinet role in a second Obama administration or solidified positioning as a bank-friendly candidate in a future Senatorial or Gubernatorial run. California is an expensive state for politics. In many ways, making the wrong decision will turn her into a relatively unpopular figure with unlimited resources. It’s not an easy choice, but politics isn’t simple.

That said, Harris is just one player in this saga, though obviously California is an important state. Regardless of what she decides, problems of foreclosures and fraud will continue, led by a raft of private suits, investigations by New York and Delaware, and least-noticed but very significantly, a very tough AG in hard hit Nevada, Catherine Cortez Masto, who has at her disposal legal powers that end foreclosure fraud. And of course the story of the housing crisis doesn’t start and end with the settlement, it will continue because of fundamentals. Policy, though, does matter, and because of that, politics matters. And without endorsing any set policy or political action, this is how the politics look.

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Moral Hazard: A Tempest-Tossed Idea

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Piggybankblog posted on 02/27/12

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Cross linked story with nytimes.com

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THE reports outraged America: In the wake of Hurricane Katrina, people who fled the ravaged Gulf Coast were spending disaster relief, paid for by taxpayers, on tattoos, $800 handbags and trips to topless bars.

It turned out that few, if any, Katrina evacuees actually did any such thing. A vast majority used debit cards issued by FEMA to buy necessities like food and clothing. But the damage was done: FEMA swore that it would never hand out money like that again.

Behind this brouhaha was an idea that Americans seem particularly preoccupied with. It is called “moral hazard” — an obscure insurance term that has taken on new currency in our troubled economy. We’ve heard a lot about moral hazard lately, first in connection with the bailouts for big banks, and now with efforts to help homeowners who got in over their heads.

Moral hazard sounds like the name of a video game set in a bordello, but in economic terms it refers to the undue risks that people are apt to take if they don’t have to bear the consequences. In other words, if the money is free, why not spend it on a designer purse? If you know that you’ll be bailed out, why not roll the dice on some tricky mortgage investments — or splurge on a home that you can’t really afford?

Moral hazard became part of the national conversation in the financial crisis of 2008, when ordinary Americans wondered why they should rescue banks that helped drive the economy off a cliff. Now those same banks point to moral hazard to explain why they can’t do more to help people with mortgages. And it’s not just banks — the Tea Party movement was inspired by outrage over a government plan to, as Rick Santelli put it in a famous rant on CNBC, “subsidize the losers’ mortgages.”

The cherished American ideal of self-reliance has a flip side: discomfort with the idea of bailouts and safety nets. The notion that even a small portion of such aid might find its way to the undeserving can be enough to scuttle support, or restrict help so drastically that few can use it. The specter of moral hazard haunts a basic tension in American life: to what extent are people responsible for their own problems? The more trouble you’re in, moral hazard suggests, the less we should help.

Bankers say that generously easing loan terms or reducing mortgages outright would only encourage homeowners who can pay to pretend they can’t. It would also, the bankers say, send a dangerous message: a financial commitment isn’t really a commitment. Economists and policy makers say the bankers are right — but only to a point. Shaun Donovan, the secretary of the Department of Housing and Urban Development, said that there was a “nugget of truth” to the moral hazard argument. But he also said that only about 10 or 15 percent of Americans who can still pay their mortgages try to walk away from their debt. Most troubled homeowners, like the Katrina victims, are genuinely hard up.

Kamala D. Harris, the attorney general of California, is adamant that homeowners are not looking to abuse the system. “I have met with these families,” she said, “and every single one of them wants to pay to stay in their homes.”

Still, the $26 billion deal that authorities struck with banks this month over foreclosure abuses — a main element of which will require the banks to reduce homeowner debt — angers some. Homeowners who keep paying their mortgages, even if their homes have lost value, reasonably wonder why neighbors who weren’t as responsible are getting help.

On the other hand, the problems in the housing market are a problem for all of us. Many economists and housing experts agree that the debt that now looms over homeowners is holding back a broad recovery.

Since the settlement was announced, pressure has mounted for Fannie Mae and Freddie Mac, the mortgage giants whose loans are not eligible for the deal, to allow debt relief for their borrowers as well. But concerns over moral hazard, among other things, have held them back.

MORAL hazard has long been used to explain why social safety nets like welfare, unemployment insurance and workers’ compensation should be less generous. It is almost always applied to the recipients, rather than the providers, of such benefits. A lot of energy has gone into arguing that higher workers’ comp payments, for example, make workers careless. Far less is said about how lower workers’ comp invites moral hazard for employers by, say, making them less attentive to workplace safety.

Economists have longcomplained that moral hazard could easily be described in more neutral language, like “misaligned incentives.” But the term, with its implied judgment, has stuck.

It seems to have originated in the 19th-century insurance industry. (Hazard was a popular game of dice.) Insurers drew a bright line between natural hazards, like storms, and moral hazards, like playing with matches, that stemmed from what the 1867 edition of the Aetna Guide to Fire Insurance called “carelessness and roguery.”

Today, insurers battle moral hazard with co-pays and deductibles. If you have health insurance, you are, based on the theory of moral hazard, less likely to avoid smoking, and more likely to go to the doctor for a common cold. But in a 2005 article in The New Yorker, titled “The Moral Hazard Myth,” Malcolm Gladwell noted that people with insurance do not check into hospitals for their enjoyment, and that people without insurance forgo preventive care that could save thousands of dollars. Moral hazard also overlooks the noneconomic costs of risky actions like smoking — costs like ruined lungs, suffering and death.

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