California attorney general extracts something extra from the big banks

California Attorney General Kamala Harris.
California Attorney General Kamala Harris.
Jesse Grant/Getty Images for Obsolete

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Forty-nine states signed on to a $25 billion settlement between the Obama administration and the largest mortgage servicers involved in the foreclosure crisis. California was one of the last holdouts because State Attorney General Kamala Harris wanted a better deal. She may have gotten one: Harris calls it “The California Commitment.”

She pulled out of the multi-state settlement negotiations last year because at that point, there was only $4 billion in it for California. According to Harris, the banks, including Wells Fargo, JP Morgan Chase and Citigroup, now have committed $18 billion to the Golden State alone.

"This issue has never been about anything other than allowing homeowners, hardworking people, to stay in their homes," Harris said on Thursday at a news conference in downtown L.A. "And we were very determined to make sure that California — the hardest hit in the country — would receive its fair share."

Californians who owe more than their homes are worth will get $12 billion, so they can write down their mortgage principals or set up a short sale. And, Harris continued, the banks won’t get credit for simply promising relief.

"There’s a simple principle in law – and in particular contract law – which is the deal ain’t done when it’s based on a promise," she said. "It’s based on a promise and acceptance and then performance."

California’s settlement also requires the banks to start the relief in the areas most soaked by underwater mortgages.

"We wanted to make sure that places like Boyle Heights received priority, so we built into this a California commitment that requires the banks, through an incentive and a penalty, to focus on our hardest-hit communities," Harris said.

Harris went on to say that under the California settlement, if the banks drag their feet, she can drag them into state court.

"It’s so scary to have the hope and to have it crushed again," said Sharne Matson about the settlement.

Matson lives in a six-bedroom house in Acton with her parents, husband and four children. They paid $900,000 for the house. Now it’s worth less than half that much. When a car accident forced her to retire from the Air Force a few years ago, she says she contacted Wells Fargo about modifying the family mortgage. It’s been a confusing runaround ever since.

"I don’t want to have hope because there were so many times for those two years where someone would tell me it was OK, and they were gonna do this and do that. We had several different companies trying to help us."

But none of them did, Matson said. Her parents emptied their life savings just to stay in the home. She’s not sure if the new settlement means she’ll be able to line up a loan modification from her bank.

"I will do what they tell me to do," Matson said. "I just hope that they have their ducks in a row, because they certainly did not before when they were doing – or attempting to do – modifications because they weren’t doing that."