David Dayen | CA AG Harris Could Enter Foreclosure Fraud Settlement Late

CA AG Harris Could Enter Foreclosure Fraud Settlement Late

I want to circle back to today’s New York Times story on the looming foreclosure fraud settlement. With the return to talks of New York and California (though I don’t really think they were ever all that far away), we can infer that pretty much every other state, save perhaps Delaware and Nevada and Massachusetts, are on board with the settlement. The reason is simple: there’s a most-favored nation clause written into the settlement. That means that if a renegade AG successfully sues a bank and gets back improved terms or financial penalties, all states would benefit with an increase on the settlement terms. So this creates a massive free-rider problem. A state that has not done meaningful investigations or prosecutions can simply sit back and let the others do the work. So in the end, we’re talking about a 45-state settlement or a 47-state settlement, or maybe even all 50 if Delaware and Massachusetts and Nevada get carve-outs for their existing cases.

Let’s move on to California. Kamala Harris wants to do investigations on origination fraud, on borrowers not learning the true terms of their deals until after signing. But the 2008 Countrywide deal extinguished many of those claims, and on others, the statute of limitations has run out. So by calling the term sheet “inadequate,” I see that Harris was playing for a bigger deal, perhaps a way to access longer federal jurisdictions on origination claims, more of a share of the financial benefit, or something. Her statement today reads like this:

“For the past 13 months we have been working for a resolution that brings real relief to the hardest-hit homeowners, is transparent about who benefits, and will ensure accountability,” Ms. Harris said in a statement. “We are closer now than we’ve been before but we’re not there yet.”