OUR VIEW: California was right to hold out for this deal
She initially held out, but California Attorney General Kamala Harris was right to accept the $26 billion multistate settlement signed Thursday with the five major U.S. banks over foreclosure abuse. The settlement, the largest of its kind since the 1998 tobacco agreement, will provide direct relief to homeowners in the form of principal reduction, refinancing and compensation for those who lost homes to foreclosure. Approximately $375 million is slated for Kern County homeowners. The program may also be expanded to include nine other mortgage servicers, boosting the total to $30 billion. Finally we have some meaningful relief for homeowners who've suffered from the housing calamity that began four years ago.
Harris had previously pulled out of the talks, along with New York's attorney general, and doing so seems to have paid off. In its initial form, the settlement figure was $20 billion (of which a paltry $4 billion would go to California) in exchange for almost blanket immunity for the banks from other lawsuits related to the mortgage crisis.
But under the agreement signed this week, California will see roughly $18 billion and banks will not enjoy immunity. Nor should they. Though the legal pact represents a major step forward in holding banks accountable for the housing crisis, and it aids consumers, it's just the beginning. Financial wrongs still must be exposed.
The settlement also includes reforms aimed at improving customer service for homeowners seeking help, including providing a single point of contact for borrowers seeking loan modifications, prohibitions on "robo-signing" and adequate staffing to handle customer inquiries. Banks will face stiff penalties for not complying with all settlement terms.
Experts correctly note that the settlement is not a panacea for the lagging housing market or for struggling homeowners. Under its provisions, underwater homeowners could get up to $20,000 in principal reduction and can refinance more easily. Those who lost homes to foreclosure in the last three years will get a $2,000 check. A couple of thousand dollars is probably too little too late for families that lost homes and life savings through foreclosures, and the average negative equity on underwater homes is $50,000. And the banks named in the settlement only service about half the nation's mortgages; those owned by Fannie Mae and Freddie Mac are not covered under the deal. The states in the settlement waive any further right to sue over claims stemming from the origination or servicing of the loans in question.
But as we've expressed before, by holding out on the settlement and pursuing legal action against the banks on its own, California ran the risk of not seeing any financial relief for years to come, or at all. One thing we know is that help is needed now, not after the foreclosure crisis has passed. But we encourage Harris' office to continue its investigations of mortgage securities fraud and seek more concessions from the banks for the damage they've inflicted on the state's economy and homeowners.
We applaud Harris for standing up for Californians and fighting for a better settlement deal. It may not herald the end to our housing woes, but it's the most tangible relief yet provided to struggling homeowners. We hope it's just the beginning.
