New California AG could sue banks on foreclosures

Kamala Harris takes over as California's attorney general next week with dodgy bank foreclosure practices in her sights and lawsuits against major banks in her realm of possibilities. For the up-and-coming Democratic star - the state's first woman, South Indian and African American attorney general - her predecessor and California Governor-elect Jerry Brown is a model to follow in cracking down on lenders.
But while Brown scored an early settlement against banks as home foreclosures mushroomed in California, other states have been more aggressive of late. Borrower activists are hoping Harris will make the most populous US state a more powerful ally against the banks.
Mortgage servicers have come under fire in recent months for abuses of the foreclosure process, prompting the nation's 50 state attorneys general to co-ordinate an investigation of lenders such as Bank of America, J.P. Morgan Chase & Co and Ally Financial's GMAC unit.
This month, Arizona and Nevada, two neighbouring states hit very hard by foreclosures, took a more aggressive stance and filed lawsuits against Bank of America. Harris told Reuters in an interview on Tuesday that litigation is one potential course, along with discussions with lenders. She stressed the importance of investigating whether a lender's conduct violated California law in a manner that should lead to litigation.
"It is a priority for me," Harris said. "So it is something I am going to look into right away." Harris won the state-wide attorney general race this year by less than 75,000 votes out of nearly 9 million cast, edging out Republican Los Angeles County District Attorney Steve Cooley.
She brings a unique biography to the office and some important allies in Washington. Harris's mother was an Indian-American endocrinologist, her father a Jamaican-born economics professor. She was the first woman elected as San Francisco's district attorney in 2003. An early Obama backer during the 2008 election cycle, Harris in turn benefited from the president's support during her recent campaign.
After she takes office on January 3, she will take some cues from fellow Democrat Brown, who she "absolutely" considers a model in his approach to lenders. Brown sued Countrywide in 2008 over its mortgage practices, which led to a consent judgement with Bank of America. The bank committed to loan modifications which it valued at roughly $8.4 billion nationally.
Another lawsuit from California's AG could be extremely helpful to borrowers, said Margot Saunders, of counsel at the National Consumer Law Center. "It certainly would do a lot if she filed, but the critical issue is not how she files, it's how she settles," Saunders said. "AGs can be very aggressive and reach a settlement that sounds good on paper, but might not result in a lot of benefits."
Indeed, Brown's pressure on Bank of America has not quite had the powerful effect some had hoped. Arizona Attorney General Terry Goddard alleged in his lawsuit that Bank of America has not lived up to its promises and consistently misled customers over the modification process.
Bank of America said it was disappointed the lawsuit was filed and that it has worked with state leaders to assist distressed homeowners. When it comes to remedies for homeowners unable to make mortgage payments, Harris said principal reduction is a top priority. "Certainly given the state of this crisis we have to be as creative as possible to protect those homeowners," she said.