Vice President Kamala Harris often touts how she took on the “big banks” as attorney general of California to deliver mortgage relief to homeowners hit by the 2008 foreclosure crisis. The story has become central to the way Harris introduces herself to voters.
It’s mentioned in TV ads and at many campaign stops. She also spoke about it during her speech at the Democratic National Convention in August.
“As attorney general of California, I took on the big banks, delivered $20 billion for middle-class families who faced foreclosure and helped pass a Homeowner Bill of Rights, one of the first of its kind in the nation,” she said.
The oft-repeated story references how Harris helped negotiate a multistate mortgage settlement with five of the nation’s biggest banks that delivered financial relief to homeowners and set standards for lenders. Harris also secured a separate agreement with three of the banks, guaranteeing a certain amount of relief for California homeowners. Both deals were signed in 2012.
Harris has been retelling the story throughout her political career. A chapter in her 2019 book, “The Truths We Hold,” describes her role in the settlement negotiations. And it has come up when Harris talks about her connection with President Joe Biden’s late son, Beau Biden, who was then the attorney general of Delaware and also signed onto the national mortgage settlement.
Settlement becomes a career-defining moment for Harris
When Harris became California attorney general in 2011, many states and several federal agencies had already been investigating abusive lending practices such as robo-signing, when banks routinely signed foreclosure-related documents without knowing if the facts were correct.
At the time, the US housing market was in disarray and Americans were defaulting on their mortgages and falling victim to foreclosure at extremely high rates.
In the fall of 2011, Harris walked away from the negotiations, claiming the proposed settlement was “inadequate for California homeowners.”
In her book, Harris recounts how she decided to speak directly to JPMorgan Chase CEO Jamie Dimon over the phone about the negotiations, a conversation that turned heated. The national agreement was finalized just weeks later.
The episode became a career-defining moment for Harris. A press release her office issued at the time said that before she had left the talks, California was expected to receive just $4 billion from the national settlement.
“I think she did hold out, and I think she improved the settlement as it pertained to California homeowners,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.
Mortgage relief for homeowners
As a result of the national settlement, mortgage relief was delivered to homeowners in several different forms, such as principal reductions, interest rates cuts, other kinds of loan modifications or short sales. There were also some direct payments sent to people who wrongfully lost their homes to foreclosure, according to the National Mortgage Settlement website.
Harris appointed a monitor – now-US Rep. Katie Porter, who was at the time a law professor at the University of California, Irvine – to make sure the banks complied with the terms.
The California agreement delivered about $9.2 billion to more than 84,000 homeowners by reducing the principal on their first or second mortgages, according to Porter’s 2013 report.
Another $9.2 billion went to short sales. Short sales don’t allow a family to stay in their home but do allow a homeowner to sell for less than the property is worth. If a lender approves a short sale, it agrees to forgive the difference.
The results allowed many families to stay in their homes, but in hindsight, wasn’t perfect.
“There was less principal reduction done here than should have been done. That has a lot to do with the way this (agreement) got structured,” Rheingold said.
New standards for mortgage lenders
The settlement also set new servicing standards for mortgage lenders that, at the time, didn’t exist on a national level.
“From my vantage point, the real value of the settlement was that it introduced the first broad set of servicing standards for big banks and lenders,” said Lisa Sitkin, supervising attorney at the National Housing Law Project.
Sitkin said that in earlier years, it felt like the “Wild West” because there were no rules to protect borrowers when they were going through the foreclosure process.
The settlement, for example, put restrictions on a practice known as “dual tracking,” during which a mortgage servicer continued the foreclosure process while a struggling borrower was applying for a loan modification.
The new guidelines were a precursor to federal regulations later created by the Consumer Financial Protection Bureau.
The standards also helped pave the way for the California state legislature to pass a Homeowner Bill of Rights, creating more protections for homeowners.
“It was only when then-AG Harris put the weight of her office behind the efforts that we were able to get a Homeowner Bill of Rights passed here in California,” said Sitkin, who along with other advocates had spent years pushing for state standards.