Without California, AG Settlement May Be Reduced

While the attorneys general working toward a settlement with the nation’s largest servicers may be able to strike a settlement without California, it may cost them.

A deal that seemed likely imminent as of the end of October would have required $25 billion from the banks – $5 billion in cash penalties and $20 billion in refinancings and modifications, including principal reductions.

The $25 billion settlement could be reduced to $18.5 billion, according to unnamed sources referenced in a Wall Street Journal article.

Many thought a settlement without California would be impossible. In fact, the LA Times stated earlier this week, “Without California’s participation, of course, the banks would never assent to a deal.”

However, the likelihood of a decline in settlement value might be incentive for negotiators to attempt to bring California Attorney General Kamala Harris back to the table.

According to the Journal’s sources, negotiators are pressuring Harris to join the settlement.

Reuters says its sources close to the settlement also “expressed some hope that they could still lure California.”

Harris and others who left settlement negotiations to pursue their own investigations – New York and Delaware attorneys general – may have an incentive to return if one provision reportedly being discussed takes hold.

According to the Journal, officials are discussing limiting settlement funds aimed at principal reductions and refinancings to states who do not participate in the final settlement.

Harris left settlement negotiations this fall saying the settlement on the table at the time was “inadequate for California homeowners.”

“[I]t became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated,” Harris said at the time.

With the highest rate of default in the nation, California was a key participant of the negotiations.

However, Iowa Attorney General Tom Miller, head of the attorneys general negotiating committee, felt it was important to pursue a settlement in a timely manner “while it can still make a difference and save homes from foreclosure.”

Timeliness might be an issue for Californians if Harris continues to pursue her on investigation and claims, according to Reuters. Settlement negotiations with the attorneys general have already been in progress for more than a year, and sources say pursuing a separate deal could bring delayed relief to California homeowners, they say.