New York Attorney General Eric Schneiderman and California Attorney General Kamala Harris are joining the national mortgage servicing settlement, making a deal that includes all 50 states all but inevitable, according to a source who spoke Wednesday evening on condition of anonymity.
"It's hard to see any state staying out of the deal if California is in," said the source.
The settlement resolves allegations that five of the nation's largest banks forged documents and wrongfully foreclosed on borrowers in what has come to be known as the "robo-signing" scandal. Schneiderman and Harris have been outspoken in urging the Obama administration to hold the nation's biggest banks accountable for their role in the housing crisis and have resisted signing on to the settlement until now over concerns that it would go too easy on the banks and provide too little homeowner relief. The two states' participation had widely been seen as necessary to a successful deal.
California has been one of the hardest hit states during the foreclosure crisis, and because of this was considered a key state when it came to securing a deal. The five banks participating in the settlement -- Ally Financial, Citigroup, Bank of America, Wells Fargo and JP Morgan Chase -- agreed to contribute a total of $25 billion to help struggling homeowners if California joined the deal. Without California, that figure would drop to $19 billion. The deal is being negotiated between the state attorneys general, the Obama administration and the banks.
The majority of the settlement money is earmarked for helping homeowners change the terms of a mortgage or refinance it, or reduce the amount of principal owed.
In this election year, the proposed deal has become a political lighting rod as some consumer advocates have criticized the Obama administration for what they perceive as terms that deliver too little help to desperate homeowners.
"Even if the final settlement number is $25 billion, it pales in comparison to the scope of the problem," said Margery Golant, a Florida-based attorney who represents homeowners and formerly served as assistant general counsel at subprime mortgage giant Ocwen Financial. "If you do the math, that's a few hundred million per state. That's not enough to change anything."
California and New York are joining more than 40 states that already have agreed to the settlement. Florida, Massachusetts, Nevada and Delaware have remained resistant to joining, though that will likely change now with California's and New York's participation, sources familiar with the negotiations said.
Shaun Donovan, secretary of the Department of Housing and Urban Development, said last week that a deal "will be finalized, I would expect, in the coming days." A final deal has not been announced.
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