California and Nevada's attorneys general announced Tuesday in a press conference that they are teaming up to prosecute mortgage fraud in their respective states.
The planned cooperation between the attorneys general in two of the states hardest hit by the collapse of the housing market could shift the landscape of the national foreclosure crisis. For one, the new partnership could weaken attempts by other states and the Obama administration to negotiate a single, national foreclosure settlement with the nation's five largest home-loan companies over alleged misdeeds, such as the mass-signing of foreclosure documents and the foreclosure of borrowers who were in the process of seeking mortgage modifications.
But the move also serves as a warning to the financial institutions accused of defrauding hundreds of thousands of homeowners. The states plan to work together on a broad range of issues related to mortgage fraud, the sources said.
In the past California has been burned by large, multi-state mortgage settlements. In 2008 the state joined 10 others in agreeing to a settlement regarding fraudulent mortgage practices at Countrywide, the sub-prime lender that came to epitomize questionable lending during the mortgage boom. Bank of America, which owns Countrywide, agreed to offer up to $3.5 billion in loan modifications and foreclosure relief to California homeowners victimized by Countrywide's mortgage fraud. But as of June 30, 2011, only roughly $80 million in payments have been made to California residents through the program.
California Attorney General Kamala Harris may be trying to avoid another disappointing mortgage settlement by partnering up with Nevada Attorney General Catherine Cortez Masto.
"There's been a lot of frustration [in California] with prior settlement agreements that have not delivered," said Kevin Stein, associate director of the California Reinvestment Coalition, a nonprofit organization that advocates for the financial rights of low-income communities. "I think there's a recognition that the Countrywide settlement didn't play itself out as people had hoped. We want to look forward and not repeat whatever mistakes may have occurred then."
Countrywide has not only underperformed in terms of the amount of money offered to borrowers. It has also neglected to help thousands of homeowners who qualified for mortgage relief under the terms of the settlement, say sources familiar with the situation. Kim Ramirez, 42, is one of those borrowers.
Ramirez, who lives with her husband and two sons in a four-bedroom home in Santa Cruz County, had an adjustable rate mortgage with Countrywide that grew unaffordable when the interest rate shot up. Ramirez was eligible for a modification under California's settlement agreement, and Bank of America approved a modification, which was supposed to decrease her monthly payment to $3,298 from $3,991, beginning in September 2009.
That's when the problems began, according to Ramirez. Her mortgage statements continued to reflect the previous amount. Bank of America reassured her that she was correct to pay the lower amount, that her modification had yet to be processed in their system but would be shortly, that she had nothing to worry about. She kept making payments, until April 2010, when she received a certified letter stating she was in default.
She continued calling the bank, trying to resolve the confusion until one day in December 2010, a bank representative "showed up at my house and nailed a notice of sale to my door," said Ramirez. At that point, she hired a lawyer.
Almost a year later, Ramirez's home remains in limbo. This fall, per instructions from the bank, Ramirez paid $27,421 to resolve her mortgage, at which point the bank informed her that she was current on the loan. Last week, however, the bank returned her monthly payment, claiming the amount was incorrect, though it is the amount agreed to in the modification.
Ramirez said her battle with Countrywide has been devastating.
"My business has completely suffered. People saw the sign nailed to my door, and that's caused rumors in the industry. It's killed my reputation," said Ramirez. "My youngest kid is constantly crying, worrying we're going to lose our home. My credit is destroyed. It's terrifying to me. I've been living like this for years, every day not knowing what's next, not knowing if they're coming back to nail another sign to my door to sell my house."
"Bank of America is reviewing the case and will reach out to the borrowers," said spokeswoman Jumana Bauwen.
It's stories like this that may be motivating Harris to leave the national foreclosure settlement currently under negotiations between the majority of state attorneys general, led by Iowa Attorney General Tom Miller, and the nation's five largest private mortgage servicers -- companies that collect borrowers' payments -- which include Bank of America.
Harris left the national negotiations in September, claiming that the deal in the works was "inadequate for California homeowners." Though she has neither confirmed nor denied whether she will return to the national settlement talks, the fact that she is partnering with Nevada AG Masto, who has also voiced concerns about a national settlement, distances Harris that much further from a national settlement.