WASHINGTON — Efforts to negotiate a settlement between state attorneys general and the top five mortgage servicers collapsed Friday after California pulled out the negotiations.
Industry observers told American Banker, an affiliate of Credit Union Journal, the move effectively kills any chance of a multi-state settlement, leaving the Justice Department and bank regulators to craft a deal with servicers. It follows the actions of New York in August, which also withdrew from settlement talks.
"With New York and California withdrawing, it is hard to see a multi-state settlement that would make sense for the banks," Andrew Sandler, a partner with Buckley Sandler LLP, told American Banker.
Others agreed.
"There's no point to cutting a deal if it doesn't include California or New York, and now both are out of the talks," said Jaret Seiberg, a financial services analyst at MF Global Washington Research Group. "This ends the talks for now. There's little in the short-term that could cause the talks to suddenly have momentum."
In a letter to Iowa State Attorney General Tom Miller, California Attorney General Kamala D. Harris said the deal under discussion was "inadequate for California homeowners."
After a meeting last week in D.C., Harris said, "It 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."
"In return for this broad release of claims, the relief contemplated would allow too few California homeowners to stay in their homes," she wrote.
In a statement released Friday evening, Miller said the settlement talks would forge ahead, despite the setback.
"California has been an important part of our team and has made a significant contribution to this case," Miller said. "However, the multistate effort is pressing forward and we fully expect to reach a settlement with the banks."
Miller said that after a settlement is reached, it will be provided to all 50 states so that each attorney general can make a decision whether or not to join.
It remains to be seen whether federal officials — including the Justice Department, Consumer Financial Protection Bureau, and the bank regulators — can put together a settlement that banks are willing to accept.
