SACRAMENTO, Calif. (Reuters) – In her presidential pitch to voters, U.S. Senator Kamala Harris touts as a signature accomplishment the $20 billion relief settlement she secured as California attorney general for homeowners hit hard by the foreclosure crisis.
Consumer advocates praise Harris for demanding more money from the banks and for backing stronger protections for homeowners. But thousands of people still lost their homes after not getting the help they needed, advocates say.
The settlement’s uneven results leave Harris, one of more than 20 Democrats seeking the party’s nomination to run against President Donald Trump in 2020, vulnerable to skepticism from voters dismayed by how it played out and attacks from competitors for not being tougher on banks.
“If you’re running against Bernie Sanders and Elizabeth Warren, you have to be anti-bank,” said Steven Maviglio, a California Democratic strategist who has advised two assembly speakers and a governor. “That would possibly give them fodder if she catches fire.”
Warren and Sanders, who serve with Harris in the Senate, have led the charge among progressives calling for aggressive regulation and oversight of financial institutions. Warren has proposed making it easier to jail executives whose companies commit wrongdoing.
Just two years into her first term as a senator, Harris, 54, relies heavily on the campaign trail on her experience as an elected prosecutor in California, including six years as attorney general in the aftermath of the mortgage crisis.
In 2011, she famously walked away from the table when attorneys general from other states were negotiating a settlement with the big banks that would require them to help consumers harmed by foreclosure and predatory lending practices.
Her bold move led to tough negotiations that more than quadrupled the money promised to help Californians reduce the amount they owed on their mortgages. A few years later, Harris also championed a Homeowners Bill of Rights in California that helped protect consumers in the wake of the crisis.
“Senator Harris fought hard on behalf of California homeowners, and she secured the largest settlement of any attorney general in America,” said Ian Sams, her campaign spokesman. “It was a big risk to press the banks even further for a larger settlement, but she had the conviction to do it and the toughness to win that fight.”
But consumer advocates who worked with California homeowners during the mortgage crisis say the most vulnerable – limited English speakers, the disabled, widows and minorities – had the least luck obtaining relief.
“What we heard repeatedly was people who should be getting loan modifications weren’t getting them,” said Kevin Stein, deputy director of the California Reinvestment Coalition, an association of about 300 nonprofit consumer finance groups.
The state did not track individual consumers who applied for or received help under the settlement, or gather information on ethnicity, income or other circumstances. However, repeated detailed surveys of California Reinvestment Coalition’s member organizations during the financial crisis showed the difficulty credit counselors had obtaining help for their clients. The surveys, seen by Reuters, highlight in particular the trouble faced by disadvantaged groups.
About 150,000 homeowners received relief under the mortgage settlement in California, according to a 2013 report by then-law professor Katie Porter, who served as Harris’ monitor over the settlement proceeds. Porter was elected as a Democratic congresswoman last year.
Advocates also say the state did not do enough to prosecute banking executives for predatory practices.
“It is absolutely reprehensible that you can get thrown in jail for stealing a box of Kleenex at the 7-11, but if you steal from people at a multi-million dollar scale, nothing happens to you,” said Maeve Elise Brown, executive director of Housing and Economic Rights Advocates, a legal assistance group in Oakland.
Sams said Harris brought numerous mortgage fraud cases, including several against middlemen who profited from predatory loans. State records show the attorney general’s mortgage fraud strike force filed 41 cases during her tenure.
Of the roughly $18 billion offered to consumers to reduce what they owed on loans, about $9.2 billion was used to forgive money lost when people sold their homes for less than they owed, known as a short sale. Another $4.7 billion was used to forgive some or all of the money owed on second mortgages.
Putting nearly $14 billion toward short sales and second mortgages allowed the banks to use settlement money to reimburse themselves for money they might have lost anyway, said Bruce Marks, founder of the Neighborhood Assistance Corporation of America, a national nonprofit home ownership and advocacy organization that was active in California during the crisis.
Families still lost their homes under short sales. But Harris’ campaign said those sales helped thousands of homeowners who otherwise would have faced foreclosure, a painful process that would have ruined their credit.
Harris’ efforts won praise from Warren, who in 2015 called the then-Senate candidate “fearless” in taking on the big banks.
Marks said Harris stepped back once the big settlement was negotiated, however, and failed to aggressively police the way the money was used.
“That would give me pause supporting her,” Marks said.
California real estate economist Christopher Thornberg, an expert on the financial crisis, credits Harris with bringing needed reforms to the state’s mortgage and foreclosure systems.
But she politicized a complicated problem, he said. And because the state did not keep track of individual consumers and what happened to them, there is no way to know how well her solutions really worked.
“It was very impressive politically,” said Thornberg, director of the University of California, Riverside, Center for Economic Forecasting and Development. “But we don’t really know ultimately if she moved the needle.”