Kamala Harris Took on Big Banks After the Foreclosure Crisis. It Helped Define Her Career

It was the fall of 2011, and the American housing market was in freefall — California was ground zero.

Hundreds of thousands of Californians had already lost their homes to foreclosure, and millions more were underwater on their mortgages, owing more than their homes were worth. Many were facing exploding mortgage payments as adjustable-rate loans skyrocketed.

At the Mission Economic Development Agency (MEDA) in San Francisco, frantic homeowners streamed in daily, asking for help. It was a scene repeating itself at similar nonprofits across California, which was among the hardest-hit states, suffering around one-third of overall foreclosures nationally.

At the time, Jacqueline Marcelos was one of two mortgage counselors at MEDA, an asset development organization that she’d first walked into for help herself: She and her husband were the victims of mortgage fraud, one of more than a dozen families that a real estate agent had bilked out of money. As a result, Marcelos had lost her home to foreclosure.

Now a counselor at MEDA, Marcelos and her colleagues knew that families seeking their help were likely weeks or months away from losing their homes.

“We used to have around 26 clients per month. It was a lot,” she said. “The banks never did respond on time. They were always asking you for more documentation. They were continuing doing the foreclosure procedures even though you were under review.”

“And then one day, Kamala Harris came in,” she said.

Trial by fire

California’s newly elected attorney general, Harris, took office as policymakers were grappling with the worst economic crisis in decades, and Californians were suffering: In 2009, as the subprime mortgage crisis began to peak, more than 3.5 million California households were delinquent on their mortgages; Florida was the next highest state with 3.1 million families behind.

As Harris assumed her role, other state attorneys general were negotiating as a group with the five largest banks over their outsize responsibility for the foreclosure crisis. But California wasn’t initially part of that group.

In her autobiography, “The Truths We Hold,” Harris recounts instructing her staff on her first day to join those multi-state settlement talks. By the fall, however, she made the risky decision to pull out, convinced that the banks were gunning for a deal that wouldn’t offer homeowners enough money or new protections — and would shield the banks from future probes.

That decision would prove pivotal in shaping Harris’ political career and public image, becoming a frequent reference point in her campaign narratives — including during her speech this summer at the Democratic National Convention in Chicago.

“As Attorney General of California, I took on the big banks, delivered $20 billion for middle-class families who faced foreclosure, and helped pass a homeowner bill of rights — one of the first of its kind in the nation,” she told the cheering crowd.

The subprime mortgage crisis wasn’t new to Harris: As San Francisco district attorney, her office had taken on several related mortgage fraud cases, including prosecuting the real estate agent who defrauded Marcelos. But now, as top prosecutor of the largest state in the nation, the stakes were significantly higher.

With a presidential election on the horizon, the Obama administration wanted Harris and the other attorneys general to strike a deal, which most of the other states were eager to do. And the banks were breathing down her neck.

“When she walked away and rejected what was put on the table, there was enormous pressure immediately upon her to show the next steps and … there were a lot of people who were leaning on her to change her mind,” said Nathan Barankin, her chief of staff at the time.

“She felt very, very strongly that the reason why she needed to reject what they had put on the table was because there had not been an adequate investigation into exactly what had happened and, more importantly, what the consequences were of the misbehavior by these big banks,” he said. “Her focus at that time, together with the executive team and so many other folks in the attorney general’s office, was to create and execute that investigation.”

This led Harris to a conference room at MEDA on Nov. 22, 2011, alongside Marcelos, and surrounded by San Franciscans who had lost their homes or were in the process of losing them. It was one of several meetings she held around the state with distressed homeowners and their advocates.

“I wanted to be here today to hear these stories,” she told the group, according to a video of the meeting. “There are a lot of people who are debating and talking about it and thinking about it from a perspective that is intellectual or perhaps political or academic. But the reality is, this issue is about each of you at this table and the experiences that you’ve had.”

She added, “We’re talking about folks who have believed in the American Dream.”

Marcelos said that at that meeting, the attorney general was “very friendly, very approachable. ” Harris, she said, “understood the pain of all the families that were present and acknowledged [it],” giving them hope for systemic change.

A formative settlement

In January 2012, Harris demanded to talk directly to one of the key players in the settlement talks: JP Morgan Chase CEO Jamie Dimon. According to her book, the call devolved into a yelling match, with Dimon accusing Harris of “trying to steal from my shareholders,” to which Harris fired back, “Your shareholders? My shareholders are the homeowners of California.”

Within two weeks of that call, Harris and the other attorneys general had struck a deal with the mortgage lenders.

California ultimately secured $20 billion, far exceeding the original offer of $2 to $4 billion, with the bulk aimed at lowering mortgage principals for homeowners. The main goal was to keep people in their homes and reduce the amount they owed so they weren’t paying a mortgage higher than the worth of their home. More than 84,000 families received principal reductions totaling $9.2 billion, according to a 2013 report by the state-appointed monitor.

However, many Californians still lost their homes after the settlement, noted Ira Rheingold, the executive director of the National Association of Consumer Advocates. According to the same state monitor’s report, another $9.2 billion of the settlement went toward lowering the amount people owed on mortgages, which resulted in short sales. In those cases, the homeowners avoided foreclosure and were able to walk away without debt or bad credit — but they still lost their homes.

Despite this, Rheingold praised Harris’ work, saying the settlement came out of “the failure of the federal government to take appropriate action.”

“I think she did the best she could under those circumstances for California homeowners,” he said. ”The only place where principal reduction was being offered to consumers was through the AG settlement. It wasn’t nearly enough, but that was the one place.”

Rheingold said Harris’ involvement ensured two other crucial provisions of the settlement. First, it included reforms to lending operations that “set the stage for later rules and regulations around the mortgage servicing industry.” Second, Harris forced the banks to allow California to appoint its own monitor to ensure compliance with the agreement.

That monitor was Katie Porter, a consumer protection attorney who is now a Southern California congresswoman. Porter noted that the settlement itself was hundreds of pages long and incredibly complicated. Her role, as Harris laid out when she called to offer Porter the job, was partly to ensure that the people who needed help could actually navigate it.

“She didn’t want these to be hollow promises,” Porter said. “She didn’t view her job as the press conference announcing the settlement. She viewed her job as actually getting the banks to stop doing illegal things and start helping the families that got hurt.”

Porter said she’s proud of what the settlement meant for tens of thousands of Californians who were able to get out from underwater mortgages. But she agrees it didn’t include something many would have liked to see: criminal accountability for the bank executives and others who took advantage of consumers.

“We know that a lot of these mortgage executives made a lot of money and walked away even as families and homeowners struggled,” Porter said. “And for me, what that illustrates is sort of a larger problem about corporate accountability.”

That said, Harris’ mortgage strike team did prosecute dozens of people for fraud and other mortgage-related crimes when she was attorney general.

Both Porter and Marcelos, from MEDA, highlighted Harris’ next move after negotiating the settlement: successfully pushing state lawmakers to approve the Homeowners Bill of Rights, which codified into law many of the settlement’s rules and reforms that would have otherwise expired after a few years.

“No settlement is perfect,” said Porter. But, she added, “If you ask yourself, did this settlement force banks to change illegal unlawful practices that they had been committing for a decade? The answer is yes.”

Marcelos agreed, noting that while many of those homeowners Harris met with in November 2011 at MEDA had already lost their homes after the Homeowner Bill of Rights passed, she was repeatedly able to invoke the law to banks, preventing her new clients from losing their homes to foreclosure.

Not ‘someone else’s problem’

Porter said that Harris’ handling of the mortgage crisis illustrates who she is as a politician and leader as she seeks the presidency.

“The important thing in this moment for people who are asking themselves, ‘What do we know about Kamala Harris and how is she going to lead and govern?’ is that she wasn’t someone who said, ‘This is someone else’s problem. Let’s let the federal government solve this. Or sooner or later, Congress will get around to this.’ This is somebody who went and tried a different avenue.”

Barankin, her former chief of staff, argues there is a throughline in Harris’ public service: Her insistence on doing the research, sitting down with those impacted and basing a resolution on those real-life conversations. He notes her successful cases as attorney general prosecuting a for-profit college that was preying on low income Californians; and going after a website that was being used to prostitute and traffic young women. One of those young women spoke on the vice president’s behalf at the Democratic convention this summer.

“It was not enough for her to just look at a spreadsheet of mortgages,” Barankin said. “She wanted to go to those neighborhoods. She wanted to meet the homeowners who had lost their homes. She wanted to meet their neighbors. She wanted to see the communities that had been impacted by this misconduct by the banks.”