Government Lending

Kamala Harris, Biden’s VP pick, played hardball with banks during financial crisis cleanup

California’s first Black senator is now the nation's first Black female running mate

Washington D.C.

Note: The original story ran on June 26, 2020. It was updated on August 11, 2020, to reflect Sen. Kamala Harris’ recent appointment as presidential candidate Joe Biden’s running mate.

Sen. Kamala Harris (D-CA), chosen by former Vice President Joe Biden on Tuesday to be his running mate, has a rocky history with the mortgage industry.

Eight years ago she became known as the toughest negotiator among the 49 state attorneys general who went up against the nation’s biggest banks to secure a $25 billion settlement for mortgage servicing violations such as robo-signing and predatory lending practices that contributed to the foreclosure crisis.

It was her first year in statewide office after winning the 2010 election for attorney general by a narrow margin to become California’s first female and first Black American to hold the post. Her political skills, combined with intellect and charisma, won her the nickname “the female Obama.”

In the final months of tense negotiations leading up to the National Mortgage Settlement, she famously walked away from an agreement the banks, the Obama administration and other state attorneys general wanted because the money wasn’t enough and it immunized the banks from future legal liability.

There was no deal without California, the nation’s most populous state, and so the banks had to pony up more cash.

The eventual amount agreed to in the settlement announced Feb. 9, 2012, was more than five times the proposal Harris initially nixed, and the banks agreed to a separate “California commitment” saying if they failed to enact agreed-upon principal reductions and other measures, they face heavy fines in the state’s court.

The agreement with Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and Ally Bank – formerly known as GMAC – was the second-largest civil settlement in U.S. history, following the Tobacco Master Settlement 14 years earlier.

When Harris began her presidential campaign in January 2019, the slogan on her signs was the phrase she uttered every time she stood in court as a state prosecutor, beginning as a deputy district attorney in 1990, to introduce herself to the judge, “Kamala Harris, for the people.”

At the campaign kick-off speech attended by more than 20,000 people in Oakland, California, down the street from the hospital where she was born in 1964, she cited her battle with the mortgage industry.

“’For the people meant fighting for middle-class families who had been defrauded by banks and were losing their homes by the millions in the Great Recession,” she told the crowd. “And I’ll tell you, sitting across the table from the big banks, I witnessed the arrogance of power.”

In those days, as the nation teetered on the verge of a collapse of the financial system, banks often renegotiated lenient deals with their biggest commercial mortgage borrowers – that was standard business practice. But when it came to families struggling to keep their homes, there wasn’t much help.

There was, however, lots of finger-wagging and use of the phrase “moral hazard.” In other words, helping people stay in their homes amid the subprime meltdown would only encourage them to be reckless in the future, is how the thinking went.

Bankers tended to say that homeowners shouldn’t have taken out mortgages if they couldn’t pay them back, without acknowledging that many of the loans had hidden provisions, such as “exploding ARMs” – adjustable-rate mortgages with rates that would triple after an initial introductory period. That part of the deal often was buried in small print in an inch-high stack of mortgage papers.

“Wealthy bankers accusing innocent homeowners of fault, as if Wall Street’s mess was of the people’s making,” she said at the speech. “So we went after the five biggest banks in the United States.”

Harris got other California carve-outs in the mortgage settlement known as “enforceable guarantees” that required the banks to focus early in the agreement’s three-year period on mortgage relief for the state’s hardest-hit areas, like Stockton.

At a news conference following the announcement of the settlement, Harris said those provisions were aimed at avoiding a repeat of Countrywide Financial’s $8.7 billion national settlement. Half the money was supposed to go toward principal reductions for California homeowners, but much of the relief never materialized, Harris said.

Tha deal with Countrywide, the nation’s largest subprime lender, was negotiated by her predecessor, Attorney General Edmund G. Brown Jr.

Harris said she learned from his mistakes.

“Countrywide got relief based on a promise,” she told reporters at the news conference. “We made sure we won’t be in the same situation.”

In the same 2016 election that saw Donald Trump win the presidency with a razor-thin margin in three swing states, Harris prevailed in her first attempt at national office, securing 62% of the vote to become California’s first Black senator.

As she gave her acceptance speech after winning her senatorial run in November 2016, she acknowledged the despair among many of her supporters who were expecting Democrat candidate Hillary Clinton to win the presidential election and become the first female president in the nation’s 241-year history.

Harris had some advice that presaged the fiery interrogations she would become known for after she became a member of the Senate Judiciary Committee.

“Do not despair,” Harris said to her election-night audience. “Do not be overwhelmed. Do not throw up our hands when it is time to roll up our sleeves and fight for who we are.”

Harris’ ability to land a punch in committee hearings using sharply honed questions has left a lasting mark on some Trump administration officials interrogated by her.

After Attorney General William Barr interacted with Harris during an appearance in front of the Judiciary Committee, the headline of the Vanity Fair’s May 1, 2019, story describing it was: “Kamala Harris guts Barr like a fish, leaves him flopping on the deck.”

If Harris is Biden’s pick, the exchange might portend what could happen in debates with Trump’s vice presidential pick – the assumption is that it will be current Vice President Mike Pence, but with Trump losing to Biden in every national poll, all bets are off.

This is how Harris’ exchange with Barr went:

Harris: “Has the president or anyone at the White House ever asked or suggested you open an investigation into anyone?”

Barr: “Um, I wouldn’t, uh…”

Harris: “Yes or no.”

Barr: “Could you repeat that question?”

Harris: “Has the president or anyone at the White House ever asked or suggested you open an investigation into anyone? Yes or no please, sir.”

Barr: “Uh, the president or anybody else…”

Harris: “It seems you’d remember something like that and be able to tell us.”

Barr: “I’m trying to grapple with the word ‘suggest’. . . there have been discussions of matters out there that . . . they have not asked me to open an investigation but…”

Harris: “Perhaps they’ve suggested?”

Barr: “I wouldn’t say suggested.”

Harris: “Hinted?”

Barr: “I don’t know.”

Harris: “Inferred?”

Barr mumbles something that sounds like: “I, ah …”

Harris, before moving on to her next question, “You don’t know. OK.”

When Barr then interrupted to try to add to his answer, she wouldn’t allow it.

“Sir, I am asking a question.”

Barr meekly complied.

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