The immediate challenge was that our office wasn’t equipped to answer that riddle. It was a problem that required economists and data scientists, not lawyers. Recognizing the hole in our game, I decided to hire some experts and put them to work crunching the numbers. I wanted to know how many underwater homeowners there were county by county so that we could target relief to the highest pain points. I also wanted to understand what we were dealing with in very human terms: How many people was the money going to help? How many would be left to fend for themselves? How many children were affected by the foreclosure crisis?
The results were as unacceptable as I had feared. Compared with the devastation, the banks were offering crumbs on the table, nowhere near enough to compensate for the damage they had caused.
“We need to be prepared to walk away from the settlement,” I told my team. “There’s no way I’m taking this offer.” I told them that it was time to open up our own independent investigation. “Look, we’re a guest at someone else’s party and we don’t have our own car,” I said. “We need our own ride so that when we’re ready to leave, we can leave.”
Even before taking office, I’d planned with my team to launch a statewide effort to investigate the fraud. Now was the time. That May, we announced the California Attorney General’s Mortgage Fraud Strike Force, a unit of the best and brightest lawyers from our consumer fraud, corporate fraud, and criminal divisions, as well as sworn investigators.
The robo-signing settlement was a critical part of the investigation, but our scope was even wider. I wanted to go after Fannie Mae and Freddie Mac, which owned 62 percent of new mortgages nationwide. I wanted to investigate the mortgage-backed securities that JPMorgan Chase had sold to the California public employee pension fund. And I wanted to go after the predators who had exploited these vulnerable communities, promising to save homeowners from foreclosure for a price—only to steal what little they had left.
The fact that we were doing our own investigation aggravated the multistate negotiators. The banks were furious that I was causing trouble. The settlement was now in doubt. But this had been my goal. Now, instead of merely noting my concerns, the state attorneys general and the banks would have to answer them, too.
Over the course of the summer, we focused on two tracks: the investigation on one, the settlement talks on the other. For my team, that meant working all hours of the day and night—traveling up and down the state and back and forth to Washington. Still, the negotiations were getting nowhere. The banks balked at our demands. At the same time, the rate of foreclosures picked up significantly in California.
In August, the New York attorney general pulled out of the multistate negotiations. In the aftermath, it seemed that everyone’s eyes had turned to me. Would I leave the negotiations, too?
I wasn’t yet ready to do that. I wanted to exhaust every reasonable possibility that the banks would meet our demands. There were important reforms that were part of the negotiation, and I wanted to see them implemented. We were being presented with a false choice: the reforms or the money. I wanted both.
And I knew that time was of the essence. In a homicide case, the body is cold; you’re talking about punishment and restitution after the fact. In this situation, the harm was still unfolding. While negotiations went on, hundreds of thousands of more homeowners had gotten foreclosure notices. It was happening every day and in real time. There were huge areas, entire zip codes, where people were hundreds of thousands of dollars underwater. My team and I pored over the numbers weekly—a dashboard of despair, describing how many people were thirty, sixty, ninety days from losing their homes.
Before I walked away from the table, I wanted to take one last shot at getting a fair deal and some real relief for my state.
To that point, the day-to-day negotiations had been led by Michael and a team of veterans of the California Department of Justice. The next meeting was being held in September, and the general counsels of the major banks had asked me to attend. I was sure they wanted me there so they could size me up from across the table—this new attorney general from out of nowhere. Good. I wanted to size them up, too.
* * *
• • •
We arrived at the offices of Debevoise & Plimpton, the Washington law firm that was hosting the meeting. We were led into a large conference room where more than a dozen people were gathered.
After a few polite hellos, we took our seats around a long, imposing conference table. I sat at one head of the table. The chief counsels of the big banks were there, along with a team of Wall Street’s best lawyers, including a man known as the “trauma surgeon of Wall Street.”
The meeting was tense from the moment it began. Bank of America’s counsel opened by turning to my negotiating team and complaining about the terrible pain we were putting the banks through. I’m not kidding. She said that the process was frustrating, that the bank had been through enormous trauma, that employees there were working to respond to all the investigations and regulatory changes since the crash. Everyone was exhausted, she told us. And she wanted answers from California. What was the holdup?
I ripped right in. “You want to talk about pain? Do you have any understanding of the pain that you’ve caused?” I felt it viscerally. It made me so angry to see homeowners’ suffering downplayed or dismissed. “There are a million children in California who aren’t going to be able to go to their school anymore because their parents lost their home. If you want to talk about pain, I’ll tell you about some pain.”
The bank representatives were calm but defensive. They essentially said the homeowners were to blame for getting into mortgages they couldn’t afford. I wasn’t having any of that. I kept thinking about what the home-buying process looks like in real life.
For the vast majority of families, buying a home is the biggest financial transaction they will ever be involved in. It’s one of the most affirming moments in a person’s adult life, a testament to all your hard work. You trust the people involved in the process. When the banker tells you that you qualify for a loan, you trust that she’s reviewed the numbers and won’t let you take on more than you can handle. When the offer is accepted, the broker is so happy for you, you’d think he’s going to move into the house with you. And when it comes time to finish the paperwork, it’s basically a signing ceremony. You might as well be popping champagne. Your broker is there, your banker is there, and you believe they have your best interests at heart. When they put a stack of paper in front of you, you trust them, and you sign. And sign. And sign. And sign.
I surveyed the roomful of lawyers, and I was certain that not one of them had read every word of their own mortgage documents before buying their first house. When I bought my apartment, I didn’t.
The bankers spoke about mortgages seemingly without any sense of what they represented to the people involved, or who those people were. To me, it sounded as though they had made terrible assumptions about the character and values of struggling homeowners. I’d met many of those people. And for them, buying a home was not just about an investment. It was about attainment, self-fulfillment. I thought about Mr. Shelton, who was always in the front yard, pruning his roses in the morning, always mowing or watering or fertilizing. At one point, I asked one of the lawyers, “Haven’t you ever known somebody who was proud of their lawn?”
The back and forth continued. They seemed to be under the misimpression that I could be bullied into submission. I wasn’t budging. Toward the end of the meeting, the general counsel of JPMorgan chimed in with what he apparently thought was a smart tactic. He told me that his parents were from California and that they had voted for me and liked me. And he knew there were a lot of voters back home who would be really happy with me if I just settled. It was great politics—he was sure of it.
I looked him straight in the eye: “Do I need to remind you this is a law enforcement action?” The room went quiet. After forty-five minutes, the conver
sation had gone on long enough.
“Look, your offer doesn’t come near acknowledging the damage you have caused,” I told them. “And you should know that I mean what I say. I’m going to investigate everything. Everything.”
The general counsel of Wells Fargo turned to me.
“Well, if you’re going to keep investigating, why should we settle with you?”
“You have to make that decision for yourself,” I told him.
As I left the meeting, I made the decision to pull out of the negotiations altogether.
I wrote a letter announcing my decision—but I waited to release it until Friday evening, after the markets had closed. I knew that my words could move markets, and that wasn’t my intention. This wasn’t about grandstanding or making a scene or tanking share prices. This was about trying to get justice for millions of people who needed and deserved help.
“Last week, I went to Washington, DC, in hopes of moving our discussions forward,” I wrote. “But 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. After much consideration, I have concluded that this is not the deal California homeowners have been waiting for.”
I started getting phone calls. From friends who were afraid that I had made too powerful an enemy. From political consultants who warned me to brace myself because the banks were going to spend tens of millions of dollars to throw me out of office. From the governor of California: “I hope you know what you’re doing.” From White House officials and cabinet secretaries, trying to bring me back to the talks. The pressure was intense—and constant—and it was coming from all sides: from longtime allies and longtime adversaries and everyone in between.
But there was another kind of pressure, too. Millions of homeowners had raised their voices, along with activists and advocacy organizations that were mobilizing based on our strategy. We knew we weren’t alone.
Still, this period was hard. Before bed, I would say a small prayer: “God, please help me do the right thing.” I’d pray that I was choosing the right path, and for the courage to stay the course. Most of all, I’d pray that the families counting on me remained safe and secure. I knew how much was at stake.
I often found myself thinking about my mother and what she would have done. I know she would have told me to hold fast to conviction; to listen to my gut. Tough decisions are tough precisely because the outcome isn’t clear. But your gut will tell you if you’re on the right track. And you’ll know what decision to make.
During those days, Beau Biden, Delaware’s attorney general, became an incredible friend and colleague. The banks were in Beau’s backyard, and the foreclosure crisis hadn’t hit Delaware as hard as it had other states. By some measures, he had every reason to keep his head down and toe the line. But that wasn’t who Beau was. Beau was a man of principle and courage.
From the very beginning, he had consistently objected to the deal. He hammered on the points that I was making, too: not enough money; no investigation into the scope of the fraud. Like me, he wanted testimony and documents. He wanted proof that the banks even owned the mortgages they were foreclosing on. And he never budged from that position. He had also opened up his own investigation, and we were actively sharing the information we uncovered. There were periods, when I was taking heat, when Beau and I talked every day, sometimes multiple times a day. We had each other’s backs.
I had other great allies in the fight, too. Martha Coakley, then the attorney general of Massachusetts, was tough and smart and meticulous in her work. My now–Senate colleague Catherine Cortez-Masto was Nevada’s attorney general at the time, and she became a formidable ally as well. Nevada, like California, had been pummeled by the crisis, and Catherine, who’d been in office since 2007, had formed her own Mortgage Fraud Strike Force in 2008. She, like me, was determined to fight the banks, and in December 2011 she and I joined forces to probe foreclosure fraud and misconduct. I could not have asked for better or more resolute teammates.
At the height of this period, I was constantly traveling the country with my team. I’ll never forget the time we flew out to Washington, DC, dressed for the winter, only to find out that we would need to go to Florida the following day. Brian and I ended up racing into a clothing store in Georgetown to find more weather-appropriate attire. It was an awkward moment of levity as we critiqued each other’s choices off the rack.
By January, the banks were exasperated. Michael came into my office.
“I just got off the phone with the general counsel of JPMorgan,” he said. “I told him what the deal was—that we weren’t budging off our position.”
“What did he say?” I asked.
“He wouldn’t stop screaming at me. He says it’s over. That we pushed too far. It was really intense. And then he hung up.”
I pulled my team into my office and we tried to figure out a next step—if there was one to be taken. Had we killed the possibility of any deal? Was there still a chance? I needed to be sure. We sat in silence for a while, thinking it through, until an idea popped into my head. I shouted for my assistant next door (which was the same intercom system we had used growing up). “Get me Jamie Dimon on the phone.” Dimon was and—as of this writing—remains the chairman and CEO of JPMorgan Chase.
My team freaked out. “You can’t call him. He’s represented by an attorney!”
“I don’t care. Get him on the phone.”
I was tired of feeling caged, of talking through lawyers and other intermediaries in endless obfuscation. I wanted to go right to the source, and I believed the situation demanded it.
About ten seconds later, my assistant popped her head into my office. “Mr. Dimon is on the line.” I took off my earrings (the Oakland in me) and picked up the receiver.
“You’re trying to steal from my shareholders!” he yelled, almost as soon as he heard my voice. I gave it right back. “Your shareholders? Your shareholders? My shareholders are the homeowners of California! You come and see them. Talk to them about who got robbed.” It stayed at that level for a while. We were like dogs in a fight. A member of my senior team later recalled thinking, “This was either a really good or a colossally bad idea.”
I shared with Dimon the way his lawyers were presenting his position, and why it was unacceptable to me. As temperatures cooled, I got into the details of my demands so that he would understand exactly what I needed—not through the filter of his general counsel, but directly from me. At the end of the conversation, he said he would talk to his board and see what they could do.
I’ll never know what happened on Dimon’s side. But I do know that two weeks later, the banks gave in. When all was said and done, instead of the $2 billion to $4 billion that was originally on the table, we secured an $18 billion deal, which ultimately grew to $20 billion in relief to homeowners. It was a tremendous victory for the people of California.
As part of the settlement, the federal government was going to assign a monitor to make sure the banks complied. But given how much exposure California had, that didn’t satisfy me. I was going to hire our own monitor and authorize her to oversee the agreement’s implementation in our state.
I had been asked to fly to Washington to be part of the larger announcement, a major press conference and celebration that would take place at the Department of Justice and the White House. But I wanted to be at home with my team. It was our victory to share together. And we needed to gear up for the next battle ahead.
* * *
• • •
The settlement was just the beginning. In addition to money, the agreement required banks to provide homeowners with a number of reforms to make the process of fighting a foreclosure easier. But the settlement required those measures to be in place for only three years. If we wanted to protect homeowners in California from abuses in the future, we were going
to need legislation to make the terms of the settlement permanent. I wanted the banks to be permanently prohibited from engaging in their notoriously predatory practices. And I wanted individual homeowners to have the right to sue when banks broke the rules. In coordination with our allies in the legislature, we put these ideas together into what we named the California Homeowner Bill of Rights.
But getting a new law that related to the banks passed through the legislature was going to be a problem. The banks had enormous influence in Sacramento. California legislators had tried to pass similar legislation on at least two prior occasions, only to be defeated by bank resistance. This was going to have to be a full-court press.
The reception to the bill was cold at first. People told me it was dead on arrival. They said the banking lobby was too strong to overcome. The rightness of the legislation seemed to have little to do with the calculation.
I met with John Pérez, who was speaker of the state assembly at the time, to come up with a strategy to turn the bill into law. John is an exceptional man, savvy in both policy and politics. He and I were in complete agreement about the importance of a Homeowner Bill of Rights, and he was ready to work to leverage his power to take on the banks.
I remember at one point during this effort, Speaker Pérez invited me to the Democratic policy retreat of the state assembly at the Leland Stanford Mansion, in Sacramento. Pérez, who had made sure to be in charge of seating assignments, strategically placed me at a table with a couple of strong allies, as well as a few legislators who needed some persuading. We spent much of the dinner talking about the bill. By that point, I knew more than I ever imagined I would about how the banks had acted, all the ways in which they had victimized homeowners. Being able to talk through those experiences with the group seemed to help. When the dinner was over, I had the sense that I had changed one or two of their minds.
None of the legislators ever explicitly said they were siding with the banks. But in conversation after conversation, they would try to find any technical excuse they could for why they couldn’t support the bill. If only you’d done this. If only you’d done that. If only that semicolon wasn’t there.
The Truths We Hold Page 10