Harris' Silence on Diverted Funds Rankles Housing Advocates

Harris' Silence on Diverted Funds Rankles Housing Advocates
AP Photo/Rich Pedroncelli, File
Harris' Silence on Diverted Funds Rankles Housing Advocates
AP Photo/Rich Pedroncelli, File
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In her presidential bid, Kamala Harris has repeatedly touted her role in taking on the big banks to help struggling homeowners in her home state. Specifically, she’s cited their “predatory” lending practices that targeted minority homeowners during the housing crisis over a decade ago, and points to her own efforts as proof she’s just as committed to battling big corporate interests as Elizabeth Warren and Bernie Sanders.

“So in my background as attorney general of California, I took on the big banks who preyed on the homeowners, many of whom lost their homes and will never be able to buy another,” Harris said in late July during the second round of Democratic debates in Detroit.

While the Golden State senator was making these statements, however, she wasn’t responding to requests to meet with leaders of advocacy groups for low-income minority victims of the housing crisis nor was she speaking out – even broadly — about their cause as it faced a critical legal juncture, according to a leader of one of the groups who requested the meeting.

That cause is something Harris was deeply involved with while serving as attorney general. In fact, she and several other state attorneys general were instrumental in negotiating a $25 billion national settlement with five of the top U.S. mortgage lenders to provide debt relief and other financial services to struggling homeowners. But in 2012, just months after Harris secured those funds along with the other state AGs, then-California Gov. Jerry Brown diverted $331 million from California’s portion of the settlement to pay off state budget shortfalls incurred before the housing crisis.

Although Harris initially spoke out against Brown’s diversion of the funds, she remained silent on a subsequent court battle that began in 2014 – even after she left the attorney general’s office and for the last year and a half while serving as senator and during her presidential bid this year.

That reticence has critics arguing that Harris hasn’t demonstrated the same political courage she boasts of deploying against the banks to stand up to Brown, his successor, Gavin Newsom, and other prominent Democrats in the California legislature.

“She’s running for president of the United States, saying she took on the big banks and looked out for the little guys – this has become a platform for her -- and she won’t even meet with us or deal with us,” Faith Bautista, president and chief executive of the National Asian American Coalition, or NAAC, told RealClearPolitics.

Bautista said she had hoped to support Harris’ 2020 run but can no longer do so because of what she regards as the dissonance between the candidate’s words on the campaign trail and her lack of words or action in the legal case Bautista and other minority groups waged against the state government for several years, especially now that it’s over and her side has won.

The impact of that legal outcome remains to be seen as current Gov. Newsom is forced to comply with a recent court order and the plaintiffs await the details of his plan to use the previously diverted money to benefit homeowners and other consumers hurt during the mortgage meltdown.

Prominent state Republicans who fought Brown and Democratic lawmakers over the fund’s diversion are also calling on Harris to take a stand on the redirection of the money, which California courts deemed illegal three times.

“If [Harris] is going to be a champion for the underserved and the victims of the housing crisis who lost funds designed to help them, that she helped secure, than she should have been out front on the issue,” California Senate Republican Leader Shannon Grove said in an interview with RealClearPolitics.

The NAAC, a nonprofit serving Asian American homeowners and small businesses, along with the National Hispanic Christian Leaders Conference and COR Community Development Corporation, another organization which serves poor communities in California, have been fighting the state on behalf of minority homeowners for the last five years.

Bautista noted that one of Harris’s aides met with her and leaders of a sister organization called the National Diversity Coalition, a nonprofit that advocates on behalf of all racial minorities’ interests in homeownership and financial literacy. (The groups had requested a meeting with Harris herself, but to no avail.) That meeting took place in early April of this year, but Bautista said nothing substantive came out of it.

“She’s a coward. It’s political,” Bautista said of Harris, opining that the first-term senator is reluctant to publicly stand up to Brown, who endorsed her in the crowded 2016 Senate primary when she and then-Rep. Loretta Sanchez were the top two contenders in a field of 34 candidates running to replace retiring Sen. Barbara Boxer.

“Luckily, with God’s blessing, we won the case without her,” Bautista said of a decision last month by the California Supreme Court to let a lower court’s ruling in her organization’s favor stand.

RealClearPolitics asked Harris’ presidential campaign about her position on the issue and her recent reticence regarding the lengthy court battle. Ian Sams, her national campaign spokesman, pointed to a Harris statement from 2012, when she was still attorney general, vowing to work with Brown and the Democratic-controlled legislature to ensure the $331 million in funds in question were used to help Californians struggling with foreclosures.

“While the state is undeniably facing a difficult budget gap, these funds should be used to help Californians stay in their homes,” Harris said in that statement. “I plan to work with the governor and legislature toward a balanced budget that honors our obligations to California’s homeowners.”

Sams also pointed to a 2015 article in which a different Harris spokesman said she had recused herself from fighting the lawsuit brought by Bautista’s NAAC and two other minority community organizations against Brown and the state of California

Sams didn’t respond to numerous follow-up questions regarding Harris’ silence on the issue as it heated up in the California legislature and the courts and made headlines across the state. He also didn’t say why Harris declined to meet with representatives of the NAAC and its sister nonprofit, the NDC.

Harris’ decision to recuse herself from the case while attorney general meant the state had to hire an outside law firm and use additional taxpayer money fighting the lawsuit.

Legal experts say the recusal likely prevented her from speaking out publicly against Brown’s decision to divert the funds while she was serving as attorney general, although it would not preclude her from making broad statements, while serving as a U.S. senator, about how the funds should be used.

“A California lawyer facing a serious ethical conflict may need to withdraw under the applicable rules of professional conduct,” David Carrillo, executive director of the California Constitution Center at the University of California, Berkeley’s law school, told RCP. “And the governor has the last word over an attorney general, so that if an attorney general tried to sue a governor, it would be the governor’s call on whether that happened.”

Hans von Spakovsky, a former Department of Justice attorney, a onetime Federal Election Commission member and now a senior legal fellow at the conservative Heritage Foundation, said Harris was not only right to recuse herself from the case but that the recusal extended beyond her time as attorney general. It “doesn’t just suddenly disappear when you leave that office,” he said.

However, von Spakovsky noted, such a stance wouldn’t prevent Harris from making some of the same broad statements she made about the issue before the recusal – such as that she disagreed with Brown’s decision to divert the funds because they were intended to directly help homeowners.

“Any statements she made publicly before the recusal, she is not limited in doing that again,” von Spakovsky said. “What she would not be able to reveal is privileged communications she had with the governor when she was attorney general.”

The NAAC and the other community groups filed their lawsuit in 2014, while Harris was still the state’s chief law enforcement official. They argued that Brown illegally diverted $331 million of a $410 million fund in cash California received in the 2012 national settlement with Ally (formerly known as GMAC), Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

Those funds are part of the same $25 billion national settlement – the lion’s share of which was aimed at providing debt relief in California -- Harris repeatedly references on the campaign stump as one of her biggest achievements.

That agreement, in fact, is cited as one of her signature accomplishments as state attorney general and one that Harris used in her 2016 Senate campaign to convince California voters she would fight for them in the upper chamber of Congress.

During that race, Elizabeth Warren appeared in an ad for Harris, giving her credit for walking away from the negotiating table and extracting more concessions from the banks than they initially wanted to give.

Harris wrote about her role in the negotiations in her most recent book, “The Truths We Hold: An American Journey,” and she recalled the experience during her Jan. 28 speech launching her presidential bid.

“‘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 said in that Oakland, Calif., speech. “…So we went after the five biggest banks in the United States. We won $20 billion for California homeowners.”

As Harris has repeated that refrain throughout the year, journalists and consumer advocates have started scrutinizing the record. Most give her, along with several other key state attorneys general, substantial credit for demanding more concessions from the banks. But critics also argue that the results were mixed for homeowners and other consumers who suffered during the housing crisis and that the total fell far short of what was initially promised.

The settlement occurred in 2012, after nearly a million homes in the state had already been foreclosed upon from roughly 2007 till that time. Even after the award was won, thousands of additional families lost their homes, and consumer advocates say the most vulnerable – minorities with limited English, the disabled and widows – were having difficulty using the settlement to their benefit.

The California Reinvestment Coalition, or CRC, which represents 300 community organizations mostly in low-income neighborhoods, has recently criticized Harris for failing to go after OneWest Bank, the California lender whose CEO was now-Treasury Secretary Steven Mnuchin. Harris has countered that she couldn’t do so because legal rules protected financial institutions from state action, particularly from states’ subpoena power.

When she arrived in Washington, Harris co-sponsored a bill with Warren and fellow Democratic Sen. Dianne Feinstein of California to allow state attorneys general to subpoena banks and interview their top executives, but it didn’t go anywhere in the GOP-controlled Senate.

Vijay Das, CRC’s national policy and communications director, called it “disingenuous for any official, let alone Kamala Harris, to talk about what they are doing to fight white-collar crime” when there’s a prime example of a bank that she didn’t pursue and should have. 

“We remain disappointed that [Harris] didn’t follow the work of her lawyers to follow through on this issue,” he said.

Real estate economist Christopher Thornberg said California was hit the hardest by the subprime lending crisis and that the worst years were 2007 and 2008 when hundreds of thousands of foreclosures forced people from their homes. Those numbers had tapered off dramatically by the time of the mortgage settlement, he said.

“It was so late in the game and the vast majority of the pain was already behind us,” said Thornberg, director of the University of California, Riverside, Center for Economic Forecasting and Development.

The state also did not keep close track of individual consumers and what happened to their homes and their overall experience, he said. He argued that the ability to claim credit for taking on the big banks during the mortgage meltdown has become a “political trophy” that is more about “political optics than realism.”

“I’m sure people got checks here and there and some people were helped. The question is, did they move the needle?” he said. “If there’s a burning building and no one is trying to help you and you jump out of the third floor, and suddenly a fireman picks you up and runs you out to the hospital and says he saved somebody, you’re probably saying, ‘Where the hell were you when I had to jump out of the window?’”

Part of the new scrutiny involves the $410 million fund Harris helped secure as California’s share of a separate cash payment, totaling $2.5 billion, the banks made to state governments.

Brown siphoned off $331 million of the $410 million to cover a budget shortfall involving housing bonds – a shortfall that occurred before the housing crisis. Since 2015, California courts have ruled that the money was intended to help homeowners struggling with foreclosures and that Brown and the Democrat-led state legislature unlawfully diverted most of the payout amid tough budgetary times.

Indeed, Brown and the legislature wanted to hold onto the money so badly that last year lawmakers passed a bill to revoke the court decision. An appellate court has since ruled the legislative action unlawful.

Even though the state is running a record budget surplus of $21.4 billion, Newsom, who succeeded Brown this year, continued to fight the community groups’ lawsuit until last month when the California Supreme Court refused the state’s request to reconsider an appeals court ruling requiring the state to replenish the mortgage settlement funds.

Last week, Newsom announced he would deposit the $331 million into a trust fund that would pay for legal services to help California homeowners and renters in need of legal advice.

In making the announcement at a Los Angeles legal aid clinic, he appeared entirely sympathetic to the plaintiffs who brought the case, never mentioning that earlier this year he had continued to fight the lawsuit, as Brown had done.

“The idea that human beings could take advantage of other human beings at this level and go to bed at night and hug their kids is extraordinary in and of itself,” Newsom said. “Those that aspire to get into [the middle class] are being slammed, because we had been unable to produce enough housing, to prevent evictions and foreclosures and unscrupulous practices and to preserve the existing housing stock."

Newsom was under some public pressure to make the announcement. Grove, California’s Senate Republican leader, and Republican Assembly Leader Marie Waldron wrote the governor a letter in late July after the state Supreme Court let the lower court ruling stand. That letter urged him to submit a plan detailing how the mortgage settlement funds will provide help to struggling homeowners and those hurt during the housing crisis.

“The court’s decision is unambiguous,” the GOP lawmakers wrote. “The state must return the money to the mortgage fund so it can be used on behalf of distressed homeowners. Many homeowners are struggling in an economy that has seen inconsistent growth and still feel the effects of the recent recession and the downturn in the housing market.”

Grove and Bautista remain skeptical that Newsom will direct the money in the proper way and both argue that Harris has been conspicuously absent from the public tug-of-war over the funds she helped secure and that never reached the struggling homeowners they were intended to help.

“Actions speak louder than words,” Bautista told RCP. “This has taken five years and I can’t tell you how many times we’ve begged for [Democratic officials’] support – we went to every single one of their offices and no one would help.

“We really don’t know what Newsom’s plan is – it’s so vague. You do your rah-rah plan during a press conference and everyone takes credit, but people don’t know the reality of this – the history. [The California government] stole this money for the longest time, and [Newsom] fought not to have to return it, and now he’s having a press conference, saying, ‘Hey, I’m a hero – I’m going to help the homeowners, I’m going to help the renters.’”

Bautista still wants to hear from Harris, and she bristles when the presidential candidate takes credit for helping homeowners while out on the campaign trail.

“She says she fought hard, she fought the banks, she got the money,” Bautista said. “Well, where is she now? Why isn’t she fighting for the people who really need it -- the Asian Americans, the Latinos and the African Americans and all those who lost their homes and don’t have a voice?”

Susan Crabtree is RealClearPolitics' White House/national political correspondent.

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