Her announcement is the latest to undermine a resolution that had been in the works between the banks and attorneys general in all 50 states. Other states including New York also have expressed reservations about the deal, which would help keep people in their homes and compensate borrowers who faced improper foreclosures.
The agreement was supposed to settle claims of poor mortgage and foreclosure practices, including document fraud known as "robo-signing" -- approving documents in foreclosures without actually reading them.
However, Harris said the pending deal is "inadequate for California homeowners" and gives bank officials too much legal immunity.
The state is being asked as part of the settlement "to excuse conduct that has not been properly investigated," she wrote, promising to continue her own investigation.
Without agreement from the nation's most populous state -- and one of the hardest hit by foreclosures -- the settlement could end up doing little to resolve the issue. Foreclosure fraud class-action lawsuits are also piling up against major banks across the country.
Harris noted that more than 2.2 million California residents are underwater, meaning that they owe more on their mortgages than their homes are worth. Since the negotiations began 11 months ago, foreclosures have begun against more than 560,000 additional California homes.
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"No state has been harder hit than my home state of California," Harris wrote in a letter to Associate U.S. Attorney General Thomas Perrelli and Iowa Attorney General Tom Miller, who have been leading the talks.
Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. are among the banks that have been involved in the talks.
"We will continue to work with all parties, including our customers, to restore homeownership nationally and locally," Wells Fargo spokeswoman Vickee Adams said, adding that the bank has helped more than 700,000 people nationwide with new low cost loans or modifications.
JPMorgan Chase spokesman Thomas Kelly and a Bank of America spokesman, Lawrence Grayson, declined to comment.
Harris said California will go it alone in negotiating a settlement with the banks that would keep more families in their homes. She also promised to seek regulations and legislation to prevent future problems.
Assistant Iowa Attorney General Patrick Madigan said California had been an important part of the negotiations, which already have had lasting effects, delaying foreclosures in many states.
"However, the multistate effort is pressing forward and we fully expect to reach a settlement with the banks," he said in a statement. The settlement will still be presented to all 50 states, he said.
States need to move quickly to prevent more foreclosures, Madigan said.
"Providing relief after the foreclosure crisis is over would be a hollow victory indeed," he warned.
Backed by Community Groups
Community organizations praised Harris for rejecting the settlement.
"The first step in restarting our economy is keeping people in their houses and holding banks' feet to the fire," Rick Jacobs, chairman and founder of the Courage Campaign, said in a written statement.
"This settlement would have only been able to help around 20,000 California homeowners out of 2.2 million, while giving away all future rights to pursue investigations and litigation around a broad list of fraud that has been committed," said a news release from People Improving Communities Through Organizing.
The talks have been designed to institute new guidelines for mortgage lending nationwide. It was anticipated to be the biggest overhaul of an industry since the 1998 multistate tobacco settlement.
However, over the last year, issues have arisen that have caused significant obstacles, including the amount of money in a reserve account for property owners who were improperly foreclosed upon, and how much civil liability the lenders should face.
The issues have caused attorneys general, including those in New York and Delaware, to withdraw from the talks. Attorneys general in Minnesota, New Mexico and Kentucky in recent weeks have criticized aspects of the deal in media reports.
Banks' responses to the scrutiny have varied.
More Problems in the Paperwork
Many, including Bank of America and Ally Financial Inc.'s GMAC Mortgage, temporarily halted their foreclosure cases in October after allegations surfaced that employees signed but didn't read documents that may have contained errors. Wells Fargo also admitted it had made mistakes in thousands of foreclosure cases and promised to fix them but did not stop its foreclosures. All three lenders have said that they're fixing the problems.
One of the biggest sticking points in settlement talks has been the amount of penalties the mortgage lenders would pay for their role in improper foreclosures. Federal and state officials have sought a figure greater than $20 billion while banks have pushed for about $5 billion.
A "monetary relief fund" was agreed upon in principle by May. But the formula for how much states and federal agencies would get became contentious.
Some states, upset with the slow movement on the settlement, have already taken action on their own.
Attorneys general in Arizona and Nevada, two of the states hardest hit by defaulted mortgages, have filed lawsuits against Bank of America, the country's largest bank, saying the lender misled and deceived homeowners who have tried to modify mortgages.
Copyright 2011 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
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