Professor Kenneth E. Scott spoke with Joel Rosenblatt of Bloomberg Business Week about the investigation being conducted in California on the practices of mortgage service centers.

California Attorney General Kamala Harris objects to giving banks broad releases of liability for predatory lending. At the same time, she may be locked into her predecessor’s 2008 settlement with the largest lender in the state during the mortgage boom that does exactly that.

Facing a Feb. 6 deadline to join a proposed multistate agreement over foreclosure practices said to be worth as much as $25 billion if California joins, Harris has said she won’t sign onto a deal blocking her from investigating whether the five largest U.S. mortgage servicers misled homeowners about the terms of their loans, among other issues.

…

With California’s share of the settlement said to be at least $6 billion, a decision by Harris to opt out would put pressure on her to extract more favorable terms from the banks, Ken Scott, a Stanford University law professor, said in a phone interview.

For Harris, “the rationale has to be, ‘We’re going to get so much more it will have been worthwhile, and that’s a gamble’” Scott said. While the attorney general may “get the glory,” he said, “the risk and the possibility that isn’t the outcome is being born by the borrowers.”

…

Based on the liability release in the 2008 settlement, in which Bank of America resolved fraud complaints in 11 states by agreeing to pledge $8.7 billion in assistance to Countrywide borrowers, “BofA wouldn’t seem to have much reason to pay still more for the benefit of anyone already covered by it,” Scott said.