An alliance by California and Nevada to jointly investigate misconduct and fraud in the mortgage business further divides efforts by the nation’s attorneys general to bring the home-lending industry to account for improper foreclosure practices.

The two states, which are at ground zero of the nation’s housing bust, will join forces to probe allegations of foreclosure fraud and other wrongdoing in the mortgage markets, including the packaging and selling of mortgage-backed securities by Wall Street players and scams by smaller players offering to help troubled borrowers.

The agreement to work together, announced in Los Angeles on Tuesday by California Atty. Gen. Kamala D. Harris and Nevada Atty Gen. Catherine Cortez Masto, comes a week after Massachusetts said it was suing the nation’s five largest mortgage servicers over alleged foreclosure illegalities. The moves escalate pressure on the nation’s biggest financial institutions already in high-level negotiations with a coalition of state attorneys general over their alleged abuses.

“This potential partnership with the Nevada AG may cover a fairly broad array of issues,” said Paul Leonard, California director for the Center for Responsible Lending. “Having the prospect of investigations and litigation could very well raise the stakes for — and put added pressure on — the financial institutions to come up with a settlement.”


California bowed out of the multistate talks this summer, saying the banks were being let off the hook too easily, and has opened a number of probes into the mortgage business. Harris characterized her pact with Masto as an intensification of her efforts. The offices will share litigation strategies, evidence in ongoing investigations and link both the civil and criminal teams of each office.

The alliance unites two attorneys general in states with similar foreclosure processes and laws. Many of the same players acted in both states, Harris and Masto said Tuesday, resulting in a similar housing malaise.

Underscoring the harm the housing crisis has inflicted on their constituents, the attorneys general took turns Tuesday speaking in front of maps illustrating the high rates of foreclosure in both states.

“California and Nevada were particularly hard-hit as it relates to the foreclosure aspect and to the number of homeowners that we have underwater,” Harris said. “In that way, we have a very specific issue in terms of the harm that has resulted to our states — and also a focus for our investigations.”


In both states, the foreclosure process exists largely outside of the court system. For that reason, evidence of fraud in the foreclosure process has not emerged as readily as in other states.

Masto has perhaps made the most progress of any state attorney general in pursuing alleged fraud in the foreclosure process. Masto this week said she had widened a criminal probe that involves employees of Lender Processing Services, a Florida company that emerged as an important player in the fracas over faulty foreclosure practices. The ringleaders of the alleged scam were two Orange County loan officers.

Masto said taking action against the players involved in the housing crisis was necessary because of the harm done in the state.

“This crisis is causing great havoc in the local economy,” Masto said. “Families are being forced out of their homes — vacant homes are being vandalized.”


Harris also is investigating Lender Processing Services, having subpoenaed the firm this year.

California has other mortgage probes. Investigators with Harris’ office have subpoenaed information from Fannie Mae and Freddie Mac as part of a wide-ranging inquiry into lending and foreclosure practices in the state, The Times has previously reported.

Harris’ office also is investigating Bank of America Corp. and its mortgage arm Countrywide Financial, along with Citibank, seeking information on their practices selling mortgaged-backed securities in California. The Nevada attorney general has sued Bank of America and some subsidiaries, including Countrywide, accusing them of violating a consent order struck as part of a settlement with the state over its past bad lending practices.

The new alliance between Harris and Masto comes as the largest banks are working to strike a deal with a coalition of attorneys general and federal agencies that is led by Iowa Atty. Gen. Thomas Miller, who has forced the mortgage industry to accept large settlements in the past.


Masto has said the state would evaluate any proposed deal but would push ahead with her own work. New York, Delaware, Kentucky and Minnesota have signaled they are unhappy with the direction of the talks with the banks. New York and Delaware have struck their own agreement to pursue a wider probe of Wall Street’s role in the mortgage meltdown.

The negotiations were expected to have produced a settlement of as much as $25 billion for the states, including a provision that would write down principal for troubled borrowers, a move long pushed for by housing advocates. But despite pressure from the Obama administration for a quick settlement that might give the beleaguered housing market a boost, those talks have dragged on for more than a year.

alejandro.lazo@latimes.com