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California Attorney General Kamala Harris is withdrawing from multistate negotiations with big banks over their handling of foreclosures and instead will continue her own probe in an attempt to reform bank practices and prevent foreclosures, she said Thursday.

"California has taken a big hit" in the foreclosure crisis, she said in an interview. "A lot of families are suffering. They deserve to have a voice, they deserve to be heard, they deserve to receive just compensation for the harm that's been done."

All 50 attorneys general, along with federal authorities, began investigating banks after an outcry last year over lenders' sloppy handling of foreclosures, nicknamed robo-signing because bank employees signed sworn documents without reading them. But a proposed settlement was criticized as inadequate and other attorneys general had begun to back away from the table.

'Enormous news'

Consumer advocates, who had urged Harris to withdraw, hailed her announcement.

"This is enormous news, bigger than just California news," said Rick Jacobs, chairman of the Courage Campaign, a progressive advocacy coalition. "California is ground zero in so many ways for the mortgage debacle. She is saying, 'We're going to find out what happened, and do everything we can to make sure banks help restart the economy by keeping people in their homes.' "

Harris said that banks should reduce the principal owed by struggling homeowners, improve procedures for modifying loans and be held accountable for their role in precipitating the crisis.

"The relief contemplated would allow too few California homeowners to stay in their homes," she wrote in a letter to the heads of a 50-state committee of attorneys general. She also objected to the idea of relinquishing future legal claims against the banks in exchange for a settlement.

John Eller, director of the San Francisco office of the Alliance of Californians for Community Empowerment, was among those who supported the decision. "Our main focus is to achieve principal reduction, so as many homeowners as possible can stay in their homes and help reinvest in the economy," he said. "This is the right direction for California" to accomplish that.

"Not a single banker has gone to jail for wrecking the American economy," CREDO Action, the activist arm of what was formerly called Working Assets Wireless, wrote in a statement. "Harris has taken an important first step in saying we need to investigate unscrupulous banks before we trade broad immunity from prosecution for a mere slap on the wrist."

Fraud task force

Harris formed a mortgage fraud task force in May, charged with looking at everything from loan origination to servicing. That division will now play a key role in California's efforts, she said.

The state's size and huge number of foreclosures may give Harris ammunition to hammer out a separate deal, observers said.

California has more than 2.2 million homes that are underwater. During the 11 months of the multistate probe, 560,000 additional homes in the state received foreclosure notices, Harris said.

A $20 billion settlement with the nation's five largest banks - Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial - had been considered imminent for several months.

"If you take the numbers that were discussed at the table, and then slice out California's piece and divide by the number of people who would be eligible, it is woefully inadequate," Harris said.

In recent weeks, consumer advocates, labor leaders, activists and some politicians have criticized the proposed settlement as letting banks off too easily while not helping victims. They had pressured Harris to withdraw from the talks.

She said her decision was spurred by news that foreclosures in California were on the rise again. "That created a sense of urgency and a need to try a new course," she said.

Several other attorneys general, including those in New York, Delaware, Nevada, Massachusetts, Kentucky and Minnesota, also have criticized the proposed settlement as inadequate and some have launched their own investigations.

Harris said she is "happy to provide whatever help and assistance I can to any of those states."

Chase and Citigroup declined to comment. Representatives of Bank of America did not immediately return requests for comment.

"We will continue to work with all parties, including our customers, to restore home ownership," Wells Fargo said in a statement.