Hoping to stem the tide of home foreclosures, San Diego City Attorney Michael Aguirre yesterday sued the nation's largest lender, accusing it of fraudulent subprime lending and demanding that it stop taking back homes from delinquent borrowers.
The suit targets Countrywide Financial, which allegedly “engaged in a pattern of unlawful, fraudulent or unfair predatory real estate lending practices causing victims of such behavior ... to lose or be in jeopardy of losing their homes through foreclosure.”
Bank of America, which recently purchased Countrywide, was also named but only because of the purchase, the suit states.
Following the lead of state Attorney General Jerry Brown, who filed suit against Countrywide last month, Aguirre aims to use the litigation as leverage to force Countrywide and other major lenders into a settlement plan that would allow delinquent borrowers to remain in their homes under more affordable mortgage payment terms.
Aguirre, who is running for re-election in November against Superior Court Judge Jan Goldsmith, said he has plans to sue other lenders, including Washington Mutual, Wells Fargo and Wachovia, if he cannot get cooperation from them in renegotiating homeowners' loans.
“It's as if a herd was going over the side of a cliff, and we're saying we need to turn the herd around,” Aguirre said of the mushrooming number of foreclosures. “We want a workout plan based on the real value of the property, not the inflated value. We want to keep families in their houses and work out loans they can afford.”
Keith Gumbinger, vice president of HSH Associates, a New Jersey company that monitors loan prices, said the lawsuit “adds another layer of uncertainty to the business climate” for troubled mortgage companies.
If Countrywide were to curtail foreclosures here, it could harm investors who purchased securities that were backed by home loans, he explained. If investors aren't allowed to recover their money through foreclosures, he said, they will stop buying mortgaged-backed securities and that could undermine the entire home-purchase system.
Countywide couldn't be reached for comment yesterday. Dan Frahm, a spokesman for Bank of America, said he had not received Aguirre's complaint and could not discuss it. However, he stressed that his company has been conducting a review of Countrywide since acquiring the company.
“We are passionate about helping customers purchase a home with the right product for them and helping customers sustain homeownership,” he said.
In a prepared statement, Wells Fargo said the company “only makes loans we believe the customer has the ability to repay. No one – not lenders, borrowers or investors – benefits when a borrower defaults.”
Washington Mutual and Wachovia representatives declined to discuss the suit. A Washington Mutual representative said the company works hard to help distressed borrowers.
Shaun P. Martin, a professor of law at the University of San Diego, said Aguirre is trying to create enough pressure to compel home mortgage lenders to change the way they do business. While he likely won't get everything he is seeking, he has “a shot at getting relief” from Countrywide.”
Already under legal assault by the attorney general, Countrywide may choose to avoid the publicity of a courtroom battle with Aguirre, Martin added.
In a press conference held yesterday in front of a vacant, partially burnt Skyline home that had recently been foreclosed on by Countrywide, Aguirre said efforts to curtail foreclosures will likely have more success when local officials step in.
Aguirre noted that cities such as Baltimore, Buffalo and Cleveland have filed lawsuits related to the foreclosure issue, but have used varying legal theories. In San Diego's suit, Aguirre is arguing that the city has the authority to go after lenders under the California business and professions code governing fraudulent and unlawful business practices.
In Cleveland, the legal basis was the public nuisance law.
“For those of us who thought there should have been a law against this, we came to recognize that here in Ohio we do have a law: our public nuisance law,” said Cleveland's law director, Robert J. Triozzi. “So we decided here in Cleveland to take matters into our own hands.
“Our lawsuit, however, is not about changing the banking industry or trying to stop foreclosures, but to recoup damages that we've incurred – the increased costs to police and fire services, demolition costs and huge damages in terms of local property values.”
Aguirre said he's hoping to have a “settlement judge” who can help facilitate an agreement to work out borrowers' loans.
The kinds of loans targeted in the lawsuit are defined as being adjustable with low teaser rates and having a loan-to-value ratio of 100 percent. They also must have been made for San Diego properties that are owner-occupied.
Lori Weisberg: (619) 293-2251; lori.weisberg@uniontrib.com
