The city of San Diego is suing Countrywide Financial Corp. in an effort to slow foreclosures.
San Diego City Attorney Michael Aguirre announced today that a civil complaint was filed in San Diego Superior Court by his office's Consumer and Environmental Protection Unit against the Calabasas, Calif.-based company.
Among the defendants named in the lawsuit are former Countrywide chairman and chief executive officer Angelo Mozilo, former president David Sambol, Sambol's predecessor Stanford L. Kurland and Countrywide Bank FSB Chairman Carlos M. Garcia. Bank of America Corp., which acquired Countrywide on July 1, is also listed as a defendant.
San Diego accuses Countrywide of engaging in a "pattern of unlawful, fraudulent or unfair predatory real estate lending practices." The alleged activities have left a number of the city's residents facing foreclosure.
A spokeswoman for Bank of America told MortgageDaily.com in a written statement that they had not yet received the complaint and could not comment on the allegations. But she indicated that the company has been involved in a detailed review of Countrywide's operations since taking it over and is working hard on the integration.
San Diego's complaint says in 2003, Countrywide moved its focus from fixed-rate conforming originations to non-conforming adjustable-rate mortgage originations. It went on to paint a picture of a company that misled prospective borrowers and increased the level of risk in its operations.
The city alleges that Countrywide ignored borrowers' ability to repay the loans and instead focused only on the foreclosure or liquidation value of the property. Countrywide is also accused of concealing the true nature of the loan terms and of churning loans to repeatedly collect "high points and fees."
The Bank of America spokeswoman indicated the Charlotte, N.C.-based bank stopped originating subprime mortgages in 2001 and added that the combined company will not re-enter that business nor will it offer negatively amortizing option ARMs.
"We are passionate about helping customers purchase a home with the right product for them and helping customers sustain home ownership," she said. "We have made this clear in our previously announced commitments."
San Diego seeks civil penalties and injunctive relief that will prevent Countrywide from starting or proceeding with foreclosures on owner-occupied properties located in San Diego that secure ARMs with teaser rates made to subprime borrowers. The moratorium would apply only when the loan-to-value exceeds 100 percent and the debt-to-income ratio is higher than 50 percent based on the fully-indexed rate.
The company could only proceed with a foreclosure on the affected borrowers once it proves to the city that it met with the borrowers and took reasonable steps to avoid foreclosure.
The San Diego metropolitan area was the ninth worst in the country for first-quarter foreclosures, according to RealtyTrac. The area saw one foreclosure for every 74 households, compared to a national rate of one foreclosure for every 194 households. RealtyTrac said a total of 15,315 foreclosures were filed in San Diego during the first quarter.
"We believe these borrowers are victims of fraud and were roped into unconventional subprime loans when they probably could have qualified for a conventional fixed-rate mortgage," Aguire said in the statement.
Bank of America said it plans to modify or work out at least $40 billion in troubled mortgage loans in the next two years. The move is expected to help prevent around 265,000 foreclosures.
The city's announcement seemed to borrow language from California Attorney General Edmund G. Brown Jr., who in June announced a state lawsuit against the company alleging it deceitfully herded borrowers into risky mortgages with the sole objective of reselling the mortgages on the secondary market at huge profits.
The states of Illinois and Washington have also taken action against Countrywide.
People of the State of California v. Countrywide Financial Corporation, et al
July 23, 2008 (San Diego Superior Court)
California Expands Lawsuit Against Countrywide
The state of California claims it has uncovered "shocking new details" about how Countrywide Financial Corp. disregarded prudent underwriting and deceived borrowers.