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Suit Against WaMu Seeks Foreclosure Moratorium

San Diego v. WaMu

October 13, 2008

By staff

The City of San Diego has sued Washington Mutual Inc. in an attempt to halt foreclosures by the former lending giant. The case, which accuses the thrift of mortgage fraud and predatory lending, is the second recent lawsuit filed by the city against a major lender just after it was acquired by a major bank.

San Diego City Attorney Michael Aguirre filed the lawsuit in San Diego Superior Court on Friday, an announcement said.

WaMu, which saw subsidiary Washington Mutual Bank shut down by the Office of Thrift Supervision last month and taken over by JPMorgan Chase & Co., is accused of engaging in a "pattern of unlawful, unfair or fraudulent predatory real estate lending practices." It mass produced mortgages for sale on the secondary market with little regard for repayment ability.

The Seattle-based company was motivated by increased market share. San Diego said half of the loans in WaMu's portfolio were to California borrowers as of last year. It reportedly acquired California's three biggest thrifts in the late 1990's and became the second-biggest U.S. lender by 2002.

The city said WaMu recklessly sold no-income verification loans and placed borrowers in exotic adjustable-rate and interest-only programs. In an effort to help borrowers avoid payment shock as interest rates reset, it churned the loans by repeatedly refinancing them. WaMu also used false advertising and allegedly committed mortgage fraud by colluding with real estate appraisers to inflate home values.

Its alleged illegal activity has caused numerous foreclosures, and the city is seeking to prevent WaMu from proceeding on foreclosures of owner-occupied subprime mortgages until it evaluates the borrowers for loan modifications or provides relocation assistance. The city also seeks civil penalties.

During the second quarter, the San Diego area saw 17,343 foreclosures filed -- the seventh most filings of all U.S. metropolitan areas, according to RealtyTrac. Its foreclosure rate of one filing for every 65 households was the 11th worst in the country.

In July, Aguirre filed a lawsuit against Countrywide Financial Corp. and some of its former executives alleging a "pattern of unlawful, fraudulent or unfair predatory real estate lending practices." That lawsuit sought civil penalties and injunctive relief that would have prevented Countrywide from starting or proceeding with foreclosures on owner-occupied properties located in San Diego that secure adjustable-rate mortgages with teaser rates made to subprime borrowers.

Bank of America Corp., which acquired Countrywide on July 1, announced on last week that it reached agreements with several states, including California, to provide up to $8.4 billion in interest rate and principal reductions to systematically modify loans for nearly 400,000 troubled borrowers.

Friday's statement from San Diego indicated the city will not dismiss its lawsuit against Countrywide until it receives a written confirmation from BoA that foreclosures will be halted.


City Sues Countywide to Stop Foreclosures
The city of San Diego is suing Countrywide Financial Corp. in an effort to slow foreclosures.

People of the State of California, Plaintiff, v. Washington Mutual Inc., a Washington corporations, and Does 1-200, inclusive, Defendants.
Case No. 37-2008-00093736-CU-BT-CTL, Oct. 10, 2008 (Superior Court of California, County of San Diego)

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