Friday, July 31, 2008 |Contrary to the premise of Mr. Toscano’s commentary, the San Diego City Attorney’s Office is not seeking to create a foreclosure sanctuary for all subprime mortgage borrowers. Instead, as outlined below, we are aiming to assist only those persons who were the victims of predatory lending practices. Our lawsuit will create a forum in which both the lender and borrower will be given the opportunity to negotiate a mutually agreeable loan workout program based in equity and fairness.

Many homeowners who today face foreclosure were roped into taking out subprime unconventional loans. Research indicates roughly one-half or more of these borrowers could have qualified for more affordable, conventional rate loans.

Our lawsuit alleges that Countrywide originated loans with little or no regard for the borrowers’ ability to repay the loans, and that Countrywide’s lending practices were designed to increase the company’s share of the national mortgage market by mass producing loans for sale on the secondary market.

The complaint filed by the City Attorney’s Consumer and Environmental Protection Unit alleges that Countrywide made loans based predominantly on the foreclosure or liquidation value of a borrower’s collateral. The company also engaged in “loan flipping” by inducing the borrower to repeatedly refinance a loan in order to charge high points and fees. Countrywide also engaged in fraud to conceal the true nature of the mortgage loan obligation.

We also contend that Countrywide engaged in these unlawful practices for the personal enrichment of several named defendants, whose combined profit exceeded $800 million.

Finally, our legal action is very focused and was brought to stop Countrywide from initiating or advancing any foreclosure on any residential mortgage involving properties that are owner-occupied in the City of San Diego when the residential mortgage contains the following characteristics: 1) the loan is an adjustable-rate mortgage (ARM) with an introductory rate period of three years or less; 2) the loan has an introductory or teaser rate for the initial period that is at least 3 percent lower than the fully indexed rate; 3) the borrower had a debt-to-income ratio that would have exceeded 50 percent if the lender’s underwriters would have measured the debt, not by the debt due under the teaser rate, but by the debt due under the fully-indexed rate; and 4) the loan-to-value ratio is 100 percent or the loan carries a substantial prepayment penalty or a prepayment penalty that extends beyond the introductory period.

Once it is determined that a loan meets these criteria, we are asking that before any further foreclosure action is taken, the legality of the underlying loan origination practices be reviewed by an independent auditor. The audit findings can then assist the borrower and the lender in establishing an equitable workout plan for the loan which may include seeking funds from recently enacted federal legislation designed to help distressed borrowers.

Unlike the Attorney General’s lawsuit, our legal action was brought to stop Countrywide from foreclosing on borrowers who were victimized by Countrywide’s predatory lending practices. And judging from the calls and e-mails my office has received, that number is very high.

Mike Aguirre is the city attorney for San Diego. You can reach him at Or send a letter to the editor.

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