In the latest attempt at the city level to curb foreclosures, San Diego city attorney Michael Aguirre filed suit yesterday against Bank of America and Countrywide, and is planning to file similar suits against Washington Mutual, Wachovia and Wells Fargo, to prevent the lenders from foreclosing on homes in the city, according to Reuters. “We would like to see San Diego become a foreclosure sanctuary,” Reuters quoted Aguirre as saying. This of course begs the question of whether San Diego will turn into a “foreclosure sanctuary” or a lender hell.
Aguirre’s intentions may be good at heart, but how can you justify something like this? Telling a business that they cannot collect on debts owed to them is ludicrous. Here are a couple quotes from Aguirre that appeared in the Reuters article that speak to his reasoning:
"The Countrywide executives who originated these subprime loans were engaged in a massive fraud on homeowners, borrowers and investors. They enriched themselves by over $1 billion."
"We have the big stick of being found in violation of the law and the carrot of taking something that is a nonperforming asset, that all these houses are, and making it a performing asset by keeping the families in it."
Sure, some Countrywide executives may have cut some corners and performed some questionable acts, but surely he doesn’t think that all the executives at all those major banks did the same thing? Furthermore, the Reuters article states that Aguirre's lawsuit, brought in the name of the people of California, names four current and former Countrywide officers, including former CEO Angelo Mozilo, and alleges they personally profited from selling shares of the lender's stock while knowing its subprime loans did not comply with company policies. My question is, what does this have to with the homeowners in foreclosure? This sounds like an issue between Countrywide, the aforementioned executives and the investors. As long as homeowners were getting the loans they thought they were getting, this has little to do with them. If a bank wants to break their own rules in order to fund some loans, that is their prerogative. They were not breaking federal or local laws with these loans, but company rules and guidelines.
The bigger issue here is if Aguirre is successful in his suit, and with the information I have seen I can’t imagine he will be, how will banks react to future mortgage lending in the city? If a bank knows that they are going to have to put up with people like Aguirre, who strongly favor homeowners over businesses, is it really worth the trouble to even lend in the city? I know if I were a bank in this situation, I would wash my hands of San Diego and focus my efforts elsewhere. If the city is telling me I can’t go after debtors who don’t pay me back, then I would have to think long and hard before I lent there.