February 4, 2011 > California foreclosure relief fund
California foreclosure relief fund
Submitted By Michelle Quinn
Attorney General Kamala D. Harris announced on February 2, 2011, a $6.5M settlement of a predatory lending case against Angelo Mozilo and David Sambol, former CEO and president, respectively, of Countrywide Financial Corporation. The settlement monies will be used to establish an innovative statewide California Foreclosure Crisis Relief Fund to combat the effects of the state's high rates of foreclosure and mortgage delinquency.
"Our prior settlement with Countrywide provided restitution for foreclosed homeowners and set in motion loan modification programs that have helped tens of thousands of consumers," Harris said. "We'll use the current settlement to provide grants to help Californians facing foreclosure with relocation assistance and fund state and local agencies to prosecute mortgage fraud."
During the 18 months ending last September, 282,000 California homes went into foreclosure. In the final quarter of 2010, notices of default were filed on another 70,000 homes in the state.
This settlement concludes litigation filed by Attorney General Edmund G. Brown Jr. in June 2008 against Countrywide Financial Corp., Countrywide Home Loans and Full Spectrum Lending, as well as Mozilo and Sambol. The financial relief provided under the current settlement augments the Attorney General's October 2008 settlement with Countrywide to provide loan modifications and other foreclosure relief valued at $8.68 billion nationwide, with $3.5 billion provided to California borrowers.
According to the lawsuit, in the run up to the mortgage crisis, Countrywide lured borrowers with low "teaser'' rates, often as low as 1 percent on adjustable rate loans. Its loan officers obscured the disadvantages of these loans, which included rapidly rising rates after teaser rates expired, big prepayment penalties, and negative amortization in which a borrower's total loan costs rose even as additional payments were made. Countrywide also loosened its mortgage standards and verification procedures to make more loans.
Consequently, tens of thousands of Countrywide mortgage borrowers found themselves in default and foreclosure. The Attorney General's lawsuit alleged that Mozilo and Sambol knew of these practices and allowed them to continue.
The complaint alleged that Countrywide sought to increase its share of the nationwide mortgage market to 30 percent through a deceptive scheme to mass produce loans - with little concern about borrowers' long-term ability to afford them. It then would sell the loans on the secondary market to earn the highest possible premiums.
The settlement with Mozilo and Sambol was filed on February 2, 2011, in Los Angeles Superior Court. Both officers left Countrywide when it was purchased by Bank of America in July 2008.
Bank of America acquired Countrywide's loan portfolio and assumed responsibility to make restitution to mortgage holders who qualify under the terms of the Attorney General's 2008 settlement. Since then, Countrywide has made more than 32,000 modifications, worth more than $1.3 billion, on loans made to California borrowers and has paid $28M in cash to Californians who lost their homes to foreclosure.
For a copy of the Countrywide complaint, visit www.ag.ca.gov.