SAN DIEGO (Legal Newsline)-A proposal for protecting IndyMac customers facing foreclosure is being touted by San Diego City Attorney Mike Aguirre as a model prescription for Countrywide Financial Corp. customers as well.
Aguirre, who is the only city attorney in the country to sue Countywide for its alleged predatory lending practices, said the 38 percent solution issued on Aug. 20 by Federal Deposit Insurance Corp. Chair Sheila Baer for IndyMac customers, provides a road map for stemming the tide of foreclosures.
"There has been a lot of progress with the IndyMac case," Aguirre said.
Baer's remedy puts a cap at 38 percent of a borrowers' income that can be applied to mortgage, tax and insurance payments. Any borrower exceeding that amount would be allowed to reduce the interest rate to lower the payment below the 38 percent of income threshold. A second remedy would be to extend the loan over more years, thus lowering the payment. A final step should the others fail to successfully reduce the payment would be to provide a forbearance of the principal that would be recovered if the home is sold or refinanced.
Aguirre said he wants San Diego to take the lead by advocating the 38 percent solution.
He plans to ask the City Council to declare a "foreclosure crisis" and support the 38 percent solution. Aguirre would also like the model to become part of any settlement reached in the numerous lawsuits filed by several state attorneys general against Countrywide.
"If we can get the Countrywide thing worked out that will become the model," he said, that can then be used in negotiations with other lenders. When Aguirre sued Countrywide he said he intended to sue other lenders as well. He has since put on hold any further lawsuits, he said, until the Countywide lawsuit is resolved.
Proponents of the 38 percent solution include Robert Gnaizda of Greenlining Institute, who wrote a letter in early August to California Attorney General Jerry Brown, requesting the attorney general seek a preliminary injunction against Countrywide and its parent company, Bank of America, which would create an immediate moratorium on foreclosures.
Brown, who told Legal Newsline he is in "ongoing and intensive" negotiations with Bank of America, has been reluctant to seek a moratorium.
Aguirre said negations with Brown and Bank of America are not proceeding rapidly enough, as foreclosures continue to negatively impact communities and homeowners at an increasing rate. Aguirre said he has had talks with other state attorneys general, including Illinois Attorney General Lisa Madigan. Madigan's office said it was considering seeking a preliminary injunction but must wait for the case's jurisdiction to be settled. Bank of America has requested all lawsuits be lumped into one federal case, a move that the state attorneys general oppose.
Debbie Hagen, chief of the Illinois attorney general's consumer protection division, said stemming the tide of home foreclosures as soon as possible remains a top priority even as they wade through the legal morass.
"Attorney General Lisa Madigan's primary concern is to deal with the foreclosures right now," Hagen told Legal Newsline. "Our primary goal currently would be to stop the foreclosures in a way to keep as many people as possible in their homes. That's the overarching goal in any talks with Bank of America."
Gnaizda said he cornered Brown at a recent social event that both attended. Gnaizda said he discussed the foreclosure situation with Brown, but called the talks, "inconclusive." Gnaizda expects to meet with Brown more formally once the attorney general returns from a vacation after Labor Day.
In the interim, Gnaizda sent a letter to both Brown and Bank of America Chief Executive Officer Ken Lewis, urging them to support the 38 percent solution. Lewis is urged to voluntarily enact the plan, while Brown is asked to use the model in his negotiations with Bank of America.
"That will eliminate 90 percent of the foreclosures in the state," Gnaizda told Legal Newsline.