Ares
10th October 2010, 10:22 AM
This is an extremely-important case folks. The pleadings here, like the case in Kentucky, lay the table in terms of the games that were played during the "Rah-Rah" years.
Let's start with the "meat" of the alleged violations
<img src="http://market-ticker.org/akcs-www?get_gallery=356"/>
And the first "meaty" part of the complaint....
5. The fraud perpetrated by the Countrywide Defendants from 2003 through 2007, including by BofA starting no later than 2007, was willful and pervasive. It begin with simple greed and then accelerated when Countrywide founder and CEO Angelo Mozilo (“Mozilo”) discovered that Countrywide could not sustain its business, unless it used its size and large market share in California to systematically create false and inflated property appraisals throughout California. Countrywide then used these false property valuations to induce Plaintiffs and other borrowers into ever-larger loans on increasingly risky terms. As Mozilo knew from no later than 2004, these loans were unsustainable for Countrywide and the borrowers and to a certainty would result in a crash that would destroy the equity invested by Plaintiffs and other Countrywide borrowers.
In other words, Countrywide is alleged to not only have made bad loans, but also to have intentionally inflated appraisals.
6. Hand-in-hand with its fraudulently-obtained mortgages, Mozilo and others at Countrywide hatched a plan to “pool” the foregoing mortgages and sell the pools for inflated value. Rapidly, these two intertwined schemes grew into a brazen plan to disregard underwriting standards and fraudulently inflate property values – county-by-county, city-by-city, person-by-person – in order to take business from legitimate mortgage-providers, and moved on to massive securities fraud hand-in-hand with concealment from, and deception of, Plaintiffs and other mortgagees on an unprecedented scale.
Oh, that's rich. So not only (it is alleged) did Countrywide bamboozle borrowers, they also bamboozled investors.
9. It is now all too clear that this was the ultimate high-stakes fraudulent investment scheme of the last decade. Couched in banking and securities jargon, the deceptive gamble with consumers’ primary assets – their homes – was nothing more than a financial fraud perpetrated by Defendants and others on a scale never before seen. This scheme led directly to a mortgage meltdown in California that was substantially worse than any economic problems facing the rest of the United States. From 2008 to the present, Californians’ home values decreased by considerably more than most other areas in the United States as a direct and proximate result of the Defendants’ scheme set forth herein. The Countrywide Defendants’ business premise was to leave the borrowers, including Plaintiffs, holding the bag once Countrywide and its executives had cashed in reaping huge salaries and bonuses and selling Countrywide’s shares based on their inside information, while investors were still buying the increasingly overpriced mortgage pools and before the inevitable dénouement. This massive fraudulent scheme was a disaster both foreseen by Countrywide and waiting to happen. Defendants knew it, and yet Defendants still induced the Plaintiffs into their scheme without telling them.
There's the base of it all....
24. Defendants have gone to great lengths to avoid producing documents in this litigation because they know that such documents will establish all details of the massive fraud they perpetrated on Plaintiffs and other Californians. PennyMac, the Granada Network and Defendants’ overseas operations are used by Defendants to systematically hide documents. By delaying production of documents, the Defendants are buying time as they (a) accept the benefits of the scheme described herein, (b) cover up their fraud, and (c) make it materially more expensive and difficult for Plaintiffs and their counsel to obtain a just result.
Of course there's the famous "let's hide Waldo" game once the gig is pretty much up. After all, if we have to produce the documents, well, our goose might be cooked - and that would be bad.
So what else is presented in here? Oh, all sorts of good stuff. Here's a sampling:
275. Defendant CT REAL ESTATE SERVICES, INC. is a California corporation – corporation number C0570795 – and is a resident of Ventura County, California. Defendant CT REAL ESTATE SERVICES has acted alongside and in concertwith BofA in carrying out the concealment described herein and in continuing to conceal from Plaintiffs, from the California general public, and from regulators the details of the securitization and sale of deeds of trust and mortgages (including those of Plaintiffs herein) that would expose all Defendants herein to liability for sale of mortgages of California citizens – including all Plaintiffs herein – for more than the actual value of the mortgage loans. The sale and particularly the undisclosed sale of mortgage loans in excess of actual value violates California Civil Code, §§ 1709 and 1710, and California Business and Professions Code § 17200 et seq., 15 U.S.C. §§ 1641 et seq. and other applicable laws.
That sounds like a problem to me......
290. At the time of entering into the notes and deeds of trust referenced herein with respect to each Plaintiff, the Countrywide Defendants were bound and obligated to fully and accurately disclose:
a. Who the true lender and mortgagee were.
b. That to induce a Plaintiff to enter into the mortgage, the Countrywide Defendants caused the appraised value of Plaintiff’s home to be overstated.
c. That to disguise the inflated value of Plaintiff’s home, Countrywide was orchestrating the over-valuation of homes throughout Plaintiff’s community.
d. That to induce a Plaintiff to enter into a mortgage, the Countrywide Defendants disregarded their underwriting requirements, thereby causing Plaintiff to falsely believe that Plaintiff was financially capable of performing Plaintiff’s obligations under the mortgage, when the Countrywide Defendants knew that was untrue. One way they systematically disregarded the underwriting requirements was through the use of the Granada Network, another fact which Defendants systematically failed to disclose to any California borrower.
Ding ding ding ding ding ding!
One of the keys to this mess is that the lenders knew full well that the borrowers could not pay "as agreed", yet made the loans anyway.
i. The sales would include sales to nominees who were not authorized under law at the time to own a mortgage, including, among others, Mortgage Electronic Registration Systems Inc., a/k/a MERSCORP, Inc. ("MERS"), which according to its website was created by mortgage banking industry participants to be only a front or nominee to "streamline" the mortgage re-sale and securitization process;
ii. Plaintiff’s true financial condition and the true value of Plaintiff’s home and mortgage would not be disclosed to investors to whom the mortgage would be sold;
iii. Countrywide intended to sell the mortgage together with other mortgages as to which it also intended not to disclose the true financial condition of the borrowers or the true value of their homes or mortgages;
iv. The consideration to be sought from investors would be greater than the actual value of the said notes and deeds of trust;
and
v.The consideration to be sought from investors would be greater than the income stream that could be generated from the instruments even assuming a 0% default rate thereon;
You mean basically everything important about the loans, their quality, who they were going to be sold to, why and how was all bogus? And in addition, the price to be sought from investors exceeded the income stream that could be achieved even if nobody defaulted at all?
Heh, that's a good gig if you can get it - and if you can find a way to do it legally.
Are there some facts behind this? Oh it appears there are...
The credit losses experienced by Countrywide in 2007 not only were foreseeable by the proposed defendants, they were in fact foreseen at least as early as September 2004. [¶ 33 (Emphasis in original)]
. . .
The credit risk described in the September 2004 warning worsened from September 2004 to August 2007. [¶ 35 (Emphasis in original)]
. . .
By no later than 2006, Mozilo and Sambol were on notice that Countrywide’s exotic loan products might not continue to be saleable into the secondary market, yet this material risk was not disclosed in Countrywide’s periodic filings. [¶ 45]
. . .
Mozilo and Sambol made affirmative misleading public statements in addition to those in the periodic filings that were designed to falsely reassure investors about the nature and quality of Countrywide’s underwriting. [¶ 91]
Oh my. 2004 eh? I seem to remember tAngelo on CNBS making multiple appearances talking about how his company was going to take market share from all these subprime lenders that collapsed, and this was going to be great for his company. Indeed, I remember chortling at the time that I believed he was a lying SOB, and of course the so-called "Fantastic Mainstream Media" lapped it up - and helped support his stock price.
It appears that the intrepid attorneys who filed this action remember that too.... and the pages surrounding 100 in the complaint document a whole bunch of them, including statements in 10Ks and 10Qs that, it is alleged, were flatly false.
And, of course, there's this one, which I have referred to many times over the last three and a half years:
363. In the January 30, 2007 earnings conference call, Mozilo attempted to distinguish Countrywide from other lenders by stating “we backed away from the subprime area because of our concern over credit quality.” On March 13, 2007, in an interview with Maria Bartiromo on CNBC, Mozilo said that it would be a “mistake'' to compare monoline subprime lenders to Countrywide. He then went on to state that the subprime market disruption in the first quarter of 2007 would “be great for Countrywide at the end of the day because all of the irrational competitors will be gone.”
I distinctly remember the cheesy suits and ties, not to mention the sprayed-on-looking tan.
370. In fact, the appraisals were inflated. Countrywide did not utilize quality underwriting processes. Countrywide’s financial condition was not sound, but was a house of cards ready to collapse, as Countrywide well knew, but Plaintiffs did not. Further, Plaintiffs’ mortgages were not refinanced with fixed rate mortgages and neither Agate nor Countrywide ever intended that they would be.
As I have repeatedly pointed out, the entire intent of these loans was not to be a mortgage at all. It was, I allege, more akin to an asset-stripping scheme where the borrower would be effectively forced to come back to the lender after a couple of years when the teaser expired or the inevitable reset or recast occurred and effectively hand over his accumulated "appreciation" in price through yet more fees to be paid to the "lender."
I believe that for all intents and purposes, from the lender's point of view, this was nothing more than renting the house, as passing of a clear title to the buyer was never part of what was contemplated by the lender - but of course the borrower wasn't told this in advance - or at all.
There's much more in the complaint, but this will do for a start.
Incidentally, the banks tried to get this removed to Federal Court and kill it, and were rebuffed, so it appears that it's headed to trial. Plaintiff's Bar 1, Banksters 0 thus far - I will be providing updates on this case as I become aware of them.
To contact the attorneys involved (if you believe you might have an issue related to this) view the PDF - contact information is found right on the top, including email addresses - use them.
Link to PDF (http://storage.denninger.net/CA-Class.pdf)
http://market-ticker.org/akcs-www?post=168698
Let's start with the "meat" of the alleged violations
<img src="http://market-ticker.org/akcs-www?get_gallery=356"/>
And the first "meaty" part of the complaint....
5. The fraud perpetrated by the Countrywide Defendants from 2003 through 2007, including by BofA starting no later than 2007, was willful and pervasive. It begin with simple greed and then accelerated when Countrywide founder and CEO Angelo Mozilo (“Mozilo”) discovered that Countrywide could not sustain its business, unless it used its size and large market share in California to systematically create false and inflated property appraisals throughout California. Countrywide then used these false property valuations to induce Plaintiffs and other borrowers into ever-larger loans on increasingly risky terms. As Mozilo knew from no later than 2004, these loans were unsustainable for Countrywide and the borrowers and to a certainty would result in a crash that would destroy the equity invested by Plaintiffs and other Countrywide borrowers.
In other words, Countrywide is alleged to not only have made bad loans, but also to have intentionally inflated appraisals.
6. Hand-in-hand with its fraudulently-obtained mortgages, Mozilo and others at Countrywide hatched a plan to “pool” the foregoing mortgages and sell the pools for inflated value. Rapidly, these two intertwined schemes grew into a brazen plan to disregard underwriting standards and fraudulently inflate property values – county-by-county, city-by-city, person-by-person – in order to take business from legitimate mortgage-providers, and moved on to massive securities fraud hand-in-hand with concealment from, and deception of, Plaintiffs and other mortgagees on an unprecedented scale.
Oh, that's rich. So not only (it is alleged) did Countrywide bamboozle borrowers, they also bamboozled investors.
9. It is now all too clear that this was the ultimate high-stakes fraudulent investment scheme of the last decade. Couched in banking and securities jargon, the deceptive gamble with consumers’ primary assets – their homes – was nothing more than a financial fraud perpetrated by Defendants and others on a scale never before seen. This scheme led directly to a mortgage meltdown in California that was substantially worse than any economic problems facing the rest of the United States. From 2008 to the present, Californians’ home values decreased by considerably more than most other areas in the United States as a direct and proximate result of the Defendants’ scheme set forth herein. The Countrywide Defendants’ business premise was to leave the borrowers, including Plaintiffs, holding the bag once Countrywide and its executives had cashed in reaping huge salaries and bonuses and selling Countrywide’s shares based on their inside information, while investors were still buying the increasingly overpriced mortgage pools and before the inevitable dénouement. This massive fraudulent scheme was a disaster both foreseen by Countrywide and waiting to happen. Defendants knew it, and yet Defendants still induced the Plaintiffs into their scheme without telling them.
There's the base of it all....
24. Defendants have gone to great lengths to avoid producing documents in this litigation because they know that such documents will establish all details of the massive fraud they perpetrated on Plaintiffs and other Californians. PennyMac, the Granada Network and Defendants’ overseas operations are used by Defendants to systematically hide documents. By delaying production of documents, the Defendants are buying time as they (a) accept the benefits of the scheme described herein, (b) cover up their fraud, and (c) make it materially more expensive and difficult for Plaintiffs and their counsel to obtain a just result.
Of course there's the famous "let's hide Waldo" game once the gig is pretty much up. After all, if we have to produce the documents, well, our goose might be cooked - and that would be bad.
So what else is presented in here? Oh, all sorts of good stuff. Here's a sampling:
275. Defendant CT REAL ESTATE SERVICES, INC. is a California corporation – corporation number C0570795 – and is a resident of Ventura County, California. Defendant CT REAL ESTATE SERVICES has acted alongside and in concertwith BofA in carrying out the concealment described herein and in continuing to conceal from Plaintiffs, from the California general public, and from regulators the details of the securitization and sale of deeds of trust and mortgages (including those of Plaintiffs herein) that would expose all Defendants herein to liability for sale of mortgages of California citizens – including all Plaintiffs herein – for more than the actual value of the mortgage loans. The sale and particularly the undisclosed sale of mortgage loans in excess of actual value violates California Civil Code, §§ 1709 and 1710, and California Business and Professions Code § 17200 et seq., 15 U.S.C. §§ 1641 et seq. and other applicable laws.
That sounds like a problem to me......
290. At the time of entering into the notes and deeds of trust referenced herein with respect to each Plaintiff, the Countrywide Defendants were bound and obligated to fully and accurately disclose:
a. Who the true lender and mortgagee were.
b. That to induce a Plaintiff to enter into the mortgage, the Countrywide Defendants caused the appraised value of Plaintiff’s home to be overstated.
c. That to disguise the inflated value of Plaintiff’s home, Countrywide was orchestrating the over-valuation of homes throughout Plaintiff’s community.
d. That to induce a Plaintiff to enter into a mortgage, the Countrywide Defendants disregarded their underwriting requirements, thereby causing Plaintiff to falsely believe that Plaintiff was financially capable of performing Plaintiff’s obligations under the mortgage, when the Countrywide Defendants knew that was untrue. One way they systematically disregarded the underwriting requirements was through the use of the Granada Network, another fact which Defendants systematically failed to disclose to any California borrower.
Ding ding ding ding ding ding!
One of the keys to this mess is that the lenders knew full well that the borrowers could not pay "as agreed", yet made the loans anyway.
i. The sales would include sales to nominees who were not authorized under law at the time to own a mortgage, including, among others, Mortgage Electronic Registration Systems Inc., a/k/a MERSCORP, Inc. ("MERS"), which according to its website was created by mortgage banking industry participants to be only a front or nominee to "streamline" the mortgage re-sale and securitization process;
ii. Plaintiff’s true financial condition and the true value of Plaintiff’s home and mortgage would not be disclosed to investors to whom the mortgage would be sold;
iii. Countrywide intended to sell the mortgage together with other mortgages as to which it also intended not to disclose the true financial condition of the borrowers or the true value of their homes or mortgages;
iv. The consideration to be sought from investors would be greater than the actual value of the said notes and deeds of trust;
and
v.The consideration to be sought from investors would be greater than the income stream that could be generated from the instruments even assuming a 0% default rate thereon;
You mean basically everything important about the loans, their quality, who they were going to be sold to, why and how was all bogus? And in addition, the price to be sought from investors exceeded the income stream that could be achieved even if nobody defaulted at all?
Heh, that's a good gig if you can get it - and if you can find a way to do it legally.
Are there some facts behind this? Oh it appears there are...
The credit losses experienced by Countrywide in 2007 not only were foreseeable by the proposed defendants, they were in fact foreseen at least as early as September 2004. [¶ 33 (Emphasis in original)]
. . .
The credit risk described in the September 2004 warning worsened from September 2004 to August 2007. [¶ 35 (Emphasis in original)]
. . .
By no later than 2006, Mozilo and Sambol were on notice that Countrywide’s exotic loan products might not continue to be saleable into the secondary market, yet this material risk was not disclosed in Countrywide’s periodic filings. [¶ 45]
. . .
Mozilo and Sambol made affirmative misleading public statements in addition to those in the periodic filings that were designed to falsely reassure investors about the nature and quality of Countrywide’s underwriting. [¶ 91]
Oh my. 2004 eh? I seem to remember tAngelo on CNBS making multiple appearances talking about how his company was going to take market share from all these subprime lenders that collapsed, and this was going to be great for his company. Indeed, I remember chortling at the time that I believed he was a lying SOB, and of course the so-called "Fantastic Mainstream Media" lapped it up - and helped support his stock price.
It appears that the intrepid attorneys who filed this action remember that too.... and the pages surrounding 100 in the complaint document a whole bunch of them, including statements in 10Ks and 10Qs that, it is alleged, were flatly false.
And, of course, there's this one, which I have referred to many times over the last three and a half years:
363. In the January 30, 2007 earnings conference call, Mozilo attempted to distinguish Countrywide from other lenders by stating “we backed away from the subprime area because of our concern over credit quality.” On March 13, 2007, in an interview with Maria Bartiromo on CNBC, Mozilo said that it would be a “mistake'' to compare monoline subprime lenders to Countrywide. He then went on to state that the subprime market disruption in the first quarter of 2007 would “be great for Countrywide at the end of the day because all of the irrational competitors will be gone.”
I distinctly remember the cheesy suits and ties, not to mention the sprayed-on-looking tan.
370. In fact, the appraisals were inflated. Countrywide did not utilize quality underwriting processes. Countrywide’s financial condition was not sound, but was a house of cards ready to collapse, as Countrywide well knew, but Plaintiffs did not. Further, Plaintiffs’ mortgages were not refinanced with fixed rate mortgages and neither Agate nor Countrywide ever intended that they would be.
As I have repeatedly pointed out, the entire intent of these loans was not to be a mortgage at all. It was, I allege, more akin to an asset-stripping scheme where the borrower would be effectively forced to come back to the lender after a couple of years when the teaser expired or the inevitable reset or recast occurred and effectively hand over his accumulated "appreciation" in price through yet more fees to be paid to the "lender."
I believe that for all intents and purposes, from the lender's point of view, this was nothing more than renting the house, as passing of a clear title to the buyer was never part of what was contemplated by the lender - but of course the borrower wasn't told this in advance - or at all.
There's much more in the complaint, but this will do for a start.
Incidentally, the banks tried to get this removed to Federal Court and kill it, and were rebuffed, so it appears that it's headed to trial. Plaintiff's Bar 1, Banksters 0 thus far - I will be providing updates on this case as I become aware of them.
To contact the attorneys involved (if you believe you might have an issue related to this) view the PDF - contact information is found right on the top, including email addresses - use them.
Link to PDF (http://storage.denninger.net/CA-Class.pdf)
http://market-ticker.org/akcs-www?post=168698