More news on homebuilders involvement in mortgage fraud and economic bust

Countrywide Tries to Pin Blame on Insurer (Countrywide is/was the preferred lender of a number of homebuilders, including those who were fined by HUD for predatory/fraudulent lending and closed their in-house lenders.)

PHOENIX AZ— Attorney General Terry Goddard has hired an outside law firm to investigate predatory lending practices by homebuilders and their mortgage firms. (Pulte and Lennar respond by suing Goddard.)

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Countrywide Tries to Pin Blame on Insurer
By TIM HULL

LOS ANGELES (CN) - Countrywide Home Loans demands $111 million from Triad Guaranty Insurance, claiming Triad is trying to blame mortgage lenders for the insurer's role in the housing bubble and collapse.
In a somewhat brazen complaint, Countrywide claims Triad "encouraged lenders to develop new and more risky mortgage products" before the worldwide financial crisis, and now wants to rescind coverage for many of Countrywide's 60,000 outstanding mortgage loans, worth more than $9 billion.
Countrywide, which many view as the poster boy for the mortgage lending catastrophe, objects that Triad is trying to rescind coverage for thousands of outstanding mortgage loans, by alleging infractions such as overstating of income and misrepresentation of appraisals.
"In more prosperous times, Triad reaped huge rewards for its participation in the home mortgage market, selling mortgage insurance policies to insure that the borrowers of certain residential mortgage loans made payment of principal and interest," Countrywide says in its complaint in Superior Court.
"Triad now, however, faces the reality of steep financial losses because of a significant economic downturn and is refusing to honor the mortgage insurance that it issued and for which it received substantial premiums."
Countrywide claims Triad is canceling thousands of policies for loans the Countrywide purchased from American Home Mortgage Corp. It claims Triad's actions are based on "generalized arguments regarding the failure to comply with underwriting guidelines."
Rather than examining each loan individually, Triad is trying to "rescind coverage on a blanket basis" for all American Home loans, Countrywide says.
"In order to avoid paying claims for exactly the type of risk it agreed to insure, Triad is attempting to blame mortgage lenders, rather than the collapse of the real estate market or its own expanded appetite for risk, for the present problems with the mortgage business," Countrywide says.
Countrywide seeks declaratory judgment on the legality of Triad's alleged blanket cancellation scheme. It also wants the court to establish standards for evaluating denial of coverage. Countrywide claims that Triad should not be allowed to rescind coverage for high-risk practices that it encouraged.
"In order to increase their market share in the highly competitive and lucrative mortgage insurance industry, Triad and other mortgage insurers encouraged lenders to develop new and more risky mortgage products in order to increase the market for mortgage loans and with it the market for mortgage insurance," Countrywide says.
Countrywide services more than 3,000 outstanding American Home loans, with an unpaid principal balance of more than $500 million, according to the complaint.
Countrywide claims it has more than 60,000 outstanding loans insured by Triad, and so far 975 loans worth a total of more than $60 million have been "wrongfully denied." Countrywide says it will likely lose more than $100 million if Triad's practices continue.
It seeks $111 million in damages, alleging breach of contract and bad faith.
Bank of America, successor in interest to Countrywide Bank, is also a plaintiff, as is BAC Home Loans Servicing LP and Countrywide Financial Corp. They are represented by David Halbreich with Reed Smith.

http://www.courthousenews.com/2010/03/09/25381.htm
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Mar. 11 2010

State wants mortgage practices examined

By Howard Fischer
Capitol Media Services
PHOENIX — Attorney General Terry Goddard has hired an outside law firm to investigate predatory lending practices by homebuilders and their mortgage firms.

Documents obtained by Capitol Media Services show Goddard has agreed to pay a Washington, D.C., law firm a share of whatever they help him recover in penalties against those being investigated. Under the terms of the deal, the firm could get up to one fifth of anything collected.

But that contract has generated a lawsuit of its own, with the largest U.S. homebuilder and its lending arm are accusing Goddard of violating their constitutional rights by hiring a law firm with links to a major labor union to investigate it.

Legal papers filed in U.S. District Court in Washington, D.C. by Pulte Homes and Pulte Mortgage charge that the arrangement between Goddard and attorneys at the firm of Cohen Milstein Sellers & Toll gives those lawyers access to government information it can then turn around and use to help the labor unions which the companies say “are engaged in a harassment campaign against Pulte and other homebuilders.”

The attorneys also are specifically challenging the state signing a deal which makes the law firm’s payment contingent on getting money from the home builders it investigates. Attorneys for Pulte say Arizona law specifically prohibits outside law firms from being hired on a fee-contingent basis, making the contract “contrary to the will” of state lawmakers.

Goddard press aide Molly Edwards said her office was aware of the lawsuit and studying the issues. She would not comment on the merits of the lawsuit.

Assistant Attorney General Susan Segal said the investigation is the direct result of consumer complaints against Pulte about its lending practices. She said the specifics of those complaints are confidential. But bid documents obtained by Capitol Media Services show the state is looking into predatory lending practices.

http://www.svherald.com/content/news/2010/03/11/state-wants-mortgage-pra...
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Goddard hires firm to probe lending; Pulte sues over it

PHOENIX - Attorney General Terry Goddard has hired an outside law firm to investigate possible predatory-lending practices by home builders and their mortgage firms, including whether any lender provided borrowers with false or misleading information.

Bid documents obtained by Capitol Media Services show Goddard has agreed to pay a Washington, D.C., law firm a share of whatever it helps him recover in civil penalties against those being investigated. Under the terms of the deal, the firm could get up to one-fifth of anything collected.

But that contract has generated a lawsuit of its own, with the largest U.S. home builder and its lending arm accusing Goddard of violating their constitutional rights by hiring a law firm with links to a major labor union to investigate them.

Legal papers filed in U.S. District Court in Washington, D.C., by Pulte Homes and Pulte Mortgage charge that the arrangement between Goddard and attorneys at the D.C. firm of Cohen Milstein Sellers & Toll gives those lawyers access to certain government information. They contend that the law firm can then turn around and use that information to help labor unions, which the companies say "are engaged in a harassment campaign against Pulte and other home builders."

The companies also are specifically challenging the state signing a deal that makes the law firm's payment contingent on getting money from the home builders it investigates. Attorneys for Pulte say Arizona law specifically prohibits outside law firms from being hired on a fee-contingent basis.

Goddard press aide Molly Edwards said her office was aware of the lawsuit and was studying the issues. She would not comment on the merits of the lawsuit. She also would not say why Goddard, a Democratic candidate for governor, hired the outside firm.

Neither the Cohen Milstein law firm nor the union at issue in the dispute immediately responded to requests for comment late Thursday.

In the legal papers filed in federal court, Pulte attorney Andrew Sandler does not challenge the state's right to conduct the investigation.

But according to Sandler, the Cohen Milstein attorneys who will be involved in the inquiry against Pulte also represent the Laborers' International Union of North America, which "is waging an extensive campaign against Pulte" designed to coerce Pulte and other home builders into forcing their subcontractors to sign union contracts.

The union could not be reached for comment, but last year its spokeswoman, Dawn Page, said of ongoing disputes with Pulte: "Pulte workers and (the union) want Pulte to be a successful and profitable company, but a responsible company also."

Pulte's Sandler said the company already has provided the Attorney General's Office with more than 70,000 pages of materials the state has requested as part of its investigation. That information also is being shared with the Nevada Attorney General's Office, which is conducting its own inquiry - and which also hired the same outside firm.

As investigators for the state, the lawyers for Cohen Milstein have access to confidential information, Sandler said, which the firm could then use in its separate actions against Pulte on behalf of the union.

The suit makes virtually identical charges against Nevada Attorney General Catherine Cortez Masto.

No hearing has been set on the matter.

http://www.azstarnet.com/business/local/article_8e426ad3-7f1e-5b9c-a058-...
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Pulte, Lennar Fight State Investigations
By RYAN ABBOTT

WASHINGTON (CN) - Pulte Homes and Lennar Corporation say the Attorneys General of Arizona and Nevada unfairly hired labor union lawyers to investigate the home-building giants' trade practices. In separate federal complaints, the builders, which reported combined revenue of about $10 billion in 2008, say the states have conflicts of interest and violated due process by hiring outside counsel on contingency fees.
Both complaints accuse the Laborers' International Union of North America (LIUNA) of waging war against Pulte, Lennar and other homebuilders to coerce them into forcing subcontractors to sign union agreements.
They say the labor union initiates bogus litigation against homebuilders and recruits dissatisfied homebuyers to file mortgage complaints.
"LIUNA has also sought to utilize state attorneys general in its campaign to pressure Pulte and other homebuilders into forcing their subcontractors to sign union agreements," Pulte says in its 23-page complaint.
Pulte says Arizona Attorney General Terry Goddard hired independent lawyers from Zuckerman Spaeder LLP and Berger & Montague PC to conduct the state's investigation. Pulte says the state hired the lawyers though it knew they had been "retained by a labor union to develop mortgage cases on behalf of injured homeowners."
On Sep. 29, 2009, just over 2 months after Arizona hired the lawyers, Pulte says the attorneys left their firms to work for Cohen Milstein Sellers & Toll, which represents LIUNA.
Pulte says it sent a letter to the Goddard's office, complaining that Cohen Milstein would have access to confidential information that the state collected for its investigation, but the state refused to remove the firm from the investigation.
"The lawyers at Cohen Milstein have been delegated substantial discretion in making decisions regarding the direction, scope, timing, and process of the Nevada Attorney General's Office's investigation," Pulte says.
It claims that Cohen Milstein - and presumably LIUNA - have access to 42,000 pages of confidential information submitted for the investigation.
Pulte claims that Nevada Attorney General Catherine Cortez-Masto followed suit and retained the same lawyers for her investigation of both Pulte and Lennar.
Both Pulte and Lennar say the states hire the firm on a contingency fee, its fees to be determined by the penalties assessed against the two companies. Both companies say "Nevada and Arizona state law prohibits the Attorneys General from retaining outside counsel on a contingency fee basis."
Both Pulte and Lennar say the Nevada Attorney General violated due process. Pulte also sued the Arizona Attorney General.
Both companies seek a declaration that the states violated their constitutional rights to due process. Pulte seeks an injunction preventing Cohen Milstein from sharing confidential information with LIUNA.
Pulte is represented by Andrew Sandler with Buckley Sandler. Lennar is represented by Mitchel Kider with Weiner Brodsky.

http://www.courthousenews.com/2010/03/11/25466.htm
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Homebuilders Pulte and Lennar sue AG over hiring of law firm to probe lending

Home building giants Pulte Homes Inc. and Lennar Corp. are suing Nevada Attorney General Catherine Cortez Masto, charging she improperly hired a union-affiliated law firm to investigate predatory mortgage lending allegations against the companies.

In complaints filed Monday in U.S. District Court for the District of Columbia, the homebuilders say Cortez Masto and Arizona Attorney General Terry Goddard separately hired the law firm Cohen Milstein Sellers & Toll PLLC in violation of the builders' due process rights.

"The Cohen Milstein lawyers conducting these investigations represent a labor union, the Laborers’ International Union of North America (LIUNA), that is waging an extensive campaign against Pulte consisting of activities, including potentially illegal activities, designed to damage Pulte’s business and harm its shareholders. The purpose of this campaign against Pulte and other homebuilders is to coerce Pulte and other homebuilders into forcing their subcontractors to sign union agreements," charged the lawsuit filed by Pulte, which has built in the Las Vegas area under the Pulte, Del Webb and Centex brands.

"The rules of professional conduct prohibit Cohen Milstein from representing Arizona and Nevada in this matter while also representing LIUNA in matters adverse to Pulte," Pulte charged in its lawsuit.

The homebuilders also complain that the Arizona and Nevada attorneys general have retained Cohen Milstein on an impermissible contingency fee basis, giving them an inappropriate profit interest in the outcome of the investigations.

Lennar complained that the Cohen Milstein attorneys have been deputized by the state of Nevada to conduct the investigation, even though "constitutional due process prohibits state and federal government attorneys from having a financial interest in the outcome of the cases which they prosecute."

"The attorney general has yet to inform Lennar what authority allows the attorney general to hire outside counsel to conduct this investigation on behalf of the state of Nevada," charged Miami-based Lennar, which in Las Vegas has built under the Lennar, Greystone and U.S. Home Corp. brands.

The Nevada Attorney General's office today denied that the law firm at issue represents any private litigant or union in any case against Pulte and Lennar; and asserted it has the right to hire outside counsel to assist in its investigation of the predatory lending allegations.

"The investigation by our office results from the receipt of several complaints from Nevada residents against the companies raising serious allegations against Pulte and Lennar that they engaged in deceptive predatory lending practices against Nevada residents including falsifying and inflating income on loan applications; failure to disclose loan terms; changing agreed upon terms at the last minute without the buyer’s knowledge or consent; high interest ARM loans for people who requested and qualified for lower interest fixed rate loans; hidden balloon payments; and requiring people with good credit and down payments to take out 80/20 second mortgages at high interest rates," the Attorney General's office said in a statement.

The lawsuits indicate the Arizona and Nevada investigations were launched after LIUNA presented evidence to the attorneys general it said showed that during the housing boom, the builders harmed home buyers by inducing them into purchasing new homes at inflated values and with unaffordable mortgages.

During a September news conference organized by the union, a group of home buyers asked the Nevada Attorney General's office to take action on complaints alleging deceptive sales and lending practices.

A union press release said Constance Consentino, one of the homebuyers filing complaints, purchased a Pulte home in Las Vegas in 2007 with a 20-percent down payment and a good credit score. The union alleged Pulte inflated the home price, used incentives to steer her to Pulte’s lending affiliate and failed to disclose important mortgage terms, particularly that the interest rate could increase after seven years.

In May, LIUNA was involved in the filing of a lawsuit with similar allegations against KB Home and Countrywide Financial. That suit claimed they inflated home values and appraisals in Nevada and Arizona.

The union has also been critical of lending associated with other homebuilders including D.R. Horton, Beazer, Ryland and Richmond American.

Countrywide, now owned by Bank of America; Pulte, based in Bloomfield Hills, Mich.; KB Home, Lennar and the other homebuilders have denied allegations of improper lending activities.

http://www.lasvegassun.com/news/2010/mar/11/homebuilders-pulte-and-lenna...