State lawsuit names banks in federal complaints

RENO - Nevada's attorney general says the latest lawsuits filed by the federal government against the nation's largest banks attack the kind of deceptive loan practices that prompted an "explosion of delinquencies and unauthorized and unnecessary foreclosures" in the state.

Bank of America Corp., which now owns Countrywide Financial Corp., was among the 17 plaintiffs in a lawsuit filed Friday by the Federal Housing Finance Agency in New York state. Nevada Attorney General Catherine Cortez Masto named both in an updated complaint filed Aug. 30 in U.S. District Court in Reno.

"Their misconduct cut across virtually every aspect of defendants' operations - from originating to servicing and, all too often, to foreclosing on the loans and homes of Nevada consumers," Masto said.

The federal lawsuits accused Bank of America, Citigroup Inc., JP Morgan Chase & Co., Goldman Sachs and others of selling Fannie Mae and Freddie Mac billions of dollars' worth of mortgage-backed securities that turned toxic when the housing market collapsed. The suits said the securities had been sold with registration statements and prospectuses that "contained materially false or misleading statements and omissions."

The federal agency said the banks and mortgage lenders falsely represented that the mortgage loans in the securities complied with underwriting guidelines and standards. They also included representations "that significantly overstated the ability of the borrower to repay their mortgage loans."

In the Nevada lawsuit, Masto said Countrywide misrepresented the nature and terms of their mortgage loans, "ensnaring Nevada consumers in loans that they did not understand and could not repay."

Among other things, Masto said Bank of America assured some Nevada consumers that their homes would not be foreclosed while their requests for modifications were pending, but then went ahead with foreclosures anyway. The bank also promised consumers that their trial modifications would be made permanent if and when they made their required payments, but then failed to convert those modifications, she said.

Masto also accused Bank of America's mortgage modification process of being "understaffed, wrought with technical problems, and not oriented to customers."

The company "directed employees to spend no more than 7-10 minutes on average with each consumer, leaving them no time to fully or accurately answer questions or provide explanations or offer assistance," her complaint said.

Rew Goodenow, a Reno lawyer specializing in banking and finance, offered a defense of the banks during an appearance on KRNV-TV's "Nevada Newsmakers" program last week. "There are two sides to it. There's the banks side and the consumers side. Obviously the attorney general is taking the consumer's side," he said.

Goodenow said people wanted the loans, and there was pressure on the banks to make the loans.

"There are lots of complaints about the housing market being the real problem with Nevada's economy," he said. "But if the banks don't make loans, houses don't get built. So banks are in a difficult position."

Chris Wicker, a lawyer and chairman of the Washoe County Democratic Party, disagreed: "Nobody made these banks make the loans. That is a big misconception."

"There's been a huge amount of bad faith on the part of almost every bank in trying to resolve these foreclosures," he added.