by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
San Diego City Attorney Michael Aguirre attempts to halt the flow of new loans, into San Diego , by calling a “do over”:
San Diego’s city attorney said on Wednesday he filed a lawsuit against Bank of America and its Countrywide unit to prevent the mortgage lenders from foreclosing on homes in the city, which he aims to make a “foreclosure sanctuary.”
City Attorney Michael Aguirre plans to file similar lawsuits against Washington Mutual, Wells Fargo and Wachovia in an effort to make the lenders negotiate with mortgage borrowers facing foreclosure.
“We would like to see San Diego become a foreclosure sanctuary,” Mr. Aguirre said.
Oh brother. This is so stupid I don’t even know where to begin. Foreclosure is an important part of a loan contract. If a government interferes with the execution of that contract, then a precedent of interference will be set. Two things can happen:
1- Lenders will need to assess the cost of the “foreclosure sanctuary” and build it into the cost of the newly originated loans. Buyers will reject the new loans, priced far above loans made in Del Mar, and the City of San Diego housing prices will plummet even farther.
2- Lenders will, most likely, just ignore San Diego. We saw it happen in Cleveland, about ten years ago.
I knew a shylock, back in Philly. He worked the union halls. He’d loan a guy a few hundred bucks, until payday, and make 30% vig for the effort. His default rate, for first -time borrowers, was extraordinarily high. I asked him about his collection policy, visions of The Sopranos in my head. The “shy” didn’t like to get his hands dirty.
If a borrower defaulted, the shylock refused to lend money in that particular union hall. He let his steady customers enforce his collection policy. If a bright borrower decided to alert the authorities, the shylock simply denied any lending activity, and took the loss. Of course, he never lent in that union hall again.
Mr. Aguirre’s political stunt could lead to that “mob mentality” should lenders halt all activity in the City of San Diego. Sellers, frustrated with the lack of liquidity, might exert uncivilized pressure on the defaulted (and protected) existing homeowners.
We really don’t need any more angry mobs in San Diego. The laws are there for a reason, Mike.
Bob in San Diego says:
Aguirre would then sue them for redlining.
September 9, 2008 — 10:09 am
Brian Brady says:
“Aguirre would then sue them for redlining.”
How far you wanna take this, Bob?
September 9, 2008 — 10:19 am
Todd says:
So Fannie Mae and Freddie Mac get a “do over” but the Consumers in San Diego don’t? Double standard.
September 9, 2008 — 10:40 am
Brian Brady says:
Mr Aguirre’s past actions (RE: overturning pension obligations) have shown that he is is willing to “unwind contracts” when fraud is present.
With a majority of the foreclosures caused by stated income loans (or institutional loan fraud), he should be litigating to accelerate the foreclosure process rather than delaying it.
September 9, 2008 — 11:03 am
Bob in San Diego says:
It’s not me, Brian, it’s Aguirre. Do you really think he would do this without thinking that he has them in a corner?
Lenders can’t refuse to lend in San Diego without getting slapped silly with lawsuits.
September 9, 2008 — 11:39 am
Sean Purcell says:
Another in a series of hair-brained ideas from Aguirre. Is anyone really surprised? This guy is the ultimate “ambulance chaser”… worse yet he is chasing them on behalf of the residents of San Diego.
September 9, 2008 — 11:50 am
Chris Lengquist says:
This is all just melting my brain. Seriously, have I walked into some sort of a parallel universe? Fannie, Freddie, Foreclosure Sanctuaries, Predatory Borrowers, etc.
I’m not sure how much more of this I can take. And I’m in the freakin’ business.
September 9, 2008 — 12:21 pm
Brian Brady says:
“Lenders can’t refuse to lend in San Diego without getting slapped silly with lawsuits.”
Probably but they could call the county “high risk” and dramatically change LTVs, pricing, etc.. Can you imagine the political fallout from REALLY depressed areas, like San Marcos or Chula Vista, if Aguirre’s actions caused that?
I’d like to say that Mr. Aguirre’s actions were well-intentioned but he is, clearly, financially savvy.
September 9, 2008 — 12:49 pm
Edge - The Credit Crunch says:
Brian,
If I recall, San Diego is also a “sanctuary city” with regards to immigration as well?
If so, this seems to flow from the same of line of political ideologies.
Unfortunately though, as you mentioned in your first point, it only means that everyone else will end up paying because, for fear of being sued to death, there’s no easy way to only leverage the “new additional cost” of doing business to “those people”. This time though, “those people” is a completely inclusive term as you’re talking about a financial demographic which includes all walks of life.
Markets need to fail. I still get upset that many of these people don’t recall the Jenga games of their youth where they learned that somethings things have to fall down. You can have all the do-overs you want to save yourself or someone else but that only pushes the burden of the tower falling down onto someone else who probably never deserved it.
Is there a lot of press on this? I hope you don’t get put in the middle as the “real” bad guy who “has to raise prices to keep his mansion” =/ That sort of emotional blame game is completely immune to logic.
September 9, 2008 — 1:00 pm
Brian Brady says:
“I hope you don’t get put in the middle as the “real” bad guy who “has to raise prices to keep his mansion” ”
If no mansion = no bad guy, then I guess I’m okay
September 9, 2008 — 1:17 pm
Don Reedy says:
Brian,
This guy defiles the people who he purports to represent, and I am seething with an “Oh my God, what next?” myself.
But I think you hit the nail on the head with your reference to interference with contract, and we all know that Aguirre, though intelligent, hasn’t proven himself to be very bright, especially in his litigation escapades.
I suspect that this may be, should be, the straw that breaks his political back in the upcoming election. The banks have lawyers, too, and certainly they understand contract law and the concept of tortious interference with those contracts. I don’t think I’m being too optimistic when I say to you that lawyers and lawsuits may become involved with Mr. Aguirre’s mad dash toward infamy, but that the consequence will not be the undermining of our mortgage contract law, but the undoing of one of America’s Finest City’s most flawed legal practitioners.
September 9, 2008 — 2:58 pm
Jeff Brown says:
The arrogance of Aguirre is impressive. His stand on the Chargers re: the stadium is a recent example.
Todd — Seriously?
September 9, 2008 — 4:13 pm
Bob in San Diego says:
I cant tell you how happy I was to Jan Goldsmith a sAguirre’s oppnenet. I worked on community stuff when Jan was a state assemblyman representing parts of San Diego County.
He is truly one of the good guys. If he wins, the bench will lose a great judge, but he will be a godsend for the City of San Diego.
September 9, 2008 — 4:18 pm
David Shafer says:
Is this one of the folks responsible for the “pension crisis” in SD? Sounds like the same type of thinking!
September 9, 2008 — 4:21 pm
Jeff Brown says:
At this point Eddie Haskel would be a Godsend.
September 9, 2008 — 4:22 pm
Brian Brady says:
“Is this one of the folks responsible for the “pension crisis” in SD?”
In fairness to Mr Aguirre, he actually sued the unions to rework the pension obligations, obtained under what he describes as, municipal fraud.
Bob, I thought Goldsmith lived in .Poway
September 9, 2008 — 4:31 pm
Bob in San Diego says:
he did. but I’ll rent him a property in San diego for residency issues if need be.
September 9, 2008 — 4:39 pm
Brian Brady says:
Ask him to comment here, Bob.
September 9, 2008 — 4:44 pm
Dan Melson says:
I covered this back on July 24th.
http://www.searchlightcrusade.net/2008/07/links_and_minifeatures_2008_07_6.html
Mike Aguirre really is too stupid to be out in public without a guardian.
Redlining may be illegal, but the lenders are no obligation to operate in all 50 states. They’ll leave California altogether if they have to, as a decision favoring Aguirre would be a statewide precedent at the very least.
Without foreclosure as a credible threat, how many people do you think will pay their mortgage?
What do you think the lenders will do when they can’t collect?
What do you think will happen to the market when nobody can get loans?
What do you think people will want to do to Mike Aguirre?
QED Mike Aguirre is suicidal and should be committed to mental care.
September 9, 2008 — 7:18 pm
Bob in San Diego says:
I was wondering who would bring this up. I would agree, which is why this doesn’t have a snowball’s chance.
September 9, 2008 — 7:36 pm
Bob in San Diego says:
Jan addressed it here
September 9, 2008 — 7:40 pm
Bob in San Diego says:
VoiceofSanDiego has a decent overview of the suit here, with commentary from a variety of folks.
September 9, 2008 — 7:44 pm
Bob in San Diego says:
And my favorite Jan Goldsmith piece – his response to the WSJ.
Gotta love the last line.
September 9, 2008 — 7:50 pm
Brian Brady says:
“Redlining may be illegal, but the lenders are no obligation to operate in all 50 states.”
Illegal? How do we explain Wachovia/World Savings, then? Never mind, I’m just sayin’
“I covered this back on July 24th.”
Didn’t see it but I’m not surprised. I think you had it buried among links, Dan.
September 9, 2008 — 7:56 pm
Paul says:
So,
If I buy a house in San Diego right now and he gets this on, I can live there and not pay the mortgage? Cool!
September 13, 2008 — 1:34 am