complaint[rev3] 1

8/6/2019 Complaint[Rev3] 1

1/37

1COMPADAMS LAW GROUP, LTD.JAMES R. ADAMS, ESQ.

Nevada Bar No. 6874ASSLY SAYYAR, ESQ. Nevada Bar No. 91788681 W. Sahara Ave., Suite 280Las Vegas, Nevada 89117Tel: 702-838-7200Fax: 702-838-3636

[email protected]@adamslawnevada.com

Attorney for Plaintiff

DISTRICT COURT

CLARK COUNTY, NEVADA

TONI HANSEN, an individual,

Plaintiff,

vs.

COUNTRYWIDE FINANCIALCORPORATION, a Delaware corporation,COUNTRYWIDE HOME LOANS, INC., a

New York corporation; DOES I through X;and ROE ENTITIES I through X,

Defendants,

Case No.

Dept. No.

COMPLAINT

COMES NOW Plaintiff TONI HANSEN, and for her complaint against

COUNTRYWIDE FINANCIAL CORPORATION, a Delaware corporation, COUNTRYWIDE

HOME LOANS, INC., a New York corporation alleges and asserts as follows:

I.

PARTIES AND JURISDICTION

1. At all times relevant hereto, Plaintiff TONI HANSEN (hereinafter Plaintiff) was an

individual who owns real property and is resident of Clark County, State of Nevada.
mailto:[email protected]:[email protected]


2/37

2. At all relevant times, defendant Countrywide Financial Corporation ("CFC"), a Delaware

corporation, has transacted and continues to transact business throughout the State of Nevada,

including in Clark County.

3. At all relevant tunes, defendant Countrywide Home Loans, Inc. ("CHL"), a New York

corporation, has transacted and continues to transact business throughout the State of Nevada,

including in Clark County. CHL is a subsidiary of CFC.

4. Defendants CFC and CHL are referred to collectively herein as Countrywide or

Defendants.

5. The true names and capacities, whether individual, corporate, associate or otherwise, or

Defendants herein designated as DOES I through X and ROE ENTITIES I through X inclusive,

are unknown to the Plaintiff at this time, who therefore sues said Defendants by such fictitious

names. Plaintiff is informed and believes and thereupon alleges that each of said Defendants are

responsible in some manner for the events and happenings and proximately caused the injuries

and damages herein alleged. These DOE Defendants may include, but are not limited to agents,

employees, independent contractors, officers, directors, board of director members, limited

liability company members, managers, attorneys, law firms, shareholders, and trustees. These

ROE ENTITIES may include, but are not limited to, parent companies, subsidiaries, community

management companies, series LLCs, partnerships, joint ventures, and other entities affiliated,

involved with, or otherwise owned or controlled by the named Defendants. Plaintiff will seek

leave to amend this Complaint to allege their true names and capacities as they are ascertained.

6. Whenever reference is made in this Complaint to any act of any defendant(s), that

allegation shall mean that each defendant acted individually and jointly with the other


3/37

defendants.

7. Any allegation about acts of any corporate or other business defendant means that the

corporation or other business did the acts alleged through its officers, directors, employees,

agents and/or representatives while they were acting within the actual or ostensible scope of their

authority.

8. At all relevant times, each defendant committed the acts, caused or directed others to

commit the acts, or permitted others to commit the acts alleged in this Complaint. Additionally,

some or all of the defendants acted as the agent of the other defendants, and all of the defendants

acted within the scope of their agency if acting as an agent of another.

9. The acts and omissions described in this Complaint occurred in Clark County and

elsewhere throughout Nevada and the United States.

II

FACTUAL ALLEGATIONS

10. This action is brought against Defendants, who engaged in unfair business practices,

misrepresentation and fraudulent concealment in the origination of residential mortgage loans

and home equity lines of credit (HELOC(s)).

11. Countrywide originated mortgage loans and HELOCs through several channels,

including a wholesale origination channel and a retail origination channel.

12. The Countrywide employees who marketed, sold or negotiated the terms of mortgage

loans and HELOCs in any of its origination channels, either directly to consumers or indirectly

by working with mortgage brokers, are referred to herein as "loan officers."


4/37

13. In Countrywide's wholesale channel, loan officers in its Wholesale Lending Division

("WLD") worked closely with a nationwide network of mortgage brokers with whom

Countrywide contracted to originate loans (Brokers).

14. The Brokers were the authorized agents of Countrywide and sold loans directly to

consumers at the direction of Defendants.

15. In Countrywides retail channel, loan officers employed by Countrywide in its Consumer

Markets Division ("CMD") sold loans directly to consumers.

16. The mortgage market changed in recent years from one in which lenders originated

mortgages for retention in their own portfolios to one in which lenders attempted to generate as

many mortgage loans as possible for resale on the secondary mortgage market. The goal for

lenders such as Countrywide was not only to originate high mortgage loan volumes but also to

originate loans with above-market interest rates and other terms which would attract premium

prices in the secondary market.

17. Beginning in 2004, in an effort to maximize Countrywides profits, Countrywide set out

to double its share of the national mortgage market to 30%.

18. Through a deceptive scheme to mass produce loans for sale on the secondary market,

Defendants viewed borrowers as nothing more than the means for producing more loans,

originating loans with little or no regard to borrowers' long term ability to afford the loans, the

borrowers projected equity position in their homes, the borrowers ability to refinance out of

Countrywides adjustable rate mortgage notes, or the borrowers ability to sustain home

ownership.

19. Countrywide implemented this deceptive scheme through misleading marketing


5/37

practices, affirmative misrepresentations, and fraudulent omissions designed to sell risky and

costly loans to homeowners, including by (a) advertising that it was the nation's largest lender

and could be trusted by consumers; (b) encouraging borrowers to refinance or obtain purchase

money financing with complicated mortgage instruments like hybrid adjustable rate mortgages

or payment option adjustable rate mortgages that were difficult for consumers to understand; (c)

drafting and utilizing complex financial agreements the purpose of which was to confuse the

borrower and obfuscate the true terms of the mortgage loan; (d) marketing these complex loan

products to consumers by emphasizing the very low initial teaser or fixed rates while

obfuscating or misrepresenting the later, steep monthly payments and interest rate increases or

risk of negative amortization; (e) representing to borrowers that real estate prices would increase

when, in fact, Countrywide knew that real estate prices would not increase; (f) representing to

borrowers that they would be able to refinance out of their adjustable rate mortgages into a fixed

rate mortgage when, in fact, Countrywide knew that borrowers would not be able to refinance

out of their adjustable rate mortgages; and (g) representing to borrowers that the principal

amount of the loans made to the borrowers by Countrywide were not greater than the true value

of the homes upon which the mortgage loans were secured when, in fact, Countrywide knew the

true value of the homes were far less than the principal amount of the loans and that the

borrowers were obtaining loans based upon grossly inflated home values.

20. Countrywide also employed various lending policies to further their deceptive scheme

and to sell ever-increasing numbers of loans, including (a) the dramatic easing of Countrywides

underwriting standards; (b) the increased use of low or no documentation loans which allowed

for no verification of stated income or stated assets or both, or no request for income or asset


6/37

information at all; (c) urging borrowers to encumber their homes up to 100% (or more) of the

assessed value; and (d) placing borrowers in "piggyback" second mortgages in the form of higher

interest rate HELOCs while obscuring their total monthly payment obligations.

21. All of these practices, coupled with placing borrowers in adjustable rate mortgage

products wherein payments would increase dramatically throughout the life of the loan,

ultimately caused mass foreclosures and was a material factor in the collapse of real estate

housing prices in the State of Nevada.

22. Also to further the deceptive scheme, Defendants created a high-pressure sales

environment that encouraged its branch managers and loan officers to meet high production

goals and close as many loans as they could without regard to borrowers ability to repay.

Defendants' high-pressure sales environment also encouraged loan officers to misrepresent keys

facts upon which borrowers based their decision to obtain one of Countrywides adjustable rate

loan products.

23. Defendants also made arrangements with a large network of mortgage Brokers to procure

loans for Countrywide and knew these Brokers were making loans to very marginal borrowers

for the sole purpose of creating greater volumes of closed loans.

The Primary Purpose of Defendants Deceptive Business

Practices was to Maximize Profits for the Sale of Loans to the Secondary Market .

24. Defendants' deceptive scheme had one primary goal - to supply the secondary market

with as many loans as possible, ideally loans that would earn the highest premiums. Over a

period of several years, Countrywide expanded its share of the consumer market for mortgage

loans through a wide variety of deceptive practices in order to maximize its profits from the sale


7/37

of those loans to the secondary market.

25. While Countrywide retained ownership of some of the loans it originated, it sold the vast

majority of its loans on the secondary market, either as mortgage-backed securities or as pools of

whole loans.

26. In the typical securitization transaction involving mortgage-backed securities, loans were

"pooled" together and transferred to a trust controlled by the securitizer, such as Countrywide.

The trust then created and sold securities backed by the loans in the pool. Holders of the

securities received the right to a portion of the monthly payment stream from the pooled loans,

although they were not typically entitled to the entire payment stream. Rather, the holders

received some portion of the monthly payments. The securitizer, or the trust it controlled, often

retained an interest in any remaining payment streams not sold to security holders. These

securitizations could involve the pooling of hundreds or thousands of loans, and the sale of many

thousands of shares.

27. Utilizing its deceptive methods, Countrywide generated massive revenues through these

loan securitizations.

28. For the sale of whole (i.e., unsecuritized) loans, Countrywide pooled loans and sold them

in bulk to third-party investors, often to (but not exclusively) Wall Street firms. The sale of

whole loans generated additional revenues for Countrywide. Countrywide often sold the whole

loans at a premium, meaning that the purchaser paid Countrywide a price in excess of 100% of

the total principal amount of the loans included in the loan pool.

29. The price paid by purchasers of securities or pools of whole loans varied based on the

demand for the particular types of loans included in the securitization or sale of whole loans. The


8/37

characteristics of the loans, such as whether the loans are prime or subprime, whether the loans

have an adjustable or fixed interest rate, or whether the loans include a prepayment penalty, all

influenced the price.

30. Various types of loans and loan terms earned greater prices, or "premiums," in the

secondary market. For example, investors in mortgages and mortgage backed securities have

been willing to pay higher premiums for loans with prepayment penalties. Because the

prepayment penalty deters borrowers from refinancing early in the life of the loan, it essentially

ensures that the income stream from the loan will continue while the prepayment penalty is in

effect. Lenders, such as Countywide typically sought to market loans that earned it higher

premiums, including loans with prepayment penalties.

31. In order to maximize the profits earned by the sale of its loans to the secondary market,

Countrywides business model increasingly focused on finding ways to generate an ever larger

volume of the types of loans most demanded by investors. For example, Countrywide developed

and modified loan products by discussing with investors the prices they would be willing to pay

for loans with particular characteristics and would also receive requests from investors for pools

of certain types of loans, or loans with particular characteristics. This enabled Countrywide to

determine which loans were most likely to be sold on the secondary market for the highest

premiums.

32. Further, rather than waiting to sell loans until after they were made, Countrywide would

sell loans "forward" before loans were funded. In order to determine what loans it could sell

forward, Countrywide would both examine loans in various stages of production and examine its

projected volume of production over the next several months.


9/37

33. Countrywide originated as many loans as possible not only to maximize its profits on the

secondary market, but to earn greater profits from servicing the mortgages it sold. Countrywide

often retained the right to service the loans it securitized and sold as pools of whole loans. The

terms of the securitizations and sales agreements for pools of whole loans authorized

Countrywide to charge the purchasers a monthly fee for servicing the loans, typically a

percentage of the payment stream on the loan.

34. Motivated by the huge profits earned by selling loans to the secondary market,

Countrywide constantly sought to increase its market share: the greater the number and

percentage of loans it originated, the greater the revenue it could earn on the secondary market.

Countrywides executives publicly stated that they sought to increase Countrywide's market

share to 30% of all mortgage loans made and HELOCs extended in the United States.

35. Countrywide offered a variety of loan products that were both financially risky and

difficult for borrowers to understand and misleading, including payment option and hybrid

adjustable rate mortgages and second loans in the form of home equity lines of credit.

The Pay Option ARM

36. Countrywide aggressively marketed its payment option adjustable rate mortgage ("'Pay

Option ARM").

37. The Pay Option ARM, which Countrywide classified as a "prime" product, is a

complicated mortgage product which entices consumers by offering a very low "teaser" rate -

often as low as 1% - for an introductory period of one or three months. At the end of the

introductory period, the interest rate increases dramatically. Despite the short duration of the low

initial interest rate, Countrywides Pay Option ARMs often include a one, two or three-year


10/37

prepayment penalty.

38. When the teaser rate on a Pay Option ARM expires, the loan immediately becomes an

adjustable rate loan. Unlike most adjustable rate loans, where the rate can only change once

every year or every six months, the interest rate on a Pay Option ARM can change every month

(if there is a change in the index used to compute the rate).

39. Countrywides Pay Option ARMs were typically tied to either the "MTA," "LIBOR" or

"COFI" index. The MTA index is the 12-month average of the annual yields on actively traded

United States Treasury Securities adjusted to a constant maturity of one year as published by the

Federal Reserve Board. The LIBOR (London Interbank Offered Rate) index is based on rates

that contributor banks in London offer each other for inter-bank deposits. Separate LIBOR

indices are kept for one month, six-month, and one-year periods, based on the duration of the

deposit. For example, the one-year LIBOR index reported for June 2008 is the rate for a twelve-

month deposit in U.S. dollars as of the last business day of the previous month. The COFI (11 th

District Cost of Funds Index) is the monthly weighted average of the interest rates paid on

checking and savings accounts offered by financial institutions operating in the states of Arizona,

California and Nevada.

40. Although the interest rate increases immediately after the expiration of the short period of

time during which the teaser rate is in effect, a borrower with a Pay Option ARM has the option

of making monthly payments as though the interest rate had not changed. Borrowers with Pay

Option ARMs typically have four different payment options during the first five years of the

loan. The first option is a "minimum" payment that is based on the introductory interest rate. The

minimum payment, which Countrywide marketed as the "payment rate," is the lowest of the


11/37

payment options presented to the borrower.

41. Countrywide knew that most of its borrowers choose to make the minimum payment.

42. The minimum payment on a Pay Option ARM usually is less than the interest accruing

on the loan. The unpaid interest is added to the principal amount of the loan, resulting in negative

amortization. The minimum payment remains the same for one year and then increases by 7.5%

each year for the next four years. At the fifth year, the payment will be recast to be fully

amortizing, causing a substantial jump in the payment amount often called ''payment shock."

43. However, the loan balance on a Pay Option ARM also has a negative amortization cap,

typically 115% of the original principal of the loan. If the balance hits the cap, the monthly

payment is immediately raised to the fully amortizing level (i.e., all payments after the date the

cap is reached must be sufficient to pay off the new balance over the remaining life of the loan).

When that happens, the borrower experiences significant payment shock. A borrower with a

Countrywide Pay Option ARM with a 1% teaser rate, who is making the minimum payment, is

very likely to hit the negative amortization cap and suffer payment shock well before the

standard 5-year recast date.

44. Instead of making the minimum payment, the borrower has the option of making an

interest-only payment for five years. The borrower then experiences payment shock when the

payment recasts to cover both principal and interest for the remaining term of the loan.

Alternatively, the borrower can choose to make a fully amortizing principal and interest payment

based on either a 15-year or a 30-year term.

45. Countrywide knew the majority of borrowers made minimum or interest only payments.

In doing so, borrowers would be unable to refinance unless his or her home has increased in


12/37

value at least commensurately with the increased loan balance. Thus, Countrywides assurances

and false representations to borrowers that housing prices would continue to increase and that

borrowers would be able to refinance out of the Pay Option ARM loan into a fixed rate loan was

fundamental in Countrywides fraudulent scheme to dupe as many borrowers as possible into

obtaining loans which Countrywide could then sell on the secondary market.

46. Countrywide closed thousands of Pay Option ARMs, either through its branches or

through Brokers.

47. These loans were highly profitable. Countrywides gross profit margin on Pay Option

ARMs was well in excess of the profit made by mortgages guaranteed by the Federal Housing

Administration.

48. Moreover, Pay Option ARMs with higher margins could be sold for a higher premium on

the secondary market, because the higher margins would produce a greater interest rate and

therefore a larger income stream.

Hybrid ARM Loans

49. In addition to the Pay Option ARMs, Countrywide offered "Hybrid" ARM loans. Hybrid

ARMs have a fixed interest rate for a period of 2,3,5,7, or 10 years, and then an adjustable

interest rate for the remaining loan term.

50. Countrywide offered the 2/28 and 3/27 ARMs.

51. The 2/28 ARM loans have low, fixed interest rates for the first two years (the "2" in

2/28"). The loans often only required interest-only payments during the period the initial rate

was in effect, or sometimes for the first five years of the loan.

52. After the initial rate expires, the interest rate can adjust once every six months for the


13/37

next 28 years (the "28" in 2/28"). During this period, the interest rate typically is determined by

adding a margin to the one-year LIBOR index, except that the amount the interest rate can

increase at one time may be limited to 1.5%. Because the initial rate is set independent of the

index, the payment increase can be dramatic, particularly if the loan called for interest-only

payments for the first two or five years.

53. Countrywide also offered "3/27" ARMs, which operate similarly to 2/28 ARMs, except

that the low initial rate is fixed for three rather than two years, and the interest rate then adjusts

for 27 rather than 28 years.

54. Countrywide underwrote 2/28 and 3/27 ARMs based on the payment required while the

initial rate was in effect, without regard to whether the borrower could afford the loan thereafter.

And, like Pay Option ARMs, Countrywides 2/28 and 3/27 ARMs typically contain prepayment

penalties.

55. A borrower with a 2/28 ARM, like a borrower with a Pay Option ARM, is subjected to

steady increasing monthly payments as well as payment shock. In making the requisite interest

only payments, borrowers would be unable to refinance unless his or her home held its value, or

increased in value.

56. Countrywide also offered 5/1, 7/1, and 10/1 "interest-only" loans. Marketed as having

''fixed" or "fixed period" interest rates, these loans carried a fixed interest rate for the first 5, 7, or

10 years respectively. These loans were underwitten based on the initial fixed, interest only

payment until at least the end of 2005. However, when the fixed rate period expires, the interest

rate adjusts once per year and is determined by adding a margin to an index. The monthly

payments dramatically increase after the interest-only period, because payments over the


14/37

remaining 25, 23, or 20 years are fully amortized to cover both principal and interest. Again, in

making the requisite interest only payments, borrowers would be unable to refinance unless his

or her home held its value or increased in value.

57. Collectively, 2/28, 3/27,5/1,7/1, and 10/1 ARMs will be referred to herein as "Hybrid

ARMs."

58. Countrywide and its Brokers misrepresented or obfuscated how difficult it might be for

borrowers to refinance Hybrid ARMs. Although borrowers were assured that they would be able

to refinance, those seeking to refinance Hybrid ARMs after the expiration of the initial interest-

only period likely would be able to do so unless the home serving as security for the mortgage

had maintained or increased its value. This was particularly true for borrowers whose loans have

very high loan-to-value ratios, as there would be no new equity in the borrowers' homes to help

them pay fees and costs associated with the refinances (as well as any prepayment penalties that

may still apply).

59. Thus, Countrywide knew the adjustable rate products which it marketed and sold to

borrowers had several things in common:

a. borrowers would likely experience payment shock which would result in

drastically higher monthly mortgage payments; and

b. real property prices would need to continue to rise in order for the borrowers to be

able to refinance out of the Pay Option ARMs and Hybrid ARMs.

Home Equitv Lines of Credit

60. Countrywide also aggressively marketed HELOCs, particularly to borrowers who had

previously obtained or were in the process of obtaining a first mortgage loan from Countrywide.


15/37

Defendants referred to such HELOCs as "piggies" or "piggyback loans," and referred to

simultaneously funded first loans and HELOCs as "combo loans." The first loan typically

covered 80% of the appraised value of the home securing the mortgage, while the HELOC

covered any of the home's remaining value up to (and sometimes exceeding) 20%. Thus, the

HELOC and the first loan together often encumbered 100% or more of a home's appraised value.

61. Under the terms of the piggyback HELOCs, borrowers received monthly bills for

interest-only payments for the first five years of the loan term (which could be extended to ten

years at Countrywides option), during which time they could also tap any unused amount of the

equity line. This was called the "draw period."

62. Because Countrywide offered HELOCs as piggybacks to Pay Option and Hybrid ARMs,

100% or more of a property's appraised value could be encumbered with loans that required

interest-only payments or allowed for negative amortization.

63. Countrywide typically urged borrowers to draw down the full line of credit when

HELOCs initially funded. This allowed Countrywide to earn as much interest as possible on the

HELOCs it kept in its portfolio, and helped generate the promised payment streams for HELOCs

sold on the secondary market. For the borrower, however, drawing down the full line of credit at

funding meant that there effectively was no "equity line" available during the draw period, as the

borrower would be making interest-only payments for five years.

64. Upon the end of the draw period, the HELOC notes generally require borrowers to repay

the principal and interest in fully amortizing payments over a fifteen year period. A fully drawn

HELOC was therefore functionally a 20 or 25 year closed-end mortgage. However, Countrywide

did not provide borrowers with any documents or other materials to help them calculate the


16/37


17/37

prices could not be sustained. Indeed, Countrywide, due in part to its own aggressive marketing

practices in placing speculators and borrowers of marginal credit quality into adjustable rate

loans which would then reset into vastly higher monthly payment obligations, knew that an

increase in the number of foreclosures and a decrease in Nevada housing prices was imminent.

69. In August of 2005 Mozilo sent an email to Managing Directors Carlos Garcia and Stan

Kurland which stated the following:

I am becoming increasingly concerned about the environmentsurrounding the borrowers who are utilizing the pay option loanand the price level of real estate in general but particularly relative

to condos and specifically condos being purchased by speculators(non owner occupants). I have been in contact with developerswho have told me that they are anticipating a collapse in the condomarket very shortly simply related to the fact that in Dade Countyalone 70% of the condos being sold are being purchased byspeculators. This situation is being repeated in Broward County,Las Vegas as well as other so called "hot" areas of the Country.

We must therefore re-think what assets should be putting into the bank. For example you should never put a non owner occupied payoption ARM on the balance sheet. I know you have already donethis but it is unacceptable. Secondly only 660 fico's and above,owner occupied pay options should be accepted and only on alimited basis. The focus should be 700 and above (owner occupied) for this product. The simple reason is that when the loanresets in five years there will be an enormous payment shock and if the borrower is not sufficiently sophisticated to truly understandthis consequence then the bank will be dealing with foreclosure in

potentially a deflated real estate market. This would be both afinancial and reputational catastrophe.

Frankly I am no longer concerned about the pace of growth of the bank. In fact if there was little to no growth over the next sixmonths until we can assure ourselves of high quality performingassets I would be the supporter of little to no growth. Since we ownthe assets of the bank and responsible for the long term

performance of those assets we must focus on quality and notquantity if that's the choice we have to make. I feel strongly thatover the next twelve months we are going to be facing one of the


18/37

most difficult and challenging real estate and mortgage markets indecades and I want to take steps now to mitigate and hopefullyavoid any damage to our Bank.

On Sunday I met a mortgage broker from a town near Troy,Michigan who told me that he does all of his business withCountrywide. First I was pleased with the news until he told mewhy. He said that the area he serves is severely economicallydepressed and that the only way he can qualify his borrowers is thevia the pay option ARM. I have heard this story many times over from mortgage brokers who utilize the pay option for verymarginal borrowers for the sole purpose of creating volumes andcommissions. We simply cannot and will not allow our Companyto be victimized by this pervasive behavior and since we can'tcontrol the behavior of others it is essential that we control our

own actions.I therefore want you to meet with Stan and I to review the actionsthat you are putting in place to secure the financial integrity of theBank.

70. Thus, in 2005, Countrywide knew that because of high numbers of speculators

purchasing real property in Las Vegas and utilizing the Pay Option ARM loans, a collapse of

the housing market was anticipated.

71. Countrywide determined that loaning money to speculators to purchase property with Pay

Option ARM loans was unacceptable but it had done so anyway.

72. Countrywide was permitting borrowers of marginal credit quality to obtain its Pay Option

ARM loans. However, Countrywide knew this practice would result in a financial catastrophe

because when the Pay Option ARM loans reset there would be an enormous payment shock to

the borrowers and Countrywide would be dealing with mass foreclosures as a result.

73. Countrywide also knew that this would result in a deflated real estate market.

74. While for a time Countrywide maintained that Pay Option ARM loans to sophisticated

borrowers of high credit quality was acceptable, Countrywide knew that due to its easing of


19/37


20/37


21/37


22/37

its twenty year history, which includes stress tests in difficult environments[,]" and that

Countrywide "actively manages credit risk through prudent program guidelines ... and sound

underwriting."

89. Contrary to such public statements extolling the virtues of the Pay Option ARM loan

product,

Mozilo, along with several of Countrywide's senior executives, had concluded that the product's

risks to the company were severe because the negative amortization feature caused a greater risk

of borrower default:

! On or about April 4, 2006, Mozilo sent an email to Sambol stating that "Since

over 70% [of Pay Option ARM borrowers] have opted to make the lower payment

it appears that it is just a matter of time that we will be faced with much higher

resets and therefore much higher delinquencies.

! On or about May 18, 2006, Mozilo sent another email to Sambol stating that "the

Bank faces potential unexpected losses because higher [interest] rates will causethe loans to reset much earlier than anticipated and as a result causing mortgagors

to default due to the substantial increase in their payments."

! On July 10, 2006, upon learning that the percentage of Pay Option ARM

borrowers paying the minimum amount had nearly doubled from 37% to 71%,

Mozilo requested that the company start informing new Pay Option ARM

borrowers of the dangers of negative amortization and encouraging full payment.

90. Thus, Countrywide knew that mass delinquencies and foreclosures were imminent and

that housing prices would not increase. Yet, in pitching its adjustable rate mortgage products to


23/37

its borrowers, Countrywide and its Brokers continued to represent just the opposite.

91. On June 1, 2006, one day after he gave a speech publicly praising Pay Option ARM

loans, Mozilo sent an email to Sambol and other executives, in which he expressed concern that

the majority of the Pay Option ARM loans were originated based upon stated income, and that

there was evidence that the stated incomes were not correct. Mozilo viewed stated income as a

factor that increased credit risk and the risk of default. In his email, Mozilo reiterated his concern

that in an environment of rising interest rates, resets were going to occur much sooner than

scheduled, and because at least 20% of the Pay Option ARM borrowers had FICO scores less

than 700, borrowers "are going to experience a payment shock which is going to be difficult if

not impossible for them to manage."

92. Mozilo concluded that the company needed to act quickly to address these issues because

"we know or can reliably predict what's going to happen in the next couple of years."

93. On July 10, 2006, Mozilo received an internal monthly report, called a "flash report," that

tracked the delinquencies in the Pay Option ARM loan portfolio, as well as the percentage of

borrowers electing to make the minimum payment and the amount of accumulated negative

amortization on each loan. Mozilo learned that from September 2005 through June 2006, the

percentage of Option ARM loan borrowers choosing to make the minimum payment had nearly

doubled, from 37% to 71 %.

94. About a month later, on August 16, 2006, Mozilo received an e-mail from a fellow

member of Countrywides board of directors, asking whether the company anticipated any

significant problems with the Pay Option ARM loan portfolio. Mozilo responded by reiterating

the ongoing concerns he had shared with senior management earlier in 2006. By this point in


24/37

time, over 75% of the Pay Option ARM borrowers were opting for the minimum payment,

which, along with rising interest rates, continued to accelerate negative amortization.

95. Mozilo explained that, as a result, the loans would reset much faster than the borrowers

expected with accompanying payment shock. The only solution, Mozilo wrote, was to refinance

the loans before reset, but this would be difficult in light of decreasing home values, rising

interest rates, and the draconian pre-payment penalties attached to the loans for the first 2 to 3

years. Mozilo wrote that only "unlikely" events, such as a dramatic rise in home values or a

dramatic drop in interest rates, would alleviate future payment shock.

96. On September 26, 2006, Mozilo sent an e-mail to Sambol expressing even greater

concern about the portfolio. In that e-mail, Mozilo wrote: We have no way, with any reasonable

certainty, to assess the real risk of holding these loans on our balance sheet. The only history we

can look to is that of World Savings however their portfolio was fundamentally different than

ours in that their focus was equity and our focus is fico. In my judgement, as a long time lender, I

would always trade off fico for equity. The bottom line is that we are flying blind on how these

loans will perform in a stressed environment of higher unemployment, reduced values and

slowing home sales.

97. On November 3, 2007, Mozilo instructed other executives that he did not "want any more

Pay Options originated for [Countrywide]. I also question whether we should touch this product

going forward because of our inability to properly underwrite these combined with the fact that

these loans are inherently unsound"

98. Finally, on November 4, 2007, Mozilo advised other executives that "options [ARMs]

have hurt the company and the Bank badly .... World Savings culture permits them to make these


25/37

loans in a sound manner and our culture does not .... fico scores are no indication of how these

loans will perform."

99. Despite the repeated warnings of Mozilo and other executives, the clearly identified risks

of Pay Option ARM and Hybrid ARM loans were not disclosed to consumers or borrowers.

What Countrywide Knew, Versus what it Represented to Borrowers to Entice Them into

Obtaining Pay Option and Hybrid ARMs in an Over Inflated Real Estate Market

100. As early as 2005, Countrywide knew that because of high numbers of speculators

purchasing real property in Nevada, a collapse of the housing market was anticipated.

101. Countrywide knew that Nevada housing prices were artificially inflated. It knew there

was a housing bubble in Nevada, i.e., that home prices were artificially inflated and did not

reflect the true, historic value of the homes upon which Countrywide was enticing its borrowers

to use as security. In doing so, Countrywide knew that its borrowers were borrowing money far

in excess of what the true, historic value of the homes were.

102. Countrywide knew, due in part to its own aggressive marketing practices in placing

speculators and borrowers of marginal credit quality into adjustable rate loans which would then

reset into vastly higher monthly payment obligations, that a drastic increase in the number of

foreclosures and a significant decrease in Nevada housing prices would occur.

103. Countrywide knew that loaning money to speculators to purchase property with Pay

Option ARM loans was unacceptable and would lead to a deflated housing market.

104. Countrywide was permitting borrowers of marginal credit quality to obtain its Pay Option

ARM loans. However, Countrywide knew this practice would result in a financial catastrophe

because when the Pay Option ARM loans reset there would be an enormous payment shock to


26/37

the borrowers and Countrywide would be dealing with mass foreclosures as a result.

105. Countrywide knew its Brokers were engaged in lending abuses. In placing very

marginal borrowers into loans which Countrywide knew would reset causing payment shock

and mass foreclosures, its Brokers utilized Countrywides dramatic easing of underwriting

standards, its low or no documentation loans which allowed for no verification of stated income

or stated assets or both, and its "piggyback" second mortgages to encumber the borrowers

homes up to 100% of the artificially inflated home value.

106. Countrywide knew its Pay Option ARMs, Hybrid ARMs and HELOCS were inherently

unsound financial vehicles.

107. Countrywide knew that the Pay Option ARM and Hybrid ARM loans were to reset much

earlier than anticipated which would result in borrowers defaulting on their loans due to the

substantial increase in their payments.

108. Countrywide knew the only solution was for borrowers to refinance the loans before they

reset, but this would be difficult in light of decreasing home values, rising interest rates, and the

draconian pre-payment penalties attached to the loans for the first 2 to 3 years.

109. Countrywide knew that only "unlikely" events, such as a dramatic rise in home values or

a dramatic drop in interest rates, would alleviate payment shock and mass foreclosures.

110. Countrywide knew, or could reliably predict what was going to happen in the years

following its marketing of Pay Option ARM, Hybrid ARM loans and HELOCS, i.e., that the

artificially inflated housing prices in Nevada would drop, that borrowers would have no equity in

their homes to refinance before the loans reset, and that once the loans reset, payment shock

would occur and mass foreclosures would result.


27/37


28/37

Thus, Countrywide knew that its borrowers were borrowing money far in

excess of what the true, historic value of the homes were;

!misrepresenting to borrowers that the Pay Option ARM and

Hybrid ARM loans were sound financial vehicles and that borrowers

would save money by obtaining such loans. However, Countrywide knew

this to be false and knew that the loans were inherently unsound and,

due to payment shock, were likely to result in mass numbers of

delinquencies.

113. Had borrowers known these facts which were known only to Countrywide, the borrowers

would not have proceeded with the loan.

The Hansen Plaintiffs

114. In August of 2005, Plaintiffs Toni and Ronald Hansen sought to refinance their Las

Vegas home.

115. In that regard, they were contacted by ACE Mortgage Funding, LLC., a Nevadamortgage brokerage firm (ACE).

116. ACE was a Countrywide Broker and, as such, was the agent of Countrywide.

117. In steering Plaintiffs into accepting an Option ARM loan with piggyback HELOC, and in

response to Plaintiffs inquiries, ACE made the following misrepresentations upon which

Plaintiff relied:

! that Plaintiffs would be able to refinance out of the Pay Option

Arm and Hybrid ARM loans into fixed rate loans with more affordable

terms;


29/37

! that the value of Plaintiffs home would increase, thus creating

enough equity for Plaintiffs to obtain a loan with better terms;

!that the value of Plaintiffs home was equal to or greater than the

principal amount of the loans that Plaintiffs were obtaining;

! that the Pay Option ARM loan with piggy-back HELOC was a

good and sound loan for Plaintiffs and that Plaintiffs would save money by

obtaining the loan.

118. The aforementioned representations were made in August of 2005 by ______________,

a representative of ACE at ______________________, Las Vegas, NV.

119. The aforementioned representations were false and Countrywide either knew them to be

false or had knowledge that Countrywide had an insufficient basis for making the

representations.

120. Countrywide, through ACE made the misrepresentations with the intent that Plaintiffs

execute the Option ARM loan and HELOC documentation.121. Plaintiffs justifiably relied on the misrepresentations and executed the Option ARM loan

and HELOC documentation.

122. Had Plaintiffs known the true facts that Countrywide knew, for example, that because of

high numbers of speculators purchasing real property in Nevada, many with Countrywides

adjustable rate loan products, Countrywide anticipated a collapse of the Nevada housing

market, that the value of Plaintiffs home was artificially inflated, and therefore, the loan

principal exceeded the true value, historic of the home, that due to Countrywides marketing

practices in placing speculators and borrowers of marginal credit quality into adjustable rate


30/37

loans which would then reset into vastly higher monthly payment obligations, that a drastic

increase in the number of foreclosures and a significant decrease in Nevada housing prices would

occur, that the Pay Option ARMs, Hybrid ARMs and HELOCS were inherently unsound

financial vehicles which would result in mass numbers of delinquencies and foreclosures, that

their home would not increase in value, but would decrease in value, and that there would not be

sufficient equity to refinance out of the Pay Option ARM and HELOC loans, Plaintiffs would not

have entered into the loan.

123. Countrywide alone had knowledge of these material facts which were not reasonably

accessible to Plaintiffs.

124. Countrywide failed to disclose to Plaintiff the true facts as described above.

125. Countrywide's actions and representations as above described caused damages to

Plaintiffs by causing Plaintiffs to obtain an unsound loan which was likely to end in a

delinquency, that was substantially in excess of the homes true, historical value in a Nevada real

estate market that was poised to collapse.

126. Had Plaintiffs been aware of all of the above described facts, they would not have

proceeded with the loan.

127. Because Countrywide voluntarily imparted information to Plaintiffs upon which

Plaintiffs relied, Countrywide assumed a good faith duty to disclose and to impart complete and

correct information to Plaintiffs.

128. Having assumed this duty, Countrywide breached this duty by failing to state accurately

and with full candor all facts it knew to be true concerning the Pay Option ARM and Hybrid

ARM loan products, the true value of Plaintiffs home, and the imminent decline of housing


31/37

prices in Nevada.

FIRST CAUSE OF ACTION

Violation of NRS 598 and 41.600 - Deceptive Trade Practices Act/Consumer Fraud

129. The allegations of paragraphs 1 through 128 above are hereby re-alleged and

incorporated herein by this reference.

130. By all their acts as above described, Defendants have violated NRS 598, the Nevada

Deceptive Trade Practices Act, including NRS 598.0915, 598.092 and 598.0923.

131. As described herein, Defendants violated NRS 598.0915(15) by knowingly making false

representations in a transaction.

132. As described herein, Defendants violated NRS 598.0923(2) through (4) by failing to

disclose a material fact in connection with the sale or lease of goods or services, and violating a

state or federal statute or regulation relating to the sale or lease of goods or services.

133. Pursuant to NRS 41.600, consumer fraud means, a deceptive trade practice as defined

in NRS 598.0915 to 598.0925.

134. Therefore, by its actions as herein described, Defendants have violated Nevada Revised

Statutes 41.600 and have committed consumer fraud.

135. As a result of Defendants actions as herein described, Plaintiffs have suffered damages

in excess of $10,000.00.

136. As a result of Defendants actions as herein described, Plaintiffs have been forced to

incur costs and fees in the prosecution of this action and have been required to hire an attorney

and incur attorney fees and costs to which Plaintiffs hereby make claim.

SECOND CAUSE OF ACTION


32/37

Violation of NRS 598D



138. Plaintiffs, as borrowers of a home loan, are protected by NRS 598D.100, the Nevada

unfair lending practices statute.

139. In making an unsound loan to Plaintiffs which was likely to end in a delinquency, that

was substantially in excess of the homes true, historical value in a Nevada real estate market

that was poised to collapse, Defendants knowingly or intentionally made a home loan to

Plaintiffs without determining, using commercially reasonable means, that Plaintiffs would have

the ability to repay the home loan.

140. In fact, Plaintiffs have no current ability to repay the loan in full.

141. Defendants, therefore, engaged in an unfair lending practice in violation of NRS 598D by

knowingly or intentionally making a home loan to Plaintiffs without determining that Plaintiffs

had the ability to repay the home loan, or without using any commercially reasonable means or

mechanism to make that determination.

142. As a result of Defendants actions as herein described, Plaintiffs have suffered damages

in excess of $10,000.00.

143. As a result of Defendants actions as herein described, Plaintiffs have been forced to

incur costs and fees in the prosecution of this action and have been required to hire an attorney

and incur attorney fees and costs to which Plaintiffs hereby make claim.

THIRD CAUSE OF ACTION

Fraud/Intentional Misrepresentation


33/37


34/37

had an insufficient basis of information for making the false representations and concealing the

material information.

150. Defendants, through such false representations and omissions, intended to induce

Plaintiffs to execute and become bound by the Pay Option ARM loan agreement and HELOC

loan agreement.

151. Plaintiffs justifiably relied upon Defendants false representations and omissions.

152. As a result of Defendants' actions as above described, Plaintiffs have suffered damages in

excess of $10,000.00.

153. As a result of Defendants' actions as herein described, Plaintiffs have been forced to incur

costs and fees in the prosecution of this action and have been required to hire an attorney and

incur attorney fees and costs to which Plaintiffs hereby make claim and to which Plaintiffs are

entitled.

FOURTH CAUSE OF ACTION

Negligence



155. In Nevada, a party is bound in good faith to disclose and to impart correct information, if

a party voluntarily responds to an inquiry. Even if originally under no duty to divulge any

information, once having voluntarily ventured on such a course of action, Defendants thenceforth

are required to exercise due care.

156. As described above, in response to Plaintiffs inquiries, Defendants voluntarily imparted

information to Plaintiffs that, for example, Plaintiffs would be able to refinance out of the Pay


35/37

Option Arm and Hybrid ARM loans into fixed rate loans with more affordable terms, that the

value of Plaintiffs home would increase, thus creating enough equity for Plaintiffs to obtain a

loan with better terms, that the value of Plaintiffs home was equal to or greater than the

principal amount of the loans that Plaintiffs were obtaining, and that the Pay Option ARM loan

with piggy-back HELOC was a good and sound loan for Plaintiffs and that Plaintiffs would save

money by obtaining the loan. This information was inaccurate and incorrect.

157. Defendants, in imparting incorrect or inaccurate information, and in failing to disclose

information which was material and uniquely within Defendants possession, breached their duty

by failing to state accurately and with full candor all material information relevant to Plaintiffs

property and the Option ARM and HELOC loans.

158. Defendant's breach was the actual and proximate cause of the Plaintiffs injuries.

159. As a result of Defendants' actions as above described, Plaintiffs have suffered damages in

excess of $10,000.00.



incur attorney fees and costs to which Plaintiffs hereby make claim and to which Plaintiffs are

entitled.

FIFTH CAUSE OF ACTION

Injunctive Relief



162. Defendants have engaged in commencement of foreclosure proceedings against


36/37

Plaintiffs home, such foreclosure proceedings being based in whole or in part on the Option

ARM, Hybrid ARM or HELOC loans and Defendants misrepresentations and breaches of duty

related thereto and described above.

163. Plaintiffs seek injunctive relief against Defendants to enjoin Defendants from instituting,

maintaining, causing or assisting in the instituting of any process in furtherance of the

foreclosure of the Option ARM, Hybrid ARM or HELOC loans against Plaintiffs home.

164. As a result of Defendants' actions as herein described, Plaintiffs have suffered damages in

excess of $10,000.00.



incur attorney fees and costs to which Plaintiffs hereby make claim.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs expressly reserving their right to amend this pleading at the

time of, or prior to trial, pray for judgment against Defendants as follows:

A. For actual and general damages in excess of $10,000.00;

B. For injunctive relief as set forth herein;

C. For reasonable attorneys' fees and costs of suit of litigation thereof as damages

and under applicable statutes and/or as special damages in excess of $10,000.00;

D. For pre and post judgement interest at the statutory rate as may be applicable;

E. For punitive and trebled damages;

F. For any further legal and equitable relief that this Honorable Court may deem just

and equitable.


37/37

Dated this _____ day of May, 2011.

ADAMS LAW GROUP, LTD.

_____________________________ JAMES R. ADAMS, ESQ.

Nevada Bar No. 6874ASSLY SAYYAR, ESQ.

Nevada Bar No. 91788681 W. Sahara Ave., Suite 280Las Vegas, Nevada 89117Tel: 702-838-7200Fax: 702-838-3636

[email protected]@adamslawnevada.comAttorney for Plaintiffs

complaint[rev3] 1

Documents