Attorney General Martha Coakley has accused Fremont of predatory and unfair lending practices.
(Jodi Hilton for the boston globe/file 2007)
The Massachusetts attorney general asked a state court yesterday to block Fremont Investment & Loan from commencing foreclosure actions against 500 borrowers in Massachusetts.
Attorney General Martha Coakley had previously filed suit in October accusing Fremont of predatory and unfair lending practices, and yesterday attorneys from her office told a Suffolk Superior Court judge the state wants to review each mortgage that is subject to foreclosure and try to stop proceedings on any loans they believe were made fraudulently.
An attorney for Fremont, James Carroll, challenged the state's request. "We cannot hand over that decision-making power to the attorney general," he said. "That would be unprecedented."
Fremont has denied that fraud was widespread or systemic, and its attorneys yesterday said that in some cases loan brokers who worked for other companies, or the borrowers themselves, may have been culpable if some individual loans are found to be fraudulent.
Currently, Fremont has some 2,500 active loans in Massachusetts, Jean Healey, assistant attorney general, said in court. Fremont intends to file initial foreclosure actions on 500 of those, with more expected in coming months, she said.
Fremont was a leading provider of subprime mortgages, which offered loose qualifying standards to borrowers with poor credit or little down payments, but came with steep interest rates. Subprime loans are now defaulting in record numbers, spawning a mortgage crisis nationwide.
Many Fremont loans had lower teaser rates that rose after two years, often pushing borrowers' payments beyond their ability to pay.
Fremont mortgages were "a recipe for disaster," and Fremont was aware its mortgages contained "multiple layers of risk" to borrowers, Healey said.
In the request for an injunction, state lawyers argued the loans were "structurally unfair" and Fremont made them without regard to borrowers' ability to pay.
The state initially sought the injunction against Fremont Dec. 27, after it said Fremont pulled out of a voluntary agreement granting the state the right to review foreclosures.
Fremont's Carroll said it pulled out of the agreement because the state failed to fulfill its obligation to respond to its notification of individual foreclosures within 90 days. The state "had an obligation to get back to Fremont and let Fremont know" whether it could proceed with foreclosures, Carroll said. In the past three months, he said, Fremont has been able to proceed with only three foreclosures. For now, Carroll said, Fremont would continue to hold off on foreclosures but would like the judge to allow the lender to proceed in the future.
The court is expected to rule on the state's request this month.
More than 6,600 borrowers in Massachusetts lost their homes to foreclosure through November 2007, according to the Warren Group, a real estate research firm.
Kimberly Blanton can be reached at blanton@globe.com.
© Copyright 2008 Globe Newspaper Company.
