Lender ordered to halt foreclosures
A Massachusetts court, in an unprecedented decision yesterday, ordered the California subprime lender Fremont Investment & Loan to halt all foreclosures to give state officials time to review each mortgage.
The order, issued yesterday by the Suffolk Superior Court, is the latest action in an October lawsuit filed by Massachusetts Attorney General Martha Coakley that alleged Fremont engaged in predatory and unfair lending when it made home loans to individuals who often could not afford them.
In a 29-page order, Justice Ralph Gants said a large share of Fremont's mortgage loans could potentially be considered "structurally unfair" under the state's lending laws. The mortgages were unfair, he said, if they met four criteria, including low introductory rates that shot up once that initial period ended.
The attorney general's office said the order applies to about 2,200 mortgages. The state is also seeking financial relief for borrowers, an unknown number of whom are in foreclosure.
"There are no precedents like this in Massachusetts," said Boston lawyer Gary Klein, who represents borrowers in suits against mortgage companies. "It's an extremely important decision that recognizes the extreme hardship that predatory lending has on Massachusetts borrowers."
Fremont's lawyer in Boston did not return requests for comment.
The order sets a timetable for the attorney general to analyze loans, freeze the foreclosure process, and potentially object to a foreclosure on the grounds the loans were predatory and unfair to borrowers. "It is a very good order, because it gives those consumers and us a timeout from Fremont's attempt to foreclose all of these homes," Coakley said yesterday in an interview.
She said the injunction allows some borrowers to renegotiate their loan; if they cannot afford their home, it gives them time to find alternative housing.
The court said a Fremont foreclosure can be stopped if a subprime loan meets four conditions. The loan must have a low introductory interest rate; after the initial period, the rate must increase at least 3 percentage points; monthly payments must be equal to more than half the borrower's income; and the mortgage must not have required a down payment.
"A significant number [of Fremont's loans are] going to meet that standard - not every one but a significant number would," said Thomas Callahan, head of the Massachusetts Affordable Housing Alliance.
KIMBERLY BLANTON
