Investor to restructure home loans

Mortgage buyer will help some Fremont clients

Up to 200 homeowners with mortgages from Fremont Investment & Loan will be able to restructure their loans to lower their payments or get money to relocate.

Massachusetts Attorney General Martha Coakley said the Fremont borrowers would get relief as part of an agreement the state reached with WMD Capital Markets in California, an investment firm that recently purchased a portfolio of Fremont's subprime mortgages.

The agreement, disclosed yesterday, is highly unusual because it is not with the original lender - Fremont - but with an investor. Just 200 of the thousands of mortgages Fremont originated statewide during the subprime mortgage and housing boom will be affected.

WMD Capital's chief executive, William Daugherty, said his firm promised to renegotiate the mortgages as part of the firm's purchase last week of the $65 million portfolio of Massachusetts mortgages. But he said that restructuring the loans also makes financial sense.

His firm's goal is "keeping people in their houses if they can afford to pay and modifying the debt to do so," Daugherty said.

The agreement is another phase of the attorney general's lawsuit, filed last October in Suffolk Superior Court, charging Fremont with predatory and deceptive lending practices. Fremont, based in California, has denied the claims in court.

Coakley's office obtained a court injunction earlier this year barring Fremont from foreclosing on borrowers who are unable to afford their loans until the state has a chance to review each situation. The court extended that injunction to include investors in Fremont mortgages.

Under yesterday's agreement, WMD Capital will give Fremont's borrowers who are more than 60 days late on their monthly payments two choices: either work out a loan restructuring or receive a relocation payment of about $10,000 to $25,000, depending on such factors as the home's value and the borrower's personal situation. Borrowers who choose to move would sign the property over to the investor. The relocation money will be available for one year.

The mortgages involved were adjustable-rate loans with a two-year introductory interest rate, which often increased even to double-digit levels after the initial period. For those who want to renegotiate, WMD will return the rate to the introductory rate, which averaged about 8.5 percent but could be as low as 4 percent. If that isn't enough to keep the borrower in the house, WMD may further reduce payments for up to three years, giving borrowers time to increase income or refinance the loan, the state said.

WMD also will reduce borrowers' loan balances by the amount of origination fees and unpaid late charges and interest, the state said.

Daugherty said WMD would take over servicing the loans on Aug. 22 and plans to quickly send borrowers notification of the change.

As soon as this transfer is complete, "We'll be reaching out to every borrower as quickly as possible to try to get the program working in a productive way," he said.

Coakley said, "This agreement shows that lenders, holders, and servicers are able to take aggressive steps to make predatory subprime loans affordable for borrowers."

Kimberly Blanton can be reached at blanton@globe.com.