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MARTHA COAKLEY

ATTORNEY GENERAL

February 26, 2008 - For immediate release:

ATTORNEY GENERAL MARTHA COAKLEY OBTAINS PRELIMINARY INJUNCTION AGAINST SUBPRIME LENDER FREMONT INVESTMENT AND LOAN

              BOSTON - Attorney General Martha Coakley’s Office has obtained a preliminary injunction in a case against California-based Fremont General and Fremont Investment and Loan (“Fremont”), a subprime lender that originated thousands of loans in Massachusetts and whose risky loan-selling conduct significantly contributed to the foreclosure crisis in Massachusetts.  The order, granted yesterday by Judge Ralph D. Gants in Suffolk Superior Court, prohibits Fremont from initiating or advancing foreclosures on loans that are “presumptively unfair.”

              “We are pleased by the Court’s decision and the relief it will offer to homeowners and communities suffering from the effects of Fremont’s loans,” said Attorney General Coakley.  “This decision shows again that in many cases, irresponsible and unlawful lending practices caused this foreclosure crisis.  We intend to hold accountable those who allegedly engage in unlawful lending conduct.”  

              Under the terms of the injunction, Fremont must provide the Attorney General’s Office with at least a 30-day notice of all foreclosures it intends to initiate for the approximately 2,200 loans that Fremont still owns and services, and allow the Attorney General an opportunity to object to the foreclosure going forward.  If Fremont has issued a loan that is considered “presumptively unfair,” and the borrower occupies the property as his or her principal dwelling, the Attorney General has 45-days to object to the foreclosure.  A loan is “presumptively unfair” if it possesses the following characteristics:

  • The loan is an adjustable rate mortgages with an introductory period of three years or less:
  • The loan has an introductory or “teaser” interest rate that is at least three percent lower than the fully-indexed rate (the relevant index at the time of origination plus the margin specified in the mortgage note);
  • The borrower has a debt-to-income ratio (the ratio between the borrower’s monthly debt payments, including the monthly mortgage payment, and the borrower’s monthly income) that would have exceeded 50% if Fremont had measured the debt, not by the debt due under the teaser rate, but by the debt due under the fully-indexed rate; and
  • Fremont extended 100% financing or the loan has a substantial prepayment penalty or penalty that lasts beyond the introductory period.

              After the notice and objection process, Fremont may only proceed with a foreclosure to which the Attorney General objects if Fremont files a request with the Court, and the Court reviews the matter and agrees that a foreclose is appropriate.  In considering whether to allow the foreclosure, the court will consider, among other factors, whether the loan is unfair and whether Fremont has taken reasonable steps to work out the loan and avoid foreclosure.  The preliminary injunction does not release borrowers from their monthly mortgage obligations. 

              In granting the preliminary injunction, the Court found that it was unfair for Fremont to make loans where Fremont reasonably expected borrowers to default on the loans after the initial introductory interest rates adjusted.  In some instances, Fremont also offered these same borrowers 100% financing, gravely increasing the risk of default if they were unable to obtain refinancing if the market value of their homes declined.  The borrowers’ risk of default was further heightened by Fremont’s substantial prepayment penalties that required borrowers to immediately obtain refinancing after their introductory rates ended. 

              The Attorney General’s Office filed suit on October 5, 2007, in Suffolk Superior Court against Fremont and its parent company, Fremont General Corporation based on the defendant’s unfair and deceptive loan origination and sales conduct.  The complaint specifically alleges that the company was selling risky loan products that it knew was designed to fail, such as 100% financing loans and “no documentation” loans.  The complaint further alleges that the company sold these loans through third party brokers and provided financial incentives to these brokers to sell high cost products.  In addition to injunctive relief, the Attorney General’s Office is seeking civil penalties and restitution.

              This matter is being handled by Assistant Attorney General Christopher Barry-Smith, Chief of Attorney General Coakley’s Consumer Protection Division, Assistant Attorneys General Jean Healey and John Stephan, Financial Investigator Christine Murphy, and Paralegal Christopher Garcia-Rivera, all of the Consumer Protection Division. 

View PDF of the Preliminary Injunction Against Fremont:

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