Massachusetts Attorney General Martha Coakley announced on Friday that her office has filed a lawsuit against one of the nation's largest subprime lenders, Fremont Investment and Loan ("Fremont"). The suit accuses Fremont of predatory lending practices under Massachusetts' 2004 Predatory Home Practices Act. The suit is the first case brought under the Predatory Home Practices Act. It accuses Fremont of "engag[ing] in unfair and deceptive conduct on a broad scale in connection with selling mortgage loans to Massachusetts consumers."
The complaint accuses Fremont of selling loans using various "predatory" practices, even when it allegedly knew that homeowners would not be able to repay the loans. Among the alleged practices was the use of Adjustable Rate Mortgages (ARM) whereby the homeowner would receive a low fixed interest rate for a short period (usually 2 years), followed by a much higher, adjustable rate over the remaining life of the loan (usually 28 years). The complaint asserts that Fremont qualified customers based only on their ability to pay the initial fixed portion of the loan. According to the Attorney General, Fremont gave little consideration to a homeowner's ability to pay after that initial period expired.
Fremont has already faced scrutiny from the Federal Deposit Insurance Corporation ("FDIC") over these practices. According to the Attorney General's office, Fremont previously agreed with the FDIC in March 2007 to stop issuing residential loans in Massachusetts. Nevertheless, Fremont was the second largest subprime lender in Massachusetts in 2005 and the Massachusetts Attorney General claims that Fremont continues to service numerous loans in Massachusetts. The lawsuit, therefore, seeks a preliminary injunction to prevent Fremont from foreclosing on any of these loans. A hearing on the preliminary injunction is scheduled for Thursday, October 11, 2007 at 2:00 p.m. in Suffolk Superior Court.
The following is a link to the Massachusetts Attorney General's press release concerning this suit: http://www.mass.gov/?pageID=pressreleases&agId=Cago&prModName=cagopressrelease&prFile=2007_10_05_fremont_lawsuit.xml. We will continue to monitor this case and report new developments at http://www.insurereinsure.com