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Servicer Ordered to Halt Mass. Foreclosures

Attorney general obtains injunction against Fremont

February 26, 2008

By MortgageDaily.com staff

A former subprime lender has been prohibited from foreclosing on some of its Massachusetts borrowers.

Massachusetts Attorney General Martha Coakley announced the state obtained a preliminary injunction against Fremont Investment and Loan.

The order reportedly prohibits the Santa Monica, Calif.-based company, which was ordered by the Federal Deposit Insurance Corporation in March 2007 to stop making subprime mortgages, from proceeding with foreclosures on mortgages that Massachusetts considers "presumptively unfair."

The order calls for Fremont to submit a notice to the attorney general's office at least 30 days before it intends to foreclose on a loan, the announcement said. The attorney general will have 45 days to object to the foreclosure if the property is owner occupied and the loan is considered to be "presumptively unfair."

Loans the state considers "presumptively unfair" include adjustable-rate mortgages that reset within three years of origination, loans where the teaser rate is 3 percent or more below the fully-indexed rate, and loans where the debt-to-income ratio exceeds 50 percent using the fully-indexed rate. Also included are loans with loan-to-values of 100 percent and loans with "substantial" prepayment penalties or penalties that extend beyond the introductory period.

The ruling applies to roughly 2,200 loans Fremont still owns and services, the state said.

The attorney general can be overridden if the court determines a foreclosure is appropriate, the statement said. Among factors the court will consider is Fremont's efforts to avoid foreclosure.

Fremont originally agreed to halt Massachusetts foreclosures in July 2007 under an agreement with Coakley that allowed her office to review the files before the foreclosure could proceed. But that deal apparently fell apart, and Coakley filed a lawsuit against Fremont during October 2007 in Suffolk Superior Court.

"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," today's announcement said. "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."

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