A California-based investment fund that acquired distressed loans originated by Fremont Investment & Loan has agreed to a settlement with the Massachusetts attorney general that will help prevent foreclosure for 200 subprime borrowers. Meanwhile, monthly foreclosures in the state declined -- though the decrease may only be temporary.
WMD Capital Markets LLC entered into the agreement the state, Attorney General Martha Coakley announced yesterday.
WMD, a privately held specialty investment company that invests in distressed mortgage assets, said its affiliate, GI-XXVI, recently acquired the $65 million in mortgages secured by properties in Massachusetts.
The loans were subject to a preliminary injunction issued against Fremont by Suffolk Superior Court in February restricting foreclosures.
Fremont was acquired by CapitalSource Inc. last month following the voluntary Chapter 11 bankruptcy filing of its parent, Fremont General Corp., in June.
The Federal Deposit Insurance Corporation issued a cease-and-desist order to Fremont General Corp. in February 2007 as the subprime sector began to unravel. The order called for Fremont to "make a variety of changes designed to restrict the level of lending in its subprime residential mortgage business," and the company exited subprime lending.
Coakley's statement yesterday said the agreement with WMD was reached to "memorialize how Fremont-originated loans would be modified in order to avoid unnecessary foreclosures and account for Fremont's unfair and deceptive lending practices that are the subject of the Attorney General's law enforcement action against California-based Fremont."
She referred to Fremont's hybrid adjustable-rate mortgages as structurally unfair and noted that eligible borrowers will also receive significant loan credits and refunds of some fees and interest payments.
WMD has agreed to make introductory rates permanent, reduce some borrowers' payments for up to three years and offer a "relocation payment" to borrowers who cannot afford a modified payment for up to one year after the settlement, the state said. In addition, a credit will be given for origination fees, unpaid past due interest, unpaid late charges and other foreclosure-related fees after eligible borrowers make their first payments on the revised loans.
Massachusetts saw 1,131 foreclosure deeds filed during June, according to a report yesterday from The Warren Group. Foreclosures fell 20 percent from May, when 1,405 deeds were recorded.
The report noted that the right-to-cure law, which went into effect during May, is postponing foreclosure petitions. The right-to-cure law, which was signed by Gov. Deval Patrick in December, requires mortgage holders to file a notice of "intent to foreclosure" with the homeowner and state regulators at least 90 days prior to foreclosing to give delinquent borrowers more time to pay off loan defaults.
"Despite the temporary drop-off in foreclosure petitions over the last two months, overall foreclosure activity is consistently climbing," the Warren Group said.
Commonwealth of Massachusetts vs. Fremont Investment & Loan, and Femont General Corporation
Superior Court Civil Action No. 07-4373-BLS1, Feb. 25, 2008 (Suffolk Superior Court)