Attorney General Martha Coakley’s Office has reached a $10 million settlement with California subprime lender Fremont Investment & Loan and its parent Fremont General Corp.
Fremont also agreed not to foreclose upon unfair loans without certain protections for borrowers or originate unfair loans in the Commonwealth. Those protections have been in place since a 2008 injunction against the lender, and are now permanent, according to a statement.
Under the terms of the settlement, Fremont has agreed to pay the Commonwealth $10 million, including $8 million in consumer relief, $1 million in civil penalties, and $1 million in costs, including attorneys’ fees. The consumer relief funds will be used to redress the negative impact of mortgage foreclosures, predatory lending practices, and to provide relief to Massachusetts borrowers.
The Attorney General’s Office filed suit on Oct. 5, 2007, in Suffolk Superior Court against Fremont based on its allegedly unfair and deceptive loan origination and sales conduct. The complaint specifically alleged the company was selling risky loan products that it knew was designed to fail, such as 100 percent financing loans and "no documentation" loans. The complaint further alleged that the company sold these loans through third party brokers and provided financial incentives to these brokers to sell high cost products.
As a result of the lawsuit, approximately 2,200 Fremont-originated loans have been protected from unrestricted foreclosures, because the preliminary injunction allowed foreclosures to proceed only after the underlying loan was analyzed for unfair, ultra-risky loan criteria.
The settlement restricts Fremont’s ability to foreclose upon certain loans. Under the new restrictions, the Attorney General’s Office receives 30 days’ advance notice for loans that are either ‘not presumptively unfair’; vacant; or not the borrowers’ primary residence; and 45 days’ advance notice for loans that are ‘presumptively unfair.’
If the Attorney General’s Office objects after initial notice then the parties have 15 days to resolve their dispute. If the dispute remains, then Fremont must seek court approval to foreclose. After the notice and objection process, Fremont may only proceed with a foreclosure to which the Attorney General objects if Fremont requests and receives approval from the Superior Court.
"The American dream of homeownership has turned into a nightmare for many borrowers because of predatory lending practices. We have vigorously sought to hold companies accountable for these practices, and today we have taken another important step toward achieving that goal." Coakley said in a statement. "With the $10 million we have obtained through this settlement, we have an opportunity to provide consumers and the Commonwealth with additional relief from the predatory lending practices that have besieged our state and nation. We will continue to hold companies responsible for their role in the foreclosure crisis."
