NEW YORK (Reuters) - Fremont General, formerly one of the biggest U.S. subprime lenders, cannot initiate or advance foreclosures that are deemed “presumptuously unfair” in Massachusetts, the state attorney general said on Tuesday, citing a court order.
The preliminary injunction issued by the Suffolk Superior Court requires the California-based company to give state Attorney General Martha Coakley at least 30 days notice for the approximately 2,200 loans the company still owns and services, she said in a statement.
The attorney general then has 45 days to object to any foreclosures. If Coakley objects to a foreclosure, the lender must get the court’s approval to proceed.
“We intend to hold accountable those who allegedly engaged in unlawful lending conduct,” Coakley said. She noted the preliminary injunction does not free borrowers from having to make their monthly mortgage payments.
A loan would meet the definition of “presumptively unfair” if it was an adjustable rate mortgage with an introductory period that was three years or less, or if it had a beginning “teaser” interest rate that was at least 3 percentage points lower than the fully-indexed rate, she said.
Further, the definition of these unfair loans included ones made to borrowers whose debt-to-income ratio would have topped 50 percent if Fremont had measured the debt by the amount due under the fully-indexed rate.
Finally, the loan would be “presumptively unfair” if it had a substantial penalty or one that lasted beyond the introductory period, she added.
Reporting by Joan Gralla and Anastasija Johnson, Editing by Frank McGurty