Massachusetts AG Obtains Expanded Preliminary Injunction Against Subprime Lender Fremont Investment And Loan

April 01, 2008 -- BOSTON – Massachusetts Attorney General Martha Coakley’s Office has obtained an expanded preliminary injunction order against Fremont Investment & Loan (“Fremont”). This expanded preliminary injunction was issued by Judge Ralph D. Gants in Suffolk Superior Court on March 31, 2008, and prohibits Fremont from assigning or selling Massachusetts loans owned by Fremont, or the servicing obligations on those loans, unless the buyer agrees in writing to be bound by the obligations set forth in the Court’s Preliminary Injunction issued February 25, 2008.

“We are pleased that the Court has held Fremont accountable for the unfair loans it originated in Massachusetts,” said Attorney General Coakley. “This decision reflects that lenders cannot escape responsibility for their illegal conduct and contribution to the foreclosure crisis simply by selling off their loans or servicing rights.”

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The original injunction, issued by Judge Ralph D. Gants on February 25, 2008, prohibits Fremont from initiating or advancing foreclosures on loans that are “presumptively unfair.” Shortly after this injunction was issued, Fremont announced a proposed transaction to sell servicing rights to a bundle of mortgage loans, including 290 Massachusetts loans, to Carrington Mortgage Services (“Carrington”) on April 1, 2008. Upon learning this, the Attorney General’s Office immediately filed an emergency motion to expand the injunction to restrict assignments of loans and servicing rights.

Following a hearing on March 28, 2008, the Court issued an additional provision to its injunction that prohibits Fremont from selling or assigning loans or servicing obligations unless the buyer/assignee agrees in writing to be bound by the obligations of the preliminary injunction and provides written notice of that agreement to the Commonwealth at least five days in advance of the sale or assignment. The Superior Court permitted one existing assignment--the sale to Carrington—to proceed. Any subsequent sales or assignments will be subject to the new prohibition.

Additionally, on March 31, 2008, the Attorney General’s Office entered into an agreement with Carrington. Under the terms of the agreement, Carrington will provide the Attorney General’s Office with at least a 45-day notice of all foreclosures it intends to initiate or advance with respect to the 290 loans whose servicing rights are being sold on April 1, 2008, and allow the Attorney General’s Office an opportunity to object to the foreclosure going forward.

After the notice and objection process, if the Attorney General and Carrington cannot resolve any disputes, Carrington may only proceed with a foreclosure to which the Attorney General objects if Carrington files a request with an agreed-upon third party and that third party reviews the matter and agrees that a foreclose is appropriate. In considering whether to allow the foreclosure, the third party will consider, among other factors, whether Carrington has taken reasonable steps to work out the loan and avoid foreclosure.

The Attorney General’s Office filed suit against Fremont and its parent company, Fremont General Corporation on October 5, 2007, based on the defendant’s unfair and deceptive loan origination and sales conduct. The complaint specifically alleges that the company was selling exceedingly risky loan products that it knew was designed to fail, such as 100% financing loans and “no documentation” loans. 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.

This matter is being handled by Assistant Attorney General Christopher Barry-Smith, Chief of Attorney General Coakley’s Consumer Protection Division, Assistant Attorneys General Jean Healey and John Stephan, Financial Investigator Christine Murphy, and Paralegal Christopher Garcia-Rivera, all of the Consumer Protection Division.

View the Modified Preliminary Injunction:

* Memorandum and Order on Commonwealth’s Motion to Modify the Preliminary Injunction

Source: Massachusetts Attorney General