Finally, a ”true” foreclosure victory for homeowners in the great state of Massachusetts!
In what I am suspecting will be common news in the coming months, Massachusetts Attorney General Martha Coakley office announced today that they have secured preliminary injunctions to prevent Option One Mortgage Corp. and H&R Block Mortgage Corp. from initiating or advancing foreclosures on home loans that may have been secured using unfair and deceptive business practices.
“We are pleased by the court’s decision and the relief it will afford, both to homeowners and to the communities suffering from the effects of Option One’s loans,” said Attorney General Coakley in a statement.
“The economic crisis continues to worsen, and predatory subprime lending is at the core of the problem. This decision is further support that some subprime lenders engaged in irresponsible and unlawful lending practices. We intend to hold accountable those who engaged in such unlawful lending conduct.”
Under the order, a loan is “presumptively unfair” if it possesses the following characteristics:
• The loan is an adjustable rate mortgage with an introductory period of three years or less;
• The borrower has a debt-to-income ratio (the ratio between the borrower’s monthly debt payments, including the monthly mortgage payment, and the borrower’s monthly income) that would have exceeded 50% if Option One had measured the debt, not by the debt due under the teaser rate, but by the debt due under the fully-indexed rate, except whenthe borrower had a student loan in which payment had been deferred at least six months from the date of submission of the mortgage loan application, in which case debt-to-income ratio need exceed only 45 percent;
• The loan has an introductory or “teaser” rate for the initial period that is at least 2 percent lower than the fully indexed rate, (unless the debt-to-income ratio is 55 percent or above, in which case the difference between the teaser rate and fully indexed rate is not relevant);
• The loan-to-value ratio of the loan is 97% or the loan carries a substantial prepayment penalty or a prepayment penalty that lasts beyond the introductory period.
WL Ross & Co. LLC who owns AH Mortgage Acquisition Co purchased H&R Block’s mortgage servicing unit, Option One in March. Now doing business as American Home Mortgage Servicing Inc. (AHMSI), in an email to the Boston Globe, Wilbur Ross, WL Ross & Co.’s chief executive, said the allegations predate the deal, protecting his firm against the state’s legal claims.
This seems to be all the lenders and mortgage servicers “weak” defense against any type of legal claim.
Lenders say, “Don’t blame us for those trillions in fraudulent home loans originated by slimy mortgage brokers. We didn’t deal with the borrower so how could we have known they were committing fraud?”
Mortgage servicers say, “I know these loans are crap and were originated fraudulently. But I just bought this crap, you can’t blame me!”
Come on Wilbur, you knew you were buying a stolen car painted candy apple red!
The attorney general’s allegation that Option One violated antidiscrimination laws between 2004 and 2007 turns on the contention that brokers charged minority borrowers higher points and fees to originate their loans. The state cited four examples of unnamed minority borrowers who paid between $1,993 and $8,360 more in fees and closing costs than white borrowers with similar loans, incomes, and credit scores.
In the most extreme case, a black borrower with a 523 credit rating paid $10,635 in fees for a $167,000 refinance loan, while a white borrower with a 520 credit score paid $2,275 in fees to borrow $200,000. The suit also said Option One “knowingly targeted” minority borrowers for subprime mortgages.
Under the order issued today, American Home Mortgage Servicing Inc. (AHMSI), which is servicing loans for Option one, must give the Attorney General’s Office at least 30 days notice before it intends to foreclose on any such loan, and if the Attorney General objects, obtain approval from the Court before foreclosing on a loan.
In granting the preliminary injunction, the Court found that the Attorney General’s Office had established a substantial likelihood that it will prevail in proving that Option One and H&R Block Mortgage acted unfairly by issuing mortgage loans with reckless disregard of the risk of foreclosure.
In addition to issuing the preliminary injunction, the Court also ruled in favor of the Attorney General’s Office on multiple motions to dismiss filed by the defendants. The Court rejected Option One and H&R Mortgage’s motion to dismiss the Attorney General’s first-in-the nation discriminatory lending claim by a state Attorney General against a mortgage lender.
The Court’s decision, which is the first to apply Chapter 151B (a.k.a. the Massachusetts Anti Discrimination Act) to mortgage lending, held that the Attorney General’s Office could proceed with its civil rights claims, that the defendants’ policies and practices and disparate pricing violate antidiscrimination law.
The court also rejected the defendants’ arguments that the Attorney General’s claims under the Massachusetts Consumer Protection Act were unconstitutionally vague, interfered with the companies’ ability to enforce their mortgage loans in violation of the Contracts Clause and Dormant Commerce Clauses of the United States Constitution, and were preempted by federal law.
In roundly rejecting these contentions, the Court stated that Option One and H&R Mortgage “cannot credibly contend that they did not have fair notice that it was unfair to issue home mortgage loans in Massachusetts with reckless disregard of the risk of foreclosure” and cited the “abundant fair warning” previously given to mortgage lenders by state and federal regulators.
The Court further stated that, “[a]nyone with any understanding of home foreclosure recognizes how much injury it causes to the families who resided in foreclosed homes. Consequently, any lender with even a modicum of business morality should recognize that it is immoral, unethical, and unscrupulous to issue a home loan with reckless disregard of the risk of foreclosure.” The Court also rejected the defendants’ attempt to make the Attorney General arbitrate these claims under federal arbitration law.