Fremont sued over its lending practices
Saying that Fremont General Corp.’s deceptive lending practices drove homeowners into foreclosure, Massachusetts Atty. Gen. Martha Coakley sued the Santa Monica-based company Friday, seven months after federal regulators forced its bank subsidiary out of the sub-prime mortgage business.
The civil suit in Suffolk Superior Court alleges that Fremont, a national lender, should have known its loans would fail because they combined so many risky features -- such as 100% financing, no requirement to prove income and interest rates that shot up after two years. Fremont also paid bonuses to mortgage brokers who jacked up rates for borrowers in violation of a 2004 Massachusetts predatory lending law, the suit alleges.
The action, the first filed under the law, seeks unspecified fines, restitution and a court order barring loan sales or foreclosures in Massachusetts unless Fremont gives the state 90 days to review the mortgages and raise objections.
Fremont General described the suit as without merit and said it would defend itself vigorously.
It said it was working with regulators in other states to help delinquent borrowers by modifying loans “and other proactive measures,” and “finds it regrettable” that Coakley “has abandoned these cooperative efforts.”
The company had cooperated with a lengthy investigation, Coakley said.
Fremont was an early casualty of the sub-prime meltdown. The Federal Deposit Insurance Corp. ordered it in March to stop making loans that borrowers couldn’t afford, forcing it to shut down its home-loan division. It later agreed to sell a major stake to turnaround specialist Gerald J. Ford but said last month that the banker had backed away from completing the deal.
Despite the many complaints that borrowers were misled about loan risks, the only other state to publicly target a major mortgage company for alleged lending abuses this year has been Ohio, which sued Irvine’s New Century Financial Corp. That company has since been liquidated in bankruptcy.
Ohio Atty. Gen. Marc Dann said in May that he planned to sue investment banks and credit-ratings firms that enabled the lenders to provide loans consumers couldn’t afford. Dann, who has yet to take such action, couldn’t be reached for comment Friday.
“For everyone’s hand-wringing on this, there hasn’t been a lot of action,” Coakley said.
In a recent interview, California Atty. Gen. Jerry Brown raised the possibility of going after lenders in court but added that “before that occurs, serious due diligence is required. It’s not my approach to just make loud public pronouncements without having delved into the facts.”
David W. Huey, a Washington state assistant attorney general involved in the multi-state predatory lending investigation that won a $325-million settlement from Ameriquest Mortgage Co. in 2005, said such cases have “massive proof problems. You have to establish a pattern and practice -- show that a lot of people were treated similarly.”
Many sub-prime lenders went bust and others were national banks or thrifts that courts have ruled are regulated by federal authorities, not states, he said.
