In a decision widely characterized as both “important” and “unprecedented,” on February 28, 2008, a Massachusetts Superior Court judge enjoined a subprime lender, Fremont

Investment & Loan of California (“Fremont”), from foreclosing on many of its mortgages with Massachusetts subprime borrowers without the express prior approval of the Attorney General.1

Justice of the Superior Court, Ralph D. Gants, found that Fremont’s lending practices were “unfair and deceptive acts or practices” in violation of M.G.L. c. 93A, § 2. As a result, Fremont has been enjoined from foreclosing on any of its roughly 3,000 remaining active mortgages in Massachusetts without the Attorney General’s express written approval.

In issuing his findings, Judge Gants determined that the presence of four factors (the “Four Factors”) in each Fremont loan, when taken together, were “presumptively unfair” and in violation of Chapter 93A:

. the loan is an adjustable rate mortgage with an introductory period of three years or less;

. the loan has an introductory or “teaser” rate for the initial period that is at least 3% lower than the fully indexed rate (i.e., the adjusted rate at the end of the introductory period);

. the borrower has a debt-to-income ratio that would exceed 50% if the lender’s underwriters measure the debt not by the debt due under the teaser rate, but by the debt due under the fully indexed rate; and

. the loan-to-value ratio is 100%, or the loan carries a substantial prepayment penalty or a prepayment penalty that extends beyond the introductory period.

Notably, the court did not find any fraud in the inception of these loans (i.e., Fremont did not deceive the borrowers, did not make any false representations in its loan terms, did not conceal anything from the borrowers, and did not make any misrepresentations in the closing documents).

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