The Supreme  Judicial Court of Massachusetts has upheld a preliminary injunction against  Fremont Investment & Loan that limits its ability to foreclose on certain  loans without review by the Massachusetts Attorney General or a court  order. In Commonwealth v. Fremont Investment & Loan, 2008 WL 5122699  (Mass. Dec. 9, 2008), the Court affirmed the injunctive relief in favor of the  Massachusetts Attorney General based on finding that Fremont’s lending  practices were unfair under Mass. Gen. Law c. 93A, §2. NACBA joined several other consumer groups in  filing an amicus brief supporting the Attorney General’s position.

The Court  identified four loan factors which, when taken in combination, led to the  conclusion that the home mortgage loans were unfair because they were offered  despite the near certainty that the buyer would default and the property would  be subject to foreclosure. The four  factors were: 1) adjustable rate  mortgage loans with introductory period of three years or less, 2) introductory  rate for the initial period which was at least three percent below fully  indexed rate; 3) borrower’s debt-to-income ratio exceeding fifty percent once the fully indexed rate applied, and 4) the loan-to-value ratio was one hundred percent, or the loan carried a substantial prepayment penalty, or a prepayment  penalty that extended beyond the introductory rate period. The Court found that in light of the housing  market as it existed at the time the loans were offered, the expectation that the buyer would be able to refinance at the end of the initial period was  unrealistically optimistic as the loan-to-value ratio was unlikely to have improved during that period.