Fremont Investment & Loan yesterday agreed to postpone foreclosure proceedings against 2,200 Massachusetts homeowners after state officials determined the lender gave subprime mortgages to borrowers who could not afford the loan payments.
Attorney General Martha Coakley secured the 90-day foreclosure moratorium from Fremont, once the state's second-largest issuer of subprime loans, after she threatened in May to sue the California company over lending practices she alleged violated the state's consumer-protection laws, such as making mortgages without fully disclosing the terms.
The moratorium "got the clock stopped so the people facing foreclosure get a little bit of breathing room," she said.
Fremont, which has now exited the subprime lending business, declined to comment.
Coakley's action came as Massachusetts Governor Deval Patrick yesterday unveiled an aggressive plan to refinance subprime loans of some delinquent borrowers. State officials said they would pressure lenders to absorb losses on their troubled loans.
In the Fremont case, Coakley said her office will review the company's internal documents on its Massachusetts mortgages to determine whether the loans were made inappropriately or whether a foreclosure is warranted. The state would use that information to determine whether some Fremont customers deserve financial relief, she said.
Financial regulators and housing activists have accused Fremont of routinely failing to detail to customers the full implications of their loans, of not properly documenting information such as borrowers' income, and of making loans that borrowers could not afford.
In March, the Federal Deposit Insurance Corp. alleged Fremont made loans "that substantially increased the likelihood of borrower default" and ordered the company to stop making loans.
One such borrower was Patricia Sujballi, who in May 2006 purchased a two-family home in Dorchester. Fremont gave her a subprime mortgage for $529,000, even though she had just moved out of a homeless shelter, was unemployed, and her husband earned around $32,000 a year.
Sujballi said she and her husband tried to get out of the Fremont loan at the closing when they realized they could not afford the $4,700 monthly payment, but said they were pressured by the bank's attorneys to sign it.
Sujballi's home was foreclosed on June 15, and on Tuesday, the mother of two received a 72-hour notice to move out. Sujballi said she faces being homeless again. Coakley's action against Fremont, she said, "is too late for me."
Her loan broker, meantime, earned $9,696.40 in fees, according to mortgage documents provided by ESAC Sustainable Homeownership Center in Boston, which tried to help her. "The broker made out very well," said Virginia Pratt, Sujballi's housing counselor at ESAC, while Sujballi "was completely set up to fail,"
ESAC played a central role in alerting state officials to Fremont's problems. Robert Pulster, the ESAC Center's executive director, said his organization started seeing Fremont borrowers in trouble in early 2006. "There wasn't a Fremont loan that came in that didn't have some issues," he said.
Coakley said her investigators continue to look into consumer complaints.
Meanwhile, under Patrick's plan, the state's housing finance organization, MassHousing, will provide up to $250 million to help subprime borrowers up to 60 days late on their payments refinance into lower-cost fixed-rate mortgages.
Yesterday, Wells Fargo said in a prepared statement it would work on solutions for troubled mortgages "on a case by case basis."
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said the lenders targeted for refinancing want an opportunity to mitigate their losses by being able to provide those borrowers with the new mortgages, as well. The state program, he said, is unfair because it "is asking the lender to take the hit and to lose the borrower."
John Battaglia, president of Cambridge Mortgage Group, said one problem in a bailout plan is that many borrowers did not have enough income to pay for their loans in the first place and their homes can't be saved.
Mortgages were based on false beliefs about "real estate values continuing to go up or people thinking they would have more income" in the future to pay the mortgages, he said.
Kimberly Blanton can be reached at firstname.lastname@example.org.