| Senior Member
Join Date: Jul 2008
Posts: 74
Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0 |  MA Attorney General Sues AHMSI
Found this to be interesting reading material....wanted to share.
US States News
US States News
June 3, 2008
BOSTON
The Massachusetts Attorney General issued the following news release:
Today, Massachusetts Attorney General Martha Coakley's Office filed a lawsuit in Suffolk Superior Court against Option One Mortgage Corp. ("Option One"), a subprime lender that originated thousands of loans in Massachusetts, and its parent company, H&R Block, Inc. ("H&R Block"). The complaint alleges that Option One and H&R Block engaged in unfair and deceptive conduct on a broad scale by selling extremely risky loan products that the companies knew or should have known were destined to fail to Massachusetts consumers. The complaint also alleges that the companies discriminated against black and Latino borrowers in Massachusetts by charging them higher points and fees to close their loans than similarly situated white borrowers and by targeting black and Latino consumers with marketing that pushed the sale of predatory loan products.
"Unfair and deceptive lending practices such as those alleged in this complaint have contributed substantially to the escalating foreclosure crisis in Massachusetts, and across the nation. Marketing loan products that were designed to fail not only harms individuals and families who are struggling to afford their homes, but also has a negative impact on neighboring homeowners and the community at large," said Attorney General Coakley.
The complaint alleges that Option One and H&R Block's conduct in selling and servicing mortgage loans has significantly contributed to the foreclosure crisis in Massachusetts. The Attorney General's Office alleges that Option One and H&R Block marketed loan products to Massachusetts borrowers with a variety of risky features, which combined to pose an exceedingly high possibility that the loans would result in foreclosure. Banking regulators and others have long considered loans to be "predatory" when they are not underwritten based on a realistic assessment of the borrower's ability to repay the loan.
Specifically, Option One and H & R Block allegedly marketed loans with layers of risky features, including:
* 100% Financing- Commonly referred to as 80/20 loans, the companies would offer two loans, one for 80% of the loan amount and another "piggyback" loan that constituted a 20% down payment.
* 2/28 Loans with "Teaser Rates"- These loans, known as Adjustable Rate Mortgages (ARM) consist of a lower fixed interest rate for a short-term time period, usually two years, followed by an increase to a higher, adjustable rate for the remaining 28 years, which is subject to further increases. Borrowers were qualified for ARM loans based on only their ability to pay the initial "teaser rate," without regard to their ability to pay the higher, adjusted rate. Brokers and agents for Option One often promised borrowers they could simply refinance before the ARM adjustment, without disclosing that such refinancing was entirely dependent on continued home price appreciation and other factors. With no equity in their homes, many borrowers have been unable to refinance the loans.
* "Stated Income," "No-Doc" or "Low-Doc" Loans- Borrowers often only needed to state their income, without providing any supporting documentation to obtain a loan.
* Substantial Prepayment Penalties-Borrowers who wished to refinance for better terms were often penalized even after their introductory fixed rate period.
* Lucrative Broker Incentives to Sell Expensive Subprime Loans -The companies often rewarded loan officers and mortgage brokers who sold risky loan products. Specifically, Option One and H&R Block paid mortgage brokers compensation to place borrowers in loans with interest rates higher than those for which they qualified, and also offered lucrative financial incentives that encouraged loan officers to generate as many loans as possible for as much money as possible, without regard for whether the loans were affordable. These bonuses, also known as "Volume Override Incentives" sometimes paid more than an additional $10,000 per month to loan officers.
The complaint further alleges that Option One and H&R Block discriminated against black and Latino borrowers by charging them higher points and fees at closing, and by targeting them with special marketing campaigns that promoted predatory loan products. For example, Option One and H&R Block provided information to their employees about how the limited choices available to these borrowers made them good candidates for subprime loan products. Specifically, the companies encouraged employees and brokers to focus on the "emerging markets" of black and Latino homebuyers, who Option One and H&R Block described as having credit concerns, a lack of familiarity with the credit system and difficulty demonstrating conventional credit history. The companies also instructed loan officers and mortgage brokers to partner with real estate brokers to who shared the same race or ethnicity as minority borrowers and to work with "trusted groups in the community" in order to sell H&R Block products. H&R Block encouraged specific tactics such as visiting community centers and houses of worship to target specific communities and gain the confidence of potential black and Latino borrowers.
According to the complaint, rather than target fair and equal loans to these "emerging markets," Option One and H&R Block used a pricing policy, that encouraged employees and brokers to use subprime loans even for prime-rated borrowers, and gave black and Latino consumers more costly loan terms than those provided to similarly situated white borrowers. The complaint alleges that across Option One and H&R Block loans in Massachusetts, black and Latino borrowers were charged an average of several hundred dollars more in points and fees than other similar borrowers, resulting in millions of dollars of total excess fees. This price disparity is not explained by borrower credit scores or other risk-related characteristics or the amount of the loan, the overall cost of the loan, or variation in other components of the price of the loan, such as the note rate. In some instances, the black or Latino borrowers paid double in points and fees than white borrowers paid.
"A borrower should be able to obtain a loan based upon creditworthiness alone and not because of his or her ethnicity," said Attorney General Coakley. "Our office will continue to enforce civil rights laws in order to keep discrimination out of the mortgage lending process."
Option One made more than 30,000 loans in Massachusetts between 2004 and 2007. Over 5,700 of these loans were made to black and Latino borrowers.
Option One no longer issues mortgages for residential properties in Massachusetts. It continued to service thousands of mortgage loans held by Massachusetts homeowners, until last month, when the rights to service those loans were purchased by American Home Mortgage Servicing, Inc., of Irving, Texas, which was also named as a defendant in the complaint.
According to the complaint, Option One and H&R Block were engaged in other unlawful practices in servicing the loans, such as failing to credit borrowers for payments, demanding excessive fees to avoid foreclosure, and pressuring borrowers who were delinquent to enter into unfair "Forbearance Agreements," which would allow the lender to foreclose if the borrower missed a payment by even one day.
The Attorney General's Office is seeking a Preliminary Injunction to restrict Option One's ability to foreclose on Massachusetts borrowers and anticipates a hearing to be scheduled on the court order in the near future. The Attorney General's Office is seeking civil penalties, restitution and an injunction, which would prohibit Option One and American Home Mortgage, the current servicer of most loans originated by Option One, from selling or transferring any Massachusetts mortgages and from foreclosing on any Massachusetts loan without giving the Attorney General's Office a 90-day opportunity to review the loan transaction and object to the foreclosure.
The Attorney General's Office has also asked the court to order the defendants to modify existing loans to remedy the unfair and deceptive origination conduct by Option One. Additionally, the Attorney General's Office has asked the court to enter an order preventing Option One and the other defendants from any further discrimination in mortgage lending, requiring them to provide fair lending training to employees, and test and report on any racial disparities in lending-related activity.
In October 2007, the Attorney General's Office filed a similar case against California-based Fremont General and Fremont Investment and Loan ("Fremont"), alleging similar misconduct. In that case, the Superior Court granted the Commonwealth's requests for injunctions that prohibit Fremont from initiating or advancing foreclosures on loans that are "presumptively unfair," and from assigning or selling Massachusetts loans owned by Fremont, or the servicing obligations on those loans, unless the buyer agrees in writing to be bound by the obligations set forth in the Court's injunction. In issuing the injunction, the Court made a preliminary finding that the Attorney General is likely to prevail in proving that many of the loans issued by Fremont were unfair and in violation of the Consumer Protection Act. Earlier this month, the trial judge's decision was upheld on an appeal to a single Justice of the Appeals Court.
The action filed today against H & R Block and its subsidiaries, however, is the first lawsuit filed by a state's Attorney General's Office alleging civil rights claims against a subprime lender in the wake of the subprime lending crisis.
This lawsuit is part of Attorney General Coakley's multifaceted initiative to combat the foreclosure crisis and predatory and discriminatory lending practices. In addition to the enforcement actions against Fremont and Option One, this initiative has included:
* Implementing new consumer protection regulations governing mortgage brokers and lenders, which took effect in January 2008;
* Filing both criminal and civil actions against mortgage brokers who engaged in fraudulent practices;
* Protecting vulnerable buyers from foreclosure-related schemes by bringing several enforcement actions;
* Enacting emergency Consumer Protection Act regulations which barred "foreclosure rescue transactions" to protect homeowners from losing their homes in these scams; and
* Testifying before the U.S. House of Representatives Committee on Financial Services about racial and ethnic disparities in mortgage lending.
* Complaint filed against Option One and its parent company H&R Block
Assistant Attorneys General Christopher Barry-Smith, David Monahan, Gabriel O'Malley, and Gillian Feiner of Attorney General Coakley's Consumer Protection Division, and Assistant Attorneys General Maura Healey, Zoe Stark, and Anna-Marie Tabor of Attorney General Coakley's Civil Rights Division, are handling this matter, with assistance from Financial Investigator Christine Murphy, Financial Analyst Bryan Lincoln, and Paralegal Chris Garcia-Rivera.
|
Connect with Facebook
Mikka..Fighting Option One
Linear Mode
