Commonwealth v. Fremont Investment & Loan

Summary

The Massachusetts Supreme Judicial Court reviewed a preliminary injunction restricting Fremont Investment & Loan’s foreclosures on certain subprime residential mortgage loans. The court held that the Attorney General was likely to succeed on a claim that combining specified loan features constituted an unfair practice under Massachusetts General Laws chapter 93A, and that the conduct was not exempt under chapter 93A, § 3. The court affirmed the preliminary injunction as modified.

Holdings

1. The Commonwealth established a likelihood of success on its claim that originating subprime home mortgage loans combining the four identified characteristics—short introductory ARM periods, a substantial gap between the introductory and fully indexed rates, a debt-to-income ratio exceeding 50 percent when calculated at the fully indexed rate, and either 100 percent loan-to-value financing or specified prepayment penalties—was unfair under G. L. c. 93A, § 2.
2. Although Fremont's loans were not high-cost home mortgage loans governed by G. L. c. 183C, the Superior Court properly considered that statute as an established statutory expression of public policy that it is unfair to make a principal-residence mortgage loan when the lender does not reasonably believe the borrower can make the scheduled payments.
3. Fremont did not establish the c. 93A, § 3, exemption because it failed to show that any regulatory scheme affirmatively permitted the challenged combination of loan features.
4. The preliminary injunction promoted the public interest because it balanced borrowers' interests in avoiding foreclosure under presumptively unfair terms with Fremont's interest in recovering the value of loans and did not eliminate foreclosure or borrowers' repayment obligations.
5. The Superior Court did not abuse its discretion in granting and modifying the preliminary injunction.

Questions Presented

1. Whether the Superior Court improperly applied a new or retroactive standard of unfairness under G. L. c. 93A, § 2, to Fremont's mortgage loans.
2. Whether the Massachusetts Predatory Home Loan Practices Act, G. L. c. 183C, could be considered as an established statutory expression of public policy even though Fremont's loans were not high-cost home mortgage loans covered by that statute.
3. Whether G. L. c. 93A, § 3, exempted Fremont's lending practices because the individual loan features were permitted by applicable State or Federal laws and regulatory standards.
4. Whether the preliminary injunction promoted the public interest.
5. Whether the Superior Court properly granted and modified the preliminary injunction restricting foreclosure and requiring court approval for foreclosure of presumptively unfair loans.

Disposition

affirmed