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Good Morning, Massachusetts Attorney General Martha Coakley. Well over two years ago and
well before the economic crisis came to a head, our office began to look at the crisis
in the mortgage industry and began to examine what some of the root causes were for the
fallout in the mortgage market and the economy in general. We began at the street level because
we heard complaints from homeowners about foreclosure rescue schemes that we believed
at the time were in violation of Massachusetts General Law Chapter 93A, our unfair and deceptive
practices acts. There were individuals, for instance, who were offering the promise of
“rescuing” from foreclosure by taking the deed to the house. We continued to follow
the trail of foreclosure rescue schemes to the loans themselves and found a pattern in
practice, which we believed also violated the unfair and deceptive practices act in
Massachusetts that is those companies who made mortgages with no regard to those borrowers
financial situation selling risky loan products, which we believe, on their face, were unfair
and deceptive. In short, the loans were destined to fail; however, they always produced a hefty
fee for those who were brokering the loans. It was because of this gross lack of underwriting
and the consideration of a borrower’ ability to pay, that we brought suit against Fremont
Investment & Loan—one of the largest subprime lenders in Massachusetts in October of 2007.
We sought a preliminary injunction in Massachusetts and we received from our Supreme Judicial
Court a decision that found the loans in fact, were presumptively unfair. The court upheld
that preliminary injunction that prohibited Fremont from foreclosing on any mortgages
in Massachusetts until our office had the opportunity to review those loans for fairness
and for appropriateness for modification. Today, we announced that we have reached a
$10 million settlement with Fremont to resolve the allegations brought in that lawsuit, and
making permanent the order from the preliminary injunction that the lender cannot foreclose
on any unfair loans without certain protections for borrowers. As part of the settlement,
Fremont has agreed not to originate such unfair loans in the Commonwealth in the future. $8
million of that settlement funds will be dedicated to providing consumer relief. The funds will
be used to redress the negative impact of foreclosures and the predatory lending practices
in the Commonwealth, and will provide relief to Massachusetts borrowers. The settlement
also includes a $1 million civil penalty, and $1 million in costs for the investigation
and litigation of the suit, including attorney’s fees to the Commonwealth. In addition to this
$10 million monetary settlement, the consent judgment filed in our Supreme, our Superior
Court today, also makes permanent the terms of the preliminary injunction granted in February
2008, and later upheld by the SJC. In issuing that order, the Court found that Fremont’s
loans were “presumptively unfair” because of their very terms—short term interest
rates followed by payment shock, combined with high loan-to-value and high debt-to-income
ratios—and likely to lead to default and foreclosure. For such loans, the court established
a notice and objection process before Fremont could proceed on any foreclosure that also
included Fremont’s assignees. This process is now in place permanently as a result of
today’s settlement and will provide much-needed protection for those borrowers. As a direct
result of our work on the Fremont case, as well as our work on a similar case pending
against Option One, an H&R Block subsidiary, we continued to look at and follow the trail
of Wall Street investment banks who provided capital to subprime lenders like Fremont.
These institutions bundled bad loans and sold them as mortgage-backed securities, essentially
facilitating subprime mortgage loans. We began an inquiry into that process and as a result
of that last month we reached a first in the nation settlement with Goldman Sachs. In addition
to a $10 million payment to the Commonwealth, Goldman Sachs also agreed to provide relief
to struggling homeowners in the form of loan modifications, which by the way is the goal
we primarily seek in Massachusetts, and I know my fellow attorneys general do across
the country loan modifications of loans at an estimated value here in Massachusetts of
$50 million. This settlement will provide relief to over 700 homeowners, including many
whose loans were originated by Fremont. Our work to both trace who was accountable and
hold them accountable in Massachusetts continues. We anticipate that as a result of today’s
settlement, we will continue to scrutinize loans that Fremont wishes to foreclose upon.
Our litigation against Option One is ongoing and our review of the role of securitizers
in this entire predatory lending crisis continues. Thank you.