CA Bank Violated the Law With Subprime Mortgages

(CN) - A California bank that issued subprime mortgages in Massachusetts violated the law because it knew their customers were unlikely to repay the loans, the Massachusetts Supreme Court ruled.

Justice Botsford upheld the commonwealth's preliminary injunction against Fremont Investment & Loan.

Fremont originated more than 14,000 loans between 2004 and 2007, and the bank still owns more than 2,500 of them.

"In calculating the debt-to-income ratio," Botsford wrote, "Fremont considered only the monthly payment required for the introductory rate period of the loan, not the payment that ultimately would be required at the substantially higher 'fully indexed' rate."

Botsford agreed with the motion judge that these loans were almost certainly "doomed to foreclosure" because the only ways a borrower could stay afloat would be to refinance another low rate or for home values to climb continuously.

Now that the injunction has been upheld, Fremont must give advance notice to the attorney general before it forecloses on a mortgage, or work with the attorney general to restructure the loans.

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