Lower Court Order Upheld Prohibiting Option One/H&R Block Massachusetts Foreclosure Actions Without First Obtaining State AG Or Court Approval

From the Office of the Massachusetts Attorney General:

• The Massachusetts Appeals Court has affirmed a preliminary injunction obtained by Attorney General Martha Coakley’s Office against Option One Mortgage Corp. (“Option One”) and H&R Block Mortgage Corp. (“H&R Block Mortgage”), subprime lenders that originated thousands of loans in Massachusetts. The preliminary injunction, issued by then Judge Ralph D. Gants in Suffolk Superior Court last November, prohibited Option One and American Home Mortgage Servicing, Inc. (“AHMSI”) from initiating or advancing foreclosures on mortgage loans that the Court found to be “presumptively unfair.”(1) Under the order, which affects up to 9,700 Massachusetts loans originated by Option One, AHMSI must give the Attorney General’s Office advance notice before it intends to foreclose on any such loan, and if the Attorney General objects, obtain approval from the Court before foreclosing on a loan.

• In a summary order issued late last week, the Appeals Court affirmed the preliminary injunction. The Appeals Court cited the Supreme Judicial Court’s decision in Commonwealth v. Fremont Investment & Loan [452 Mass. 733; 897 N.E.2d 548; 2008 Mass. LEXIS 797 (2008)] and determined the Superior Court’s injunction was proper.

For the Massachusetts Attorney General press release, see Appeals Court Affirms Preliminary Injunction Against Option One and H&R Block Mortgage, Restricting Foreclosures on Unfair Subprime Loans.

For the 11/12/2008 Massachusetts AG press release on this matter, see Coakley Obtains Preliminary Injunction Against Option One and H&R Block, Accused of Deceptive and Discriminatory Lending Practices.

(1) Under the order, a loan is “presumptively unfair” if it possesses the following characteristics:

• The loan is an adjustable rate mortgage with an introductory period of three years or less;
• The borrower has a debt-to-income ratio (the ratio between the borrower’s monthly debt payments, including the monthly mortgage payment, and the borrower’s monthly income) that would have exceeded 50% if Option One had measured the debt, not by the debt due under the teaser rate, but by the debt due under the fully-indexed rate, except when the borrower had a student loan in which payment had been deferred at least six months from the date of submission of the mortgage loan application, in which case debt-to-income ratio need exceed only 45 percent;
• The loan has an introductory or “teaser” rate for the initial period that is at least 2 percent lower than the fully indexed rate, (unless the debt-to-income ratio is 55 percent or above, in which case the difference between the teaser rate and fully indexed rate is not relevant);
• The loan-to-value ratio of the loan is 97% or the loan carries a substantial prepayment penalty or a prepayment penalty that lasts beyond the introductory period.