Whether the subprime mortgage situation is a crisis is the subject of debate. What we are able to do to help stem the increase in foreclosures is worth examining. What is clear, is that states are taking the problem very seriously and are aggressively going after lenders associated with subprime loans. On June 3 rd, Massachusetts Attorney General Martha Coakley joined in the subprime fray, filing a 59 page Complaint against Option One Mortgage Corp. and its parent H&R Block. You can see a copy of the complaint here.
The allegations focused on loan products that contained “risky features” without a reasonable assessment of the borrower’s ability to repay the loan. The Complaint tracks closely with others that have been filed and suggest that the features that encouraged borrowers to enter into the loans amount to “predatory” practices. Those features include:
- 100% Financing – or 80/20 loans;
- 2/28 Loans with “Teaser Rates” with Adjustable Rate Mortgages;
- “Stated Income,” “No-Doc” or “Low-Doc” Loans where borrowers didn’t need to provide income documentation;
- Substantial Prepayment Penalties; and
- Lucrative Broker Incentives to Sell Expensive Subprime Loans.
If you’d like more detail without combing through the lengthy complaint, you can see the AG’s Press Release here.
James Crane is an attorney, consultant and author with extensive experience in e-discovery management. In his practice, James has defended corporate clients in a variety of complex matters including multi-jurisdictional class actions and internal corporate and government regulatory investigations.
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