Attorney General Martha Coakley Enters into Affordable Loan Modification and Foreclosure Prevention Agreement with Purchaser of Fremont Loans

FROM THE OFFICE OF THE ATTORNEY GENERAL

July 31, 2008

BOSTON – Attorney General Martha Coakley has entered into an agreement with California based WMD Capital Markets, LLC that provides significant benefits to approximately 200 borrowers holding structurally unfair loans originated by Fremont Investment & Loan (“Fremont”). WMD Capital Markets recently purchased the Fremont-originated loans, which are subject to a preliminary injunction restricting foreclosures, issued by Suffolk Superior Court in February 2008. The Attorney General’s Office and WMD Capital Markets reached an agreement to memorialize how Fremont-originated loans would be modified in order to avoid unnecessary foreclosures and account for Fremont’s unfair and deceptive lending practices that are the subject of the Attorney General’s law enforcement action against California-based Fremont. “This agreement shows that lenders, holders and servicers are able to take aggressive steps to make predatory subprime loans affordable for borrowers,” said Attorney General Coakley. “While many lenders and servicers have talked about loan modifications, this agreement reflects WMD Capital’s real commitment to treating Fremont borrowers fairly and our office’s commitment to achieving loan modifications to help combat foreclosures.

The agreement addresses both the “structural unfairness” of Hybrid Adjustable Rate Mortgage (ARM) loan products offered by Fremont and Fremont’s origination misconduct by providing eligible borrowers with the option of adjusting their monthly mortgage payment to an affordable amount or receiving a payment that can be used for relocation costs. Eligible borrowers will also receive significant loan credits and charge-offs of certain fees and interest payments.

Attorney General Coakley added, “We continue to make progress in our litigation against Fremont for creating and selling to Massachusetts residents thousands of loans that we allege to be unlawful under our Consumer Protection Act. We call on other servicers and holders of structurally unfair loans to follow WMD’s example in providing meaningful loan modifications to Massachusetts consumers.”

The agreement provides that borrowers of the Fremont loans now owned by WMD Capital will receive a number of significant benefits. Specifically, WMD has agreed to:

Permanently reset the applicable interest rate to the borrowers’ introductory rate. Issue a loan credit and one-time charge-off of origination fees, unpaid past due interest, unpaid late charges, and all unreimbursed corporate and property-related advances (including all foreclosure and litigation costs) once eligible borrowers make their first payment on their revised loan. Further reduce the monthly payment to a level that the borrower can afford for up to three years for eligible borrowers who cannot afford monthly payments at their introductory interest rate. This will give most borrowers a chance to either get their income up to a level where they can afford the introductory payments or to refinance into a different mortgage loan. Offer delinquent borrowers a relocation payment for one year after the agreement. The payment will range from approximately $10,000 to $25,000. Borrowers will have the option of either pursuing a loan modification or accepting a relocation payment, which is designed to help those borrowers who are unable to afford their mortgage loan, even after a downward adjustment of the monthly payment. Today’s agreement is designed to address Fremont’s specific unfair and deceptive conduct that was highlighted by the Superior Court in the injunction that the Commonwealth obtained against Fremont on February 25, 2008. The injunction prohibits Fremont from initiating or advancing foreclosures on loans that are “presumptively unfair.” An expanded preliminary injunction was issued on March 31, 2008, and prohibits Fremont from assigning or selling Massachusetts loans owned by the company, or the servicing obligations on those loans, unless the buyer agrees in writing to be bound by the obligations set forth in the original injunction.

The Attorney General’s Office filed suit on October 5, 2007, in Suffolk Superior Court against Fremont and its parent company, Fremont General Corporation based on the defendant’s unfair and deceptive loan origination and sales conduct. The complaint alleges that Fremont sold risky loan products that it knew were designed to fail, such as 100% loan-to-value Hybrid ARM loans that would experience significant payment shock in two or three years, as well as “no documentation” loans. The complaint further alleges that the company sold these loans through third party brokers and provided financial incentives to these brokers to sell high cost products. In addition to injunctive relief, the Attorney General’ s Office is seeking civil penalties and restitution for the more than 15,000 loans that Fremont originated in Massachusetts.

This matter is being handled by Assistant Attorneys General Christopher Barry-Smith, Jean Healey and John Stephan of Attorney General Coakley’s Consumer Protection Division, Financial Investigator Christine Murphy, and Paralegal Christopher Garcia-Rivera.