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Commonwealth v. Fremont Inv. & Loan - 452 Mass. 733, 897 N.E.2d 548 (2008)

Rule:

The Massachusetts Predatory Home Loan Practices Act (Act) prohibits a lender from making a "high-cost home mortgage loan" unless the lender reasonably believes that the borrower will be able to make the scheduled payments However, a borrower is presumed to be able to repay the loan if the borrower's debt-to-income ratio, calculated based on the fully indexed rate associated with an ARM loan, does not exceed 50 percent of the borrower's verified monthly gross income. The Act prohibits a high-cost home mortgage loan from containing any provision for prepayment fees or penalties. 

Facts:

The Commonwealth, acting through the Attorney General, commenced a consumer protection enforcement action against the mortgage company, claiming that it, in originating certain "subprime" mortgage loans in Massachusetts, acted unfairly in violation of Mass. Gen. Laws ch. 93A, § 2

Issue:

Did the mortgage company, in originating certain "subprime" mortgage loans in Massachusetts, act unfairly in violation of Mass. Gen. Laws ch. 93A, § 2?

Answer:

Yes.

Conclusion:

The state supreme court found that (1) the record supported the conclusion that the mortgage company, in originating such loans, acted unfairly in violation of Mass. Gen. Laws ch. 93A, § 2(2) the trial court properly found that because borrowers were unlikely to be able repay the loans, the loans violated the Massachusetts Predatory Home Loan Practices Act, Mass. Gen. Laws ch. 183C, § 4, and, thus, also violated Mass. Gen. Laws ch. 93A, § 2(3) the mortgage company did not show any authority permitting the alleged unfair practice, and (4) the preliminary injunction served the public interest.

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