Two Lenders Targeted In Mass. Class Actions Over Toxic "Payment Option, Pick-A-Payment" Loans; Could Slam Brakes On In-State Wells, BofA Foreclosures

In Boston, Massachusetts, The Boston Globe reports:

• A Boston attorney has filed lawsuits against two major lenders claiming they knew - or should have known - their mortgage loans that can grow bigger over time were unaffordable to borrowers.(1) The suits are being watched locally and nationally because, if successful, they would provide strength to advocates and litigators struggling to make lenders accountable for “toxic’’ mortgage loans that have pushed millions of Americans into foreclosure. “If this case goes forward, it will be a model throughout the country,’’ said Suffolk University law professor Kathleen C. Engel.

• Gary Klein,(2) of the law firm Roddy, Klein and Ryan, sought class-action status for his suits this summer against Bank of America Home Mortgage and Wells Fargo Home Mortgage, saying that hundreds of Massachusetts borrowers ultimately will be unable to afford their mortgages. A decision on class- action status is pending. “The lending community created these toxic products and masked their effect with complicated loan provisions that borrowers had no chance of understanding,’’ Klein said. “I find that appalling.’’ Bank of America officials said in a statement that “the lawsuit is without merit.’’

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• The suits are grounded in a landmark 2008 state Supreme Judicial Court decision(3) that lenders were violating state law by writing loans that were almost certain to lead to default and foreclosure. The decision, Engel said, was the first in the country to hold lenders accountable for unfair practices, even when the terms of a mortgage are considered legal. The court decision upheld arguments by Attorney General Martha Coakley that the California-based lender Fremont Investment & Loan was selling risky products it knew would fail. In June, Coakley settled with the lender for $10 million to help struggling homeowners and cover legal costs [go here for Fremont Consent Judgment].

For more, see Attorney sues lenders, says they created ‘toxic’ products.

For the lawsuits, see:

• Hart v. Bank of America Home Loans Inc, et al.,
• Bettinelli v. Wells Fargo Home Mortgage, Inc.

(1) According to the story, Klein filed the lawsuits in US District Court in June and July focusing on so-called “payment option’’ mortgages, which allow borrowers to make minimum monthly payments on home loans. From the day the paperwork is signed, any unpaid interest is added to the balance. Eventually, the day of reckoning comes - usually after five years - and a borrower is required to make payments that cover the full mortgage interest and swelling principal. “Pick-a-payment’’ loans became popular in 2005 and 2006 as borrowers strained to afford skyrocketing home prices, or sought money to make investments or home improvements.

(2) Last year, Klein filed a class action lawsuit that could stop hundreds of foreclosures and reverse thousands of others where it challenged lenders' right to foreclose where they couldn't prove ownership of the promissory notes. See Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership.

(3) For the Massachusetts Supreme Judicial Court decision ruling that subprime loans that lenders knew or should have known were unsustainable are illegal (ie. as unfair and deceptive business practices in violation of M.G.L. c. 93A, §2 of the Massachusetts statutes), see Commonwealth of Massachusetts v. Fremont Investment & Loan, 452 Mass. 733; 897 N.E.2d 548; 2008 Mass. LEXIS 797 (Ma. 2008) (for a possibly easier to read version, try here). UndoMortgageLoans TILAdelta