The trial court issued the preliminary injunction upon a finding of a likelihood of success on the merits that Fremont's loans were "unfair" based on four characteristics of the loans. Massachuetts General Laws c. 93A, section 2 (a) makes unlawful any "unfair or deceptive acts or practices in the conduct of any trade or commerce." It is noted that in a similar manner, Florida's Deceptive and Unfair Trade Practice Action provides in section 501.204(1), Florida Statutes (2008) that (1) Unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful. The four characteristics found by the court as establishing unfairness were
- 1. the loans were ARM loans with an introductory rate period of three years or less
- 2. they feature an introductory rate for the initial period that was at least three per cent below the fully indexed rate
- 3. they were made to borrowers for whom the debt-to-income ratio would have exceeded fifty percent measured on the fully indexed rate, and
- 4. the loan-to-value ratios was 100% or the loan featured a substantial prepayment penalty.
Most of the involved Fremont loans, which were procured through independent mortgage brokers who received a commissions, were subsequently sold to the secondary market with Fremont acting as servicer for the purchaser. The majority of Fremont's subprime loan products were adjustable rate mortgages with fixed interest for the first two or three years which then adjusted every six months to a higher variable rate. The court found that Fremont determined loan qualification based on a debt-to-income ratio of fifty per cent or less based on the payment at the introductory rate not the payment that would ultimately be required after the introductory period. Furthermore, Fremont offered loans with no down payment by providing a first mortgage at eighty percent financing with an additional "piggy-back loan" providing twenty percent.
The court's order does not bar foreclosure nor relieve borrowers of their obligations to repay their loans, but it requires Fremont to "explore alternatives to foreclosure" and then seek approval of the court to foreclose which may not be granted, leaving the preliminary injunction in place until the Attorney General has the opportunity to have a final hearing on the issue of unfairness.