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Massachusetts Appeals Court Gives Broad Definition to Predatory Lending

Under the Massachusetts Consumer Protection law, G.L. c. 93A, banks are required to recognize when a potential borrower will likely be unable to pay off a proposed residential mortgage loan.  If it nevertheless loans the money in spite of the borrower's projected inability to pay, it has acted unfairly and violates c. 93A, making it potentially liable for treble damages and attorney's fees.  The Massachusetts SJC has already determined that a loan with the following four characteristics is in all likelihood a predatory loan:  1) an adjustable rate loan with an introductory rate period of three years or less; (2) an introductory rate for the initial period that was at least three percent below the fully indexed rate; (3) made to borrowers for whom the debt-to-income ratio would have exceeded fifty percent at the fully indexed rate rather than under the introductory rate; and (4) has loan-to-value ratio [of] one hundred per cent, or the loan featured a substantial prepayment penalty . . . or a prepayment penalty that extended beyond the introductory rate period."  Commonwealth v. Fremont Invest. & Loan,  452 Mass. 722, 739 (2008).
In a case decided earlier this month, the Massachusetts Appeals Court was asked to consider whether the trial court had properly entered summary judgment in favor of a lender accused of making a predatory loan.  Moronta v. Nationstar Mortgage, LLC, 88 Mass. App. Ct. 621 (Mass. App. Ct. 2015).  Although the loan did no contain all four of the characteristics of "unfair" loans identified in Fremont, the Court ruled that it was a question of fact as to whether the loan in question violated c. 93A and sent the matter back to the trial court for trial.
Most troubling, for the Appeals Court, was that the loan included a significant balloon payment with amortization over fifty years, in addition to potentially having a 100% loan to value ratio.  Thus, Fremont's four characteristics of predatory lending remain guides and not essential elements in a Court's review of predatory lending claims.
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