valued at nearly $125MM with Sand Canyon (formerly known as Option One),
under which the company will modify thousands of Massachusetts homeowners'
loans and pay $9.8MM to the Commonwealth.
A copy of the fact sheet providing an overview of the terms of the
settlement is available at:
http://www.mass.gov/Cago/docs/press/option-one-settlement-fact-sheet.pdf
The settlement requires Sand Canyon to pay $9.8 million to the
Commonwealth, and to direct the current servicer of approximately 5,500
Option One originated loans in Massachusetts to institute an aggressive
loan modification program that will provide an estimated $115 million in
additional relief.
Under the terms of the settlement, distressed Option One borrowers will be
eligible for loan modifications that include significant write-downs of
principal balances and reduction of interest rates, depending on the
prevalence of certain risk features in the loan.
In addition, the settlement includes $8 million in consumer relief, $1
million for fees and costs, and $800,000 in exchange for a release of
civil penalties. The $8M in "consumer relief" will reportedly be used to
"rectify the negative impact of mortgage foreclosures and predatory and
discriminatory lending practices, including providing direct restitution
to Option One borrowers and implementing programs to mitigate the impact
of the foreclosure crisis in Massachusetts." For example, the settlement
provides the Attorney General with discretion to address public/community
harm through grants, including to community-based groups in the nine
cities with larger numbers of Option One loans.
As you may recall, the Attorney General's lawsuit alleged that Option One
loans that combined so-called "risk features" (e.g., high DTI ratios, high
LTV ratios, "stated income," underwriting of ARMs not with respect to the
fully-indexed rate) were "unfair" because they allegedly posed an
excessive risk of default and foreclosure. The lawsuit also asserted that
Option One knew that loans with such risk characteristics were doomed to
fail.
In addition, the AG asserted that Option One "discriminated against
African-American and Latino borrowers," through discretionary pricing
policies that allegedly caused Black and Latino borrowers to be charged
higher rates and fees.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
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