BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley is accusing a subprime lender of being both a predator and a racist.
In a lawsuit filed Tuesday in Suffolk Superior Court, Coakley claims Option One Mortgage Corp. dished out loans that it knew could not be paid back and charged black and Latino customers more money than similarly situated white customers.
Also listed as a defendant in the suit is parent company H&R Block.
"Unfair and deceptive lending practices such as those alleged in this complaint have contributed substantially to the escalating foreclosure crisis in Massachusetts, and across the nation," Coakley said.
"Marketing loan products that were designed to fail not only harms individuals and families who are struggling to afford their homes, but also has a negative impact on neighboring homeowners and the community at large."
Certain features were added to the loans that Option One should have known would put too much of a strain on its customers, according to Coakley. They included loans where a separate loan 20 percent of the full amount was used as a down payment, penalties for those who wished to refinance and incentives from brokers who sold expensive subprime loans.
Coakley called these methods "predatory" because they were not based on a realistic assessment of the borrower's ability to repay the loan.
"The Commonwealth and its cities and towns are incurring and likely will continue to incur enormous costs due to the HRB Entities' unfair, deceptive and predatory loan products," the 59-page complaint says.
"These costs include, but are not limited to, the costs of providing counseling and other assistance to consumers on the verge of foreclosure; the costs of providing additional services to consumers who have lost their homes due to foreclosure; the costs of providing increased law enforcement and emergency services in connection with incidents occurring in and around properties abandoned due to foreclosure; and costs associated with property value declines caused by foreclosure."
Blacks and Latinos were targeted for the predatory loans because the companies felt they were an emerging market with a lack of familiarity with the credit system.
"The HRB Entities knew or should have known that Black and Latino borrowers historically did not have equal access to fair home mortgage loans," the complaint alleges.
It adds that the companies charged black or Latino borrowers double in points and fees than white borrowers.
"A borrower should be able to obtain a loan based upon creditworthiness alone and not because of his or her ethnicity," Coakley said.
Of the more than 30,000 loans Option One made in Massachusetts from 2004-2007, more than 5,700 were to black and Latino customers.
H&R Block spokesperson Nancy Mays had little to say.
"The complaint has been received and is being reviewed by counsel," she said.
From Legal Newsline: Reach John O'Brien via e-mail at firstname.lastname@example.org.