Some 5,500 Massachusetts homeowners will be eligible for loan modification relief as part of a $125 million settlement announced today that resolves allegations of unfair and discriminatory subprime lending practices by the mortgage originator once known as Option One.
The settlement reached by state Attorney General Martha Coakley requires the H&R Block subsidiary now known as Sand Canyon to direct current loan servicer American Home Mortgage Servicing to provide $115 million in principal forgiveness and monthly loan payment reductions to borrowers. It also will pay the state an additional $9.8 million, the bulk for consumer restitution.
Option One made loans that it knew were likely to fail and used discrimination against black and Latino borrowers as part of its business model, according to Coakley, who said the “ultra-risky” underwriting standards contributed to the foreclosure crisis and economic downturn.
“They employed a business model that absolutely failed to gauge the ability of borrowers to repay the loans,” Coakley said. “They knew or should have known that those loans were going to fail. Those loans did not take into account anything but the fees that were due to be generated.”
In a statement, Sand Canyon president Dale Sugimoto said the Irvine, Calif.-based company was pleased to settle.
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