prepayment penalties

The Commonwealth, acting through the Attorney General, commenced this consumer protection enforcement action against Fremont Investment & Loan and its parent company Fremont General Corporation. The claim alleged that Fremont originated and serviced certain subprime mortgage loans in Massachusetts between 2004 and 2007 in violation of G. L. c. 93A, § 2. Fremont is a California-chartered industrial bank. Between January 2004 and March 2007, Fremont originated 14,578 loans secured by mortgages on owner-occupied homes in Massachusetts. Of those loans, roughly 3,000 remained active and roughly 2,500 continued to be owned or serviced by Fremont. An estimated fifty to sixty percent of Fremont's loans in Massachusetts were subprime. A large majority of those subprime loans were adjustable rate mortgage loans. Such loans carried a fixed introductory interest rate for the first two or three years. After that period the loans adjusted every six months to a substantially higher variable rate for the remaining term of a generally thirty-year loan. Fremont did not deal directly with borrowers. Instead Fremont worked through independent mortgage brokers who submitted loan applications and credit reports. Fremont qualified borrowers using a debt-to-income ratio of fifty percent or less. That ratio was calculated solely on the introductory-rate monthly payment rather than the fully indexed rate that would apply after the introductory period. Fremont also offered loans with no down payment. Those loans resulted in loan-to-value ratios approaching one hundred percent, often through a first mortgage for eighty percent and a piggy-back loan for twenty percent. As of the time the Attorney General initiated the case in 2007, a significant number of Fremont's loans were in default. An analysis of ninety-eight of those loans showed that all were ARM loans with substantial payment increases after the introductory period. Ninety percent of the analyzed loans had a one hundred percent loan-to-value ratio. On March 7, 2007, Fremont executed a consent agreement with the Federal Deposit Insurance Corporation. The agreement required Fremont to cease originating certain ARM products to subprime borrowers without considering ability to repay at the fully indexed rate. On July 10, 2007, Fremont entered a term sheet agreement with the Attorney General. Under the agreement Fremont promised to give ninety days' notice before foreclosing on any Massachusetts residential mortgage loan. Fremont also agreed to negotiate in good faith if the Attorney General objected. The Attorney General objected to every proposed foreclosure except those involving non-owner-occupied homes where contact with the borrower had failed. Fremont terminated the term sheet agreement on December 10, 2007. The Attorney General filed the complaint on October 4, 2007, and later moved for preliminary injunctive relief. On February 25, 2008, a Superior Court judge granted a preliminary injunction. The injunction required Fremont to give advance notice of intent to foreclose. For loans possessing all four identified characteristics, Fremont had to work with the Attorney General to resolve differences or obtain court approval for foreclosure. The judge modified the injunction on March 31, 2008, to bind any assignee or purchaser of Fremont's servicing rights. Fremont sought interlocutory relief in the Appeals Court. A single justice declined to reverse the orders and reported the matter. The Supreme Judicial Court then granted the Commonwealth's application for direct appellate review.