United Companies Lending Corp. v. Sargeant

20 F. Supp. 2d 192 (1998)

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United Companies Lending Corp. v. Sargeant

United States District Court for the District of Massachusetts
20 F. Supp. 2d 192 (1998)

RW

Facts

United Companies Lending Corporation (United) (plaintiff) made mortgage-secured subprime loans to homebuyers. To cover the risks associated with subprime loans, other lenders typically charged borrowers 5 percent (five points) of the loan amount as a loan-origination fee. United covered its risks not only by issuing adjustable-rate mortgages, but by charging 10 points. Daisy Sargeant (defendant) was one of United's borrowers. United's broker failed to fully disclose what fees and points Sargeant had to pay to obtain her loan. When Sargeant fell behind in making payments on the loan, United initiated foreclosure proceedings, and later invoked diversity jurisdiction to remove the case to federal court. Sargeant contended that United's high-points policy constituted an unfair and deceptive lending practice. Massachusetts law defined such practices as mortgage-loan interest rates or terms that "significantly deviate from industry-wide standards or which are otherwise unconscionable." United argued that it could not compete with other lenders unless it either raised subprime-loan interest rates or charged high points, and that competitive market forces ensured fairness in providing mortgage-secured loans.

Rule of Law

Issue

Holding and Reasoning (Young, J.)

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