Sand Canyon Corp., a subsidiary of H&R Block that holds the remnants of the Option One Mortgage business, will pay a $10 million settlement to Massachusetts and institute a loan modification program providing an estimated $115 million of additional relief to consumers.
Massachusetts Attorney General Martha Coakley said in a statement "Option One made loans that it knew were likely to fail and discriminated against African-American and Latino borrowers. Its blatant disregard for prudent underwriting standards contributed to the economic downturn we still find ourselves in today."
In its statement, Sand Canyon said that while Massachusetts has valued the modifications at $115 million, its maximum contingency commitment under the agreement is capped at $5 million for modifications that cannot be made.
Sand Canyon said it did not admit any wrongdoing as part of the settlement. Its statement notes that Block Financial Corp. was not a party to the agreement and was dismissed from the litigation.
American Home Mortgage Servicing Inc., which bought the Option One servicing business in April 2008, is also a part of the settlement. But AHMSI is not paying any of the civil penalties.
AHMSI chief legal officer Jordan Dorchuck said "the purchase and sale documents entered into in connection with the 2008 acquisition of Option One's servicing business gave Sand Canyon the authority to direct AHMSI to modify or attempt to modify the terms of these loans, and that is what AHMSI agreed to do in the settlement agreement."
AHMSI currently services 5,500 loans in Massachusetts that came from Option One. According to Coakley, the borrower's monthly payments will be reduced to between 31% and 36% of monthly income. Some borrowers are eligible for a greater reduction.
The specifics on how much each borrower's principal will be forgiven depend on the characteristics of the loan at the time of origination, the Attorney General's office said.
