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Coakley blazes path as advocate for homeowners

By Jenifer B. McKim
Globe Staff / December 19, 2011
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Three years ago, a multistate alliance of attorneys general brokered an $8.4 billion settlement with Countrywide Financial Corp. over the lender’s role in the subprime mortgage meltdown. But Attorney General Martha Coakley of Massachusetts refused to sign off on the deal, saying it let Countrywide off too easy.

About 18 months later, under pressure from Coakley, Countrywide relented. It allocated $3 billion more in mortgage assistance and made a $22 million payment to the state. That success and others like it have so far netted Massachusetts hundreds of millions of dollars in restitution.

This month, Coakley became the first attorney general in the United States to scrap settlement negotiations with five major lenders over mortgage fraud and file a major lawsuit against the lenders. The action cemented her position as a national leader on behalf of homeowners caught up in the long-running housing crisis.

‘‘She has been one of the best [attorneys general] in the country on consumer protection issues,’’ said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, D.C. ‘‘Her office has been very aggressive and thoughtful when it comes to going after the banks.’’

Coakley, 58, has gained that standing even though Massachusetts’s foreclosure problem is dwarfed by what is happening in states like Florida and Nevada.

‘‘Someone has to stop this craziness,’’ she said in a recent interview. ‘‘We have done the investigations, brought the claims, gotten the remedies.’’

Coakley said she decided to break with other attorneys general engaged in negotiations with the five large banks because the talks had dragged on too long without results, and time is running out for those clinging to home ownership.

‘‘Every day we don’t pursue litigation there are people being illegally and needlessly foreclosed upon,’’ she said.

But some economists and lenders fear the suit will not do much to curb foreclosures.

‘‘I don’t think suing lenders is constructive,’’ said Paul Willen, senior economist and adviser with the Federal Reserve Bank of Boston. According to a recent study Willen cowrote, government efforts to delay foreclosures ultimately do not stop homes from being seized. ‘‘All it does is prolong the crisis,’’ he said.

In one of her first notable mortgage-related cases, Coakley reached a $10 million settlement in June 2009 with Fremont Investment & Loan. The now-defunct California company agreed to settle allegations that it wrote thousands of loans that were considered ‘‘doomed,’’ partly because they involved highrisk borrowers who were sold low teaser rates that later ballooned.

The case eventually made it to the state Supreme Judicial Court, which ruled it is unlawful for lenders to offer loans they know are likely to go bad.

‘‘The Fremont case was probably one of the most important [mortgage fraud] cases nationwide,’’ said Kathleen Engel, a law professor at Suffolk University LawSchool in Boston.

Engel said Coakley has been at the vanguard of mortgage fraud mitigation by pressing investment banks to make restitution for damage they caused through subprime mortgages.

Since 2009, Coakley has resolved cases with three investment firms over how they packaged and sold home loans. Last month, Royal Bank of Scotland, parent of Citizens Bank, became the third investment bank to settle a suit. Together, the three settlements have funneled $214 million to the state.

First elected attorney general in 2006, Coakley had to regroup after losing to Scott Brown in the 2010 election to fill Edward M. Kennedy’s US Senate seat. She faced criticism for what was widely considered a lackluster campaign, but easily won reelection as attorney general last year. Since then, she has continued building a record of scrutinizing banks’ foreclosure practices.

In March 2010, she unveiled her agreement with Countrywide, now owned by Bank of America Corp., which enhanced the 2008 deal she had criticized.

Coakley said she was concerned that the original settlement was unenforceable and did not aid enough homeowners. Her office found that 70 percent of all Countrywide subprime loans in Massachusetts were delinquent, evidence that its mortgage practices were seriously flawed. The data helped her attorneys press for more money from the company, she said.

Coakley said she also was able to win the authority to monitor the settlement, and believes Countrywide is meeting its obligations in Massachusetts. Officials in some other states have complained that the lender is not living up to terms of the deal.

‘‘Holding out a little bit longer, we were able to help other states with $3 billion in additional relief,’’ she said.

Bank of America officials confirmed that the company changed its loan modification program, including by putting more emphasis on reducing loan principal amounts, partly as a result of talks with Massachusetts officials. ‘‘That doesn’t mean it wouldn’t have happened without’’ Coakley, said a bank spokesman, Richard Simon.

Later in 2010, Coakley joined 50 state attorneys general in an investigation of big US lenders after bank employees admitted to signing thousands of foreclosure- related documents without reviewing them, a process now known as robosigning. As foreclosures mounted nationwide, so did allegations of sloppy and fraudulent lending practices.

This spring, five banks — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co, Citigroup Inc., and GMAC, a subsidiary of Ally Financial Inc. — began talks with the attorneys general over reparations for alleged fraud. The proposed payment package was estimated at between $20 billion and $25 billion. Attorney General Thomas Miller of Iowa, who is leading the negotiations, said an agreement is near, and he hopes it will meet with Coakley’s approval.

In her civil suit, filed in Suffolk Superior Court Dec. 1, Coakley alleges the banks illegally took back homes without proper documentation, filed fraudulent documents in county offices, and failed to help qualified homeowners save their properties by reducing their interest rates or principals. The five lenders named have pledged to fight. Some said they were disappointed Coakley chose to go to court in the middle of settlement talks.

Jon Skarin, director of Federal Regulatory and Legislative Policy for the Massachusetts Bankers Association, said he is concerned that the suit could cut state homeowners out of any immediate financial aid if other attorneys general strike a deal. ‘‘We could be in a position where other jurisdictions get some relief and Massachusetts could still be litigating this out,’’ Skarin said.

Many housing advocates are cheering Coakley on, saying her actions could force banks to offer more significant aid to borrowers. Lewis Finfer, executive director of the Massachusetts Communities Action Network, said that through talks or litigation, Coakley will probably prevail.

‘‘People were really worried that the settlement [being negotiated] would ultimately not help enough people and not be stringently enforced,’’ Finfer said. ‘‘This raises the stakes.’’

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