AG cites need for law criminalizing mortgage fraud
Massachusetts Attorney General Martha Coakley is pushing to have the Legislature criminalize mortgage fraud, saying current laws are not adequate. Boston Globe reporter Kimberly Blanton spoke with Coakley about the state of Massachusetts law.
Q In four months in office, what mortgage fraud have you witnessed?
A There are issues of misrepresentation and specifics such as values of property, incomes, misrepresentations around a promise of a very low interest rate for the first two years but then the rate shoots up, which is how people got in trouble.
Q What was the magnitude of fraud that took place in the subprime industry?
A The cases that we have brought, even under civil law, have been limited to those where we can show that some kind of deceptive act occurred. The buyers either know or didn't care to know what the contract included. In no-document loans, people didn't bother to find out what the consequences were of failing to make payments, understanding how the interest rates work.
The fact was there was a lot of passing of money around [in which] both the lender and the borrower ignored what would be the rules of a prudent transaction. So both parties engaged in what was a risky transaction and, frankly, many people did get loans who, under appropriate mortgage guidelines, would not have gotten them.
We shouldn't allow people to be gambling like this in the mortgage market because individual consumers get hurt, and the market gets hurt. There are no regulations, and it's a little bit like the Wild West. We say in the AG's office we need to bring a balance back into this market so it doesn't happen again. We need to be clear about what a prudent transaction would require so consumers don't get fleeced.
Q When consumers file a complaint about a mortgage with your office, are your hands sometimes tied?
A In some instances. Although we don't like the fact that the foreclosure's going to happen, and we feel the loan is clearly risky, it's not illegal under the law. There's very little behavior people think is fraudulent that's actually criminal.
Q Doesn't Massachusetts already have a fraud law?
A The term fraud itself is nonspecific. It may mean civil violations. It may mean criminal violations. Fraud in itself does not indicate criminality. It's a general term for behavior we think is unfair and deceptive. For instance, in a consumer-protection action, we can allege a company is engaged in unfair and deceptive advertising. They may have to pay a civil fine for it, but it's not criminal.
Q So fraud is never criminal in this state?
A There are certain fraudulent behaviors that have been made criminal. Criminal law has to have specific intent. We don't want to charge people with crimes unless they know what behavior's prohibited. We want to make criminal certain aspects of behavior that we've seen in this subprime mortgage market and impose criminal penalties for that behavior.
Q What specifically do you have in mind?
A One simple way to look at it would be for some of the behavior we have alleged now, like mortgage rescue schemes or misrepresentations that are unfair and deceptive and we claim are fraudulent . . . you could say this same behavior going forward would be a violation of the criminal statute. The Legislature would have to proscribe very specifically what behaviors it intends to punish by criminal action. 