In April 2008, a story in the Las Vegas Sun said Attorney General Catherine Cortez Masto "avoided big fights and powerful enemies … pursues popular initiatives with little fanfare, head down, studying, avoiding conflict."
It was slightly more than a year into her first term. "It's her style. It's who she is," the reporter claimed. Dina Titus, a Nevada state senator at the time, weighed in, saying Masto has "not been an activist attorney general like we've had in the past."
The descriptions might have been accurate back then, when the mortgage industry had yet to implode, taking most of Las Vegas real estate with it.
What a difference a few years makes.
Since that story, Masto has initiated probes against some of the nation's biggest and most powerful banks.
The daughter of Manuel J. "Manny" Cortez, Masto was born and raised in Las Vegas. As a child, she dreamed of making bundles of money as a Wall Street analyst, driving a BMW to her beach house. She jokingly blames her family for derailing that plan.
"I saw (my father's) life and what he gave back to the community — it just rubbed off," she says. Manny Cortez helped propel the desert of Southern Nevada into an international tourism destination when he green-lit the now universally known, "What happens here, stays here," campaign by Las Vegas-based advertising firm R&R Partners. Cortez was a Clark County commissioner from 1976 to 1991. He ignored critics who claimed he was purporting to make the city's McCarran International Airport into a Taj Majal.
The enormous expansion project paved the way for the rapid escalation of visitors. Las Vegas tourism shot from 21.3 million annual visitors in 1991 to more than 35 million in 2004 — the year Manny Cortez retired after heading the Las Vegas Convention and Visitors Authority for 13 years.
Before assuming the attorney general's office in January 2007, Masto, a Democrat, was widely viewed as an eventual party heavyweight. She won a landslide victory during the nationwide Democratic sweep of federal and state offices. Her victory included support from high-profile Republicans and rural communities where Democrats had, in previous years, been clobbered.
Masto studied finance at the University of Nevada, Reno, and then graduated cum laude from Gonzaga University School of Law in Spokane, Wash., in 1990. She worked as a civil litigator in the Las Vegas law firm of Raleigh, Hunt & McGarry for until 1995 when joined she Gov. Bob Miller's administration as an administrative assistant.
While at the law firm, Masto had a case in which a woman and her family lost their house after enduring prolonged financial turbulence. They were renting out property to tenants who abused the home and the woman told Masto, "We need this property," and Masto helped her get control of the house from the tenants.
"She didn't have money to pay me, but a month later, she came back knocking on my door," Masto says. "She came in and she said, 'I just wanted to come in and thank you — I wanted to give you something.'"
The woman gave her a small box of chocolate-covered cherries.
"I will never forget that woman, how I felt. That's when I knew I had to do something else," Masto says, referring to the beginning of her life as a public servant.
She ascended to Miller's chief of staff in 1998. The then-governor knew Masto vaguely as a child through her parents, who were friends of his. He says her father's and mother's "very easy-going and even-tempered" way shaped her controlled personality.
As his chief of staff, Masto was perpetually conscious of gender and other discriminatory issues, but never let on whether she had higher political aspirations. "I knew that she wanted to help people and be involved in government in some sense, but there was no indication that she would seek political office herself," Miller says.
Masto met her husband, who is a special agent in the Secret Service, while working in Miller's administration and he came to Nevada with President Clinton. In 2000, she relocated to Washington, joining the U.S. Attorneys office as a criminal prosecutor and then, in 2002, returned to Nevada to become the assistant county manager for Clark County.
Finding her own path
In January 2007, the month Masto was sworn in as Nevada's new attorney general, mortgage fraud in the state was not a concern. Human trafficking, elderly abuse and domestic violence were her top priorities.
Robo-signing wasn't on the radar. In fact, the term wouldn't be coined for another three and a half years. Why would it have been? In the first quarter of that year, data analytics firm CoreLogic released the top 10 U.S. markets most vulnerable to mortgage loan delinquencies because of fraud and home price dynamics. Nevada wasn't on the list. Neither was California.
The Silver State didn't make the list until Las Vegas suddenly debuted at No. 6 in the first quarter of 2009. But Masto's office begin receiving mortgage fraud complaints in the summer of 2007.
Since then, Masto has aggressively pursued mortgage scammers in Nevada, establishing her own path, style and expression of justice. She also broke from the attorneys' general civil settlement negotiations with the country's five largest mortgage servicers over improper foreclosures. Last September, Masto began expressing concerns that the multistate settlement might affect Nevada's own criminal and civil mortgage investigations, including one against Bank of America. As a result, she detached herself from the negotiations, but would still have time to join the settlement if she chooses. A settlement announcement was expected as this article was going to press.
Politically savvy and well connected, Masto speaks with a natural, warm, fluid tone that conveys empathy. Her verbal rhythm never stumbles. There's seldom a pause or an "um" or "uh." She'd be a great host of a show on NPR. Her words are as polished as her wardrobe. She avoids and answers questions with the skill of a seasoned politician and the compassion of a mother.
In January 2011, A Nevada resident named Jan, called into a radio show and told Masto someone scammed her through the federal Home Affordable Foreclosure Alternatives Program, which provides financial incentives in connection with a short sale of a house in foreclosure. Masto responded in her cushioned, but commanding, tone: "There's fraud occurring at all levels and that's why it is so overwhelming at times. You turn over one rock and there's two or three other things underneath there. When people are in a crisis and they're looking to save their home, quite often they may not be speaking rationally, and I understand that," Masto added, ensuring Jan she was on her side. "And that's unfortunately where the fraudsters come in an take advantage."
Complaints keep coming
Masto remembers the avalanche of mortgage fraud cases her office received in the summer of 2007 — the moment she realized they weren't going away any time soon. She created the Nevada Mortgage Fraud Strike Force, launching a series of investigations and litigation into mortgage lending, servicing, foreclosures and mortgage-backed securities.
She received complaints against 40 companies that summer. By November 2011, the cases had ballooned to more than 300, with an average of 50 complaints per company.
Masto doesn’t consider herself the most aggressive attorney general when it comes to investigating the mortgage sector.
"I think there are many of us who aggressively recognize the importance of our offices and our obligations and jurisdictions in our individual states, and I think we are all tackling this mortgage fraud crisis based on those facts," she firmly says.
Masto's office has active criminal litigation files open against 16 loan modification companies in Clark County. In the past year, the mortgage fraud unit obtained indictments against 12 mortgage fraud defendants, totaling nearly 450 felonies. It's obtained convictions against 18 defendants to date, resulting in 23 felony convictions, six gross misdemeanor convictions and 13 misdemeanor convictions for mortgage fraud-related crimes.
"My office is small, but we are mighty," Masto says of her department of 17 attorneys and investigators. "We are going to strategically target and go after those individuals engaging in those various types of fraud, hold them accountable, protect the integrity of the process and bring remedies and relief to the homeowners of our state. That's what we're talking about here."
Of the five largest mortgage servicers — Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and Ally Financial — involved in the multistate attorneys' general settlement talks, Masto has so far targeted BofA and Wells Fargo, contrasting past assertions that she avoids big fights and powerful companies.
A battered and beaten market
The cancer that permeates the nation's housing industry seems to have taken a particular dislike to Nevada — the only state with a net negative equity among homeowners. As of November, 58.3% of mortgaged homes in Nevada were underwater, while another 4.8% are on the verge, according to CoreLogic. Home prices in the state fell a nation-leading 59.2% from their June 2006 peak, the analytics firm said. Nevada's overall home equity among mortgaged homeowners is a negative $10.34 billion, hurling the average loan-to-value ratio in the state beyond 110%, by far the highest in the nation.
The number of U.S. properties receiving foreclosure notices soared 123% to 2.87 million in 2010 from 1.29 million in 2007, according to RealyTrac. Foreclosures in Nevada, meanwhile, skyrocketed 208% to 106,160 from 34,417. Despite a 5% decrease in foreclosure activity in 2009, 1 out of 11 Nevada homes, or about 9.4%, entered some stage of foreclosure in 2010 up from 3.4% in 2007 and more than quadruple the national average. In 2010, Nevada led the nation for the fourth consecutive year in foreclosure rates.
Masto's enterprising style of prosecution fueled her ascension in public service and aisle-transcending approval. But it also resulted in an embarrassing indictment she brought against Lt. Gov. Brian Krolicki, a Republican.
The high-profile investigation arose from a 2007 legislative audit into the Nevada College Savings Program, which was overseen by Krolicki, who was state Treasurer at the time, and his former chief of staff. The audit found $6 million earned through the multibillion-dollar program hadn't been deposited in the state treasury. Instead, the money was used for legal costs and the program's marketing, which included advertisements prominently featuring Krolicki. The audit found no money missing. So even some of Krolicki’s strident critics didn't expect it to lead to criminal charges. Still, in December 2008, Masto indicted Krolicki on charges of misallocating office funding and ignoring state spending rules in a case that Nevadans viewed as legally problematic and politically risky.
Krolicki and others lashed out at Masto, accusing her of hyper-partisanship and preventing Krolicki from running against incumbent and Senate Majority Leader Harry Reid, D-Nev., in 2010. The events created a cloud of uncertainty about her political future. In December 2009, a judge dismissed the charges. Masto contended that Krolicki violated public trust, but the failed prosecution bruised her otherwise unblemished tenure.
David Damore, political science professor at University of Nevada, Las Vegas, says Masto's legal humiliation is no longer on the minds of Nevadans, making it nearly impossible to effectively use it against her in a potential 2014 gubernatorial race.
"The time to have gotten her would have been in 2010, which was the best Republican year in quite a while," Damore says.
During a year in which Republicans gained seats in state Senate and House, Masto quietly won her 2010 re-election, capturing 52.8% of the vote.
Going after Bank of America
In October 2008, Masto and Countrywide Financial (which Bank of America purchased earlier that year) entered a consent agreement that settled allegations of mortgage origination and servicing fraud. BofA agreed to modify a specific number of mortgages as part of the deal.
Nearly three years later, Masto filed a second amended complaint against BofA. She claimed the banking giant and its subsidiaries violated the consent agreement by failing to provide agreed upon modifications and raising homeowners interest rates and monthly payments even though the agreement called for a lowering of rates. Masto contended her office was no longer bound by the agreement and could legally pursue its original claims against Countrywide.
After Masto filed the lawsuit, BofA asked the U.S. District Court of Nevada for a case management conference to determine the sequence of proceedings the bank must deal with in what it calls the "unprecedented breadth and complexity" of Masto's lawsuit.
"The scope of the litigation following amendment as envisioned by plaintiff is breathtaking," BofA's filing states. "Plaintiff seeks to represent perhaps as many as hundreds of thousands of borrowers, each of whom may need to be litigated separately in order to prove individual violations, individual defenses and potential remedies."
Masto doesn't accept the premise of Bank of America's analysis.
She says there is no need for individual cases. The state's complaint alleges that the bank's conduct in making and servicing loans violated Nevada law. The state must prove BofA was deceptive across the board, she says, not that it deceived individual residents taking out loans or seeking loan modifications.
The bank has so far objected to every discovery request by the Nevada office, Masto says. Discovery is a pretrial phase in which each party obtains evidence — requests for documents, depositions, interrogation answers, etc. — from the opposing party.
Bank of America spokeswoman Jumana Bauwens told HousingWire the bank disagrees with Masto's contention it breached the consent agreement and will continue to vigorously defend itself.
"We’re interested in finding a path forward with a comprehensive global settlement that benefits homeowners and communities," Bauwens said.
Going after everybody else
In September, Masto's office told HousingWire that she'd bring criminal charges to the entire mortgage industry soon, a declaration that so far has yet to fully materialize. However, some mid-level players have been charged.
In December, Masto filed suit against Jacksonville, Fla.-based Lender Processing Services, a goliath in the mortgage industry, for allegedly falsifying foreclosure documents with Nevada. The suit relates to an extensive investigation into the company's default servicing support practices. Masto alleged LPS required employees to execute or notarize up to 4,000 foreclosure documents per day, leading to wrongful disclosures throughout the state.
In a statement, LPS said it strongly disputes Masto's allegations and has been cooperating with her office for more than a year to resolve the AG's inquiry.
Masto wouldn't say if she'd introduce charges against mortgage industry executives.
"Like any investigation, whether it's criminal or civil, the facts and evidence are going to dictate where we go," she says. "So that's what we're conducting right now, the investigation."
Nancy Rapoport, Gordon Silver Professor at the William S. Boyd School of Law, University of Nevada, Las Vegas, says Masto's office is hoping to catch people who are smack in the middle of the fraud and then see how high up the evidence takes it from there.
"What she's doing is what a lot of very cautious lawyers do, which is they don't overpromise," Rapoport said. "So until she knows what the witnesses are going to say … she honestly couldn't answer you unless she was clairvoyant."
Masto says she doesn't know if the LPS suit will go to trial. Trials are exceptionally expensive, and even with today's sophisticated jury selection process, jurors are unpredictable. Many settlements are made not because lawyers think going to trial is a bad idea, but because, considering the cost of going forward, they are not getting the bang for their buck.
In September, her office reached a settlement with Morgan Stanley, resolving an investigation into the investment bank's role in purchasing and securitizing about 3,000 subprime mortgages in Nevada. The settlement provides $21 million to $40 million of relief to 600 to 700 consumers, according to Matso's office.
The new alliance with the California attorney general multiplies the strength and scope of Nevada's cases by allowing each state to share information borne from their respective investigations.
Attorneys general will integrate forces when the investigated activity crosses state boundaries. For example, there are many Nevadan mortgage scammers who own property in California and vice versa.
"We were both the hardest hit, and we're seeing a bleed-over from some of the fraudulent activities occurring in California and Nevada," Masto says.
Masto says she has no plans after serving as Nevada's AG. Term limits will force her out in January 2015, if she manages to win one more term. Options include running for governor or lieutenant governor in 2014 or waiting for Reid, who'll be 76 at that time, to retire and go after his Senate seat in 2016.
Masto's roots put her on the right side of the state's demographic trends, as Nevada's Hispanic community, comprising 26% of the state's populace, grows more politically active.
Bob Miller's son, Secretary of State Ross Miller, is also a leader in Nevada's Democratic Party. Term limits will force him out in 2015, as well. Miller's chief of staff ran Masto's campaign for attorney general and worked alongside Masto in Gov. Miller's administration.
"Masto is a pretty careful politician," said Damore, the UNLV professor who doesn’t think Masto will run for governor in 2014. The state's popular governor, Brian Sandoval, R-Nev., is still in his first term. Sandoval hasn't indicated if he'll run for re-election, but is "raising money like you wouldn't believe," according to Damore. Sandoval has become more moderate while in office and will benefit from an economic uptick, he adds.
"If Miller and Masto are the future of the Democratic Party, I think they'd rather sacrifice somebody else in that race," Damore said.
A more likely scenario is Masto running for lieutenant governor in 2014 (Krolicki is in his final term) and then U.S. Senate in 2016. If Sandoval, who some say has 2016 presidential aspirations, leaves office, Masto would then become governor. That would make her an incumbent in 2018, freezing out Miller, who Damore says will probably run for Nevada attorney general in 2014 and, like his father, hopes to pursue the governorship one day.
Miller, who's just 35, says he can't envision himself running against Masto.
"I think she's done a very credible job," he says. "I think (Nevada) would be better served if we avoided that type of contested primary."
Masto, meanwhile, isn't talking of political aspirations. Instead, she says she'll continue to aggressively prosecute her case against Bank of America and other mortgage industry bigwigs.
"Where it's going to lead, I can't tell you," she says. "But I will tell you that we will put our resources into the investigation both on the civil and criminal side."
As her office becomes more inundated with evidence of mortgage fraud, the intense focus on the housing sector will remain.
"I don't see in the near future that this is going away any time soon," Masto says. "I think my office will be very busy in this area."
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