The race for the governor's office in Massachusetts is getting more and more interesting with each passing day.
Massachusetts Attorney General Martha Coakley stands accused of failing to disclose close ties between her gubernatorial campaign and a nonprofit that’s at the center of the State of Massachusetts’ lawsuit against the Federal Housing Finance Agency, Fannie Mae and Freddie Mac over buyback programs.
According to a new report in The Boston Globe, Elyse Cherry, the CEO of Boston Community Capital, is the co-chair of Coakley’s campaign finance committee.
Cherry’s Boston Community Capital is also the focus of a lawsuit filed by Coakley against the FHFA, Fannie and Freddie, which alleges that Fannie and Freddie, currently under FHFA conservatorship, are refusing to comply with the Massachusetts law called “An Act to Prevent Unnecessary and Unreasonable Foreclosures.”
One of the provisions of the law, which was passed in August 2012, prohibits creditors from blocking home sales to non-profits simply because the non-profit intends to resell the property back to the former homeowner.
In the lawsuit, filed in June, Coakley said that these foreclosure buybacks are exactly what the GSEs are preventing by refusing to engage in the buyback program.
When Coakley filed the lawsuit in June on behalf of the State of Massachusetts, she specifically cited Boston Community Capital’s Stabilizing Urban Neighborhoods Initiative as an example of how the Massachusetts buyback program can work.
Through this initiative, BCC purchases a home on the brink of foreclosure from the lending bank at its current market value and finances its immediate resale to the former homeowner.
“Buyback programs like SUN prevent needless displacement of families that through an arrangement with a non-profit can afford to stay in their homes,” Coakley’s office said in a release when the lawsuit was filed. “Fannie Mae and Freddie Mac have continued to block buybacks even though they lose money in the process.”
Prior to filing the lawsuit in June, Coakley threatened FHFA Director Mel Watt with litigation if the FHFA did not comply with the state’s buyback law.
In that initial letter to Watt, Coakley also specifically cited BCC and its SUN Initiative as a model for the state’s buyback program.
“Through this initiative, nearly 500 families in Massachusetts have been able to remain in their homes and have seen their monthly mortgage payments cut to a level that reflects the property’s true market value,” Coakley said in her letter to Watt, which was also sent to Massachusetts Sens. Elizabeth Warren and Edward Markey, Shaun Donovan, then-secretary of the U.S. Department of Housing and Urban Development, and Richard Cordray, director of the Consumer Financial Protection Bureau.
Coakley’s letter also said the SUN Initiative adheres to strict and conservative underwriting standards and provides only 30-year fixed-rate mortgages. “The rate of default on their mortgages is below the national average,” Coakley said. “As a result, financing is extended only to those homeowners who can truly afford to stay in their homes, thus preventing displacement, avoiding the blight of abandoned homes, and stabilizing neighborhoods all in one thoughtful program.”
But according to the Globe report, Cherry hosted a Coakley fund-raiser mere days before the lawsuit was filed.
From the Globe report:
Though Cherry’s work has drawn high-profile supporters, Coakley’s lawsuit is drawing criticism from a prominent affordable housing advocate who opposes Cherry’s approach and a government ethics champion who says Coakley should have disclosed her ties to Cherry to avoid the appearance she’s doing favors for insiders.
“It’s important that the public knows about private dealings that could potentially affect government action,” said Pam Wilmot, executive director of Common Cause, a nonprofit group that promotes transparency in government.
Coakley said there was no need to file a public disclosure with the State Ethics Commission since Cherry’s $3,250 in state donations to Coakley since 2005, the $1,500 she gave to Coakley’s failed US Senate bid in 2010, and the $5,000 she donated to the Democratic State Committee in September are already matters of public record.
The head of another housing advocate group told the Globe that Coakley is damaging her credibility by fighting for, and specifically citing, Cherry’s program.
Bruce Marks, a longtime housing advocate and chief executive of the Neighborhood Assistance Corporation for America in Jamaica Plain, saidthat Cherry’s buyback program is flawed because Boston Community Capital buys foreclosed-upon homes at a discount from lenders, but doesn’t pass along all the savings to families that were foreclosed upon. Instead, her group typically boosts the resale price by at least 25 percent, Boston-area property records show.
Marks cites Coakley’s yearly salary, $590,000 in 2013, as evidence that she “paints herself as this advocate for the consumer, and it’s the opposite.”
Marks also said that BCC makes money on each home refinance it conducts because BCC marks up the home by 25% above the price it paid to the lender when BCC resells it to the homeowner. According to Marks, borrowers must also bring approximately $5,000 in fees to the closing.
Marks said that BCC charges an interest rate 6.375% for the loans it gives to the previously distressed borrower, which is two percentage points more than what BCC pays for the money it borrows to make the loans.
“If a bank was doing that, you’d charge them with predatory lending,” said Marks, who said his group collects a small fee from banks to help homeowners negotiate a reduced mortgage payment with their lenders.
On Friday, the Globe also reported that Coakley’s opponent in the upcoming gubernatorial election, Republican Charlie Baker, has “serious questions about the attorney general’s conduct and judgment,” because she did not disclose the relationship between her campaign, Cherry and BCC.
In the aftermath of the initial Globe report and Baker’s comments, Coakley issued a statement, through her campaign, saying:
"I have spent the last seven years fighting to keep families in their homes. I have sued the big banks, taken on Wall Street when few others were doing it, and for the last three years have been trying to hold Fannie Mae and Freddie Mac accountable for their complete disregard for the negative impact their policies have had on Massachusetts families. I sued Fannie and Freddie because people will be evicted from their homes if we don’t help – right now. If we did not bring and win this suit, people would be in danger of losing their homes. And we did so while disclosing any contributions in full compliance with the law. Those are the fights I have always taken on, and they are the fights I will take on as Governor.
"Today, Charlie Baker refused to answer whether he supported the Massachusetts foreclosure law or whether he would have filed suit to protect Massachusetts homeowners in danger of losing their homes. This is outrageous - Wall Street banks have wreaked havoc on families all across Massachusetts, and Charlie Baker today chose to stand with those banks and not with families in danger of losing their homes. I have made a very different choice and I am proud to stand by that choice. I will always take the side of these families, and do everything in my power to keep them in their homes. I am proud of this lawsuit and I am proud of my office's work helping to keep families in their homes. The people of Massachusetts need to know that today, Charlie Baker chose to side with the Wall Street banks and Fannie/Freddie against these Massachusetts families."
Boston Community Capital also responded to the charges, saying in a statement that its programs have “helped build or preserve over 16,000 affordable housing units and 1.6 million square feet of commercial real estate in distressed communities; supported child care facilities and schools serving over 14,800 children; and supported health care facilities providing a comprehensive range of care to over 81,000 patients. These initiatives have created or preserved more than 4,400 jobs.”
BCC also said that its SUN program reduces homeowners’ mortgage payments by an average of 38%.