Attorney General Martha Coakley made national headlines in June by suing two federal agencies for refusing to sell homes in foreclosure to nonprofit groups that want to return them to the original owners. Freddie Mac and Fannie Mae, she said, cannot “stand in the way of this work to help struggling families stay in their homes.”
What Coakley did not say is that the only nonprofit in the country that buys and sells distressed properties like that is run by the cochair of her campaign finance committee, Elyse Cherry, who hosted a Coakley fund-raiser days before the lawsuit. Cherry acknowledges that she and her staff even wrote the legislative language that Coakley sued over.
Coakley said that her lawsuit, now in federal court, is part of her longtime push to get mortgage lenders to modify the terms of loans before foreclosing on homeowners who have fallen behind on payments.
She said she wasn’t trying to give a personal benefit to Cherry, who made $590,000 last year running Boston Community Capital in Roxbury’s Dudley Square. Cherry said the lawsuit wouldn’t increase her pay or her organization’s income.
“This has been a big push since the time I became attorney general and we started to see predatory lending,” said Coakley, who took office in 2007. “One of the big roadblocks to helping everybody were Fannie and Freddie,” which hold or guarantee more than 60 percent of all US home mortgages.
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.
Cherry is more than just a contributor: She’s one of three cochairs of Coakley’s finance committee, hosting at least five fund-raisers this year and writing a glowing endorsement of Coakley in “The Rainbow Times,” a newspaper of the gay, bisexual, and transgender community, two days after Coakley filed her lawsuit.
Bruce Marks, a longtime housing advocate and chief executive of the Neighborhood Assistance Corporation for America in Jamaica Plain, said Coakley is damaging her credibility on the foreclosure issue by fighting for Cherry’s program, which he believes benefits Boston Community Capital more than homeowners.
Marks said that 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.
Cherry “paints herself as this advocate for the consumer, and it’s the opposite,” said Marks, noting that he makes about one-quarter as much money — $150,000 a year — and considers himself well compensated.
But Cherry said the program has no effect on her salary, which she said is based on comparisons to leaders of similar nonprofits such as the Combined Jewish Philanthropies and the Boston Foundation.
Coakley, whose office oversees nonprofit agencies and charities and who has railed against high nonprofit compensation, said she was unaware of Cherry’s salary, but would “reach out to her board to get the documents and protocol” they used to justify her pay.
Cherry said that she was trying to develop a new tool to help distressed homeowners keep their houses, and that her group does not make a profit on the program, dubbed SUN for Stabilizing Urban Neighborhoods. She said that Boston Community Capital has helped keep 500 homeowners in their homes through the program, and that it could help many more across the country if Fannie Mae and Freddie Mac were willing to work with the group.
All the revenue collected from the resale goes into paying expenses and creating a reserve fund for losses, since a small percentage of the homeowners end up in foreclosure again.
“This is not a profit-making undertaking,” asserted Cherry. “What is the benefit to us?”
Coakley said the decision to sue was not her idea — it came from her staff after a Globe column on the subject this year. And Coakley officials stress that there is at least one other nonprofit group that would benefit if Coakley prevails, a small group called the Coalition for Occupied Homes in Foreclosure. This group buys distressed homes and rents them to the original owners.
Cherry, a national leader in the antiforeclosure movement, has high-profile advocates who publicly support her efforts. Former Federal Reserve Bank chairman Ben Bernanke has cited Boston Community Capital’s SUN program as a creative approach to a difficult problem.
And former mayor Thomas M. Menino has said the program “is not only bringing hope to its clients, but also making a difference in the quality of life of our city neighborhoods.”
Both Coakley and Cherry have been sparring with Freddie Mac and Fannie Mae for years, pressuring both agencies to be more receptive to renegotiating mortgages with distressed homeowners so that they can remain in their homes.
Cherry turned to the Legislature for help in 2012 after Fannie Mae and Freddie Mac decided not to allow their foreclosed properties to be sold to Boston Community Capital.
Cherry said she approached then Representative Kathi-Anne Reinstein of Revere, who Cherry had known from growing up in Revere, about adding language to an antiforeclosure bill that would essentially require federal agencies to do business with Boston Community Capital. The measure passed in July 2012.
Cherry said the federal mortgage agencies were concerned that, if homeowners discovered the mortgage buyback program, they would shirk their responsibility to live by the terms of their original mortgages and default.
However, the chief attorney for Freddie Mac and Fannie Mae has indicated that the agencies were also concerned that programs like SUN could allow nonprofit groups to become middle men in real estate deals, buying homes at a discount and then boosting the resale price back to the homeowner “at a profit to the entity.”
Six months after the Legislature passed the antiforeclosure bill, in February 2013, an aide to Coakley sent a letter to the Federal Housing Finance Agency saying that Coakley was “troubled” by Freddie Mac and Fannie Mae policies that “appear to violate provisions” of the new Massachusetts law to prevent foreclosures.
A day later, Coakley called for the ouster of Edward J. DeMarco of the Federal Housing Finance Agency for refusing to do business with nonprofits like Boston Community Capital.
Cherry joined Coakley’s campaign for governor right after she announced in September 2013, donating $1,000 of her own while cohosting several fund-raisers over the next nine months.
Finally, in June 2014, Coakley filed suit in Suffolk Superior Court over the federal mortgage agencies’ refusal to comply with the Massachusetts law. The case was transferred to federal court at the request of the agencies.
Cherry said Boston Community Capital pours all the money it collects from the SUN program into the time-consuming process of negotiating with the banks and underwriting the loans. SUN borrowers are poor credit risks, so the process is complex and protracted, she said.
But housing advocate Marks is skeptical that Cherry’s group does not generate surplus revenue since it makes money both from the 25 percent markup on the resale price and about $5,000 in fees the borrowers must bring to closing. It also charges 6⅜ percent interest on the mortgage, two percentage points more than the group pays on the money it borrows to make its 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.
Cherry said the fight is not about her or her agency at all, but about the 17 families who will be forced out of their homes if the federal agencies don’t agree to sell to Boston Community Capital. If Freddie and Fannie cooperate, Cherry added, other agencies around the country could set up similar programs to keep more people in their homes.
Coakley agreed wholeheartedly. “The idea was to benefit homeowners. It wasn’t about benefiting a company or a business or a not-for-profit.”
But Common Cause’s Wilmot said the merits of Cherry’s efforts to stop foreclosures do not excuse Coakley from disclosing her close personal ties to Cherry when she filed the lawsuit. On other occasions, Coakley has been vigilant about filing disclosures with the ethics commission.
“The Massachusetts conflict of interest law requires public officials to file written disclosures when a reasonable person could conclude that they may be biased in their official duties because of personal, professional, or other connections with someone. This seems to be an example of an appearance requiring a written disclosure,” she said.