IF MASSACHUSETTS joins in a proposed multi-state legal settlement over improper foreclosure activity by major banks, the Commonwealth may not come away with everything that it wants. But Attorney General Martha Coakley should still join the settlement. It’s important for the national economy, and the ability of Massachusetts families and businesses seeking loans, to resolve at least this part of the financial uncertainty that has hung like a millstone over the economy for more than three years.
The prospect of lengthy litigation - over cases in which Citibank, JPMorgan Chase, Bank of America, Wells Fargo, and Ally Financial foreclosed on homes despite significant flaws in the documentation - could cast a shadow over the housing market for some time to come. The proposed settlement - which involves the banks, state attorneys general, and the Obama administration and may be valued at $25 billion - would provide better mortgage practices, relief for those who lost their homes to improper foreclosures, and, most importantly, mortgage modifications for more of those who are still at risk.
From the outset of the 2008 financial crisis, the question of how to get markets moving again has been a largely separate one from how to promote accountability for those who were responsible for the mess. Many US taxpayers were understandably outraged at the thought of bailing out bankers who’d made unwise bets, but that was the only way to prevent the global financial system from locking up. Many Americans were outraged, too, when the federal government propped up Fannie Mae and Freddie Mac, but in the immediate aftermath of the crisis new home loans would have been all but impossible without the two mortgage giants. The multi-state settlement reflects the same quandary; it likely won’t be as tough as many Americans would want, but it also provides a path forward.
Coakley’s office has filed a separate suit against some of the same firms involved in the proposed multi-state settlement, and it deals with some of the same types of abuses - the infamous “robo-signing’’ of faulty foreclosure documents. But Coakley’s suit covers additional problems - the biggest of which is the possibility that, under state law, flawed foreclosure proceedings will create uncertainty about the ownership of perhaps thousands of homes. Avoiding years of drawn-out, case-by-case litigation over individual properties is in everyone’s interest; Coakley wants to enlist banks in a more systematic way of resolving these disputes.
Unfortunately, the multi-state settlement doesn’t address this issue, and would likely restrict litigation by the state. Still, there are other ways, such as through legislation or negotiations, to deal with this problem, and the greater good lies in a broad national settlement.
While Coakley’s office seems to understand the urgency of resolving uncertainties in the real estate market, her counterparts in some other states, including California and New York, have balked at the multi-state settlement because they believe it isn’t tough enough on big institutions. But even if, in a moral sense, major mortgage firms deserve to feel even more of a sting for robo-signing and other irregularities, there’s also a greater cost to letting these disputes drag on endlessly. And that cost will be paid not by bankers, but by families and businesses seeking loans.