Attorney General Sheds Light on Sub-Prime Mortgage Crisis in Kennedy School Talk

April 3, 2008
by Jake Ackman

Massachusetts has been as hard hit as any state by the sub-prime mortgage crisis. That was the message delivered Wednesday (April 2) by state Attorney General Martha Coakley during a talk at the Kennedy School co-sponsored by the Taubman Center for State and Local Government and the Rappaport Institute of Greater Boston.

Coakley told an overflow crowd in the School’s Fainsod room that Massachusetts was an easy target for predatory lenders because of its stable and rich equity base. For brokers, she said, it became the “equivalent to California during the gold-rush.” And now Massachusetts cities and towns are facing the fallout from the crisis – lower tax revenues across the board. ”Will we [have to] fire teachers, cops, or fire [fighters]?” she asked.

The Attorney General’s office has issued a report on the sub-prime mortgage crisis titled “The American Dream Shattered: The Dream of Homeownership and the Reality of Predatory Lending.” The report claims consumers were deceived by unscrupulous mortgage brokers and many were convinced to take loans they couldn’t possibly repay.

Coakley spoke about the dangers of adjustable rate mortgages featuring enticing “teaser” rates that swell up later on, resulting in “payment shock” for the borrower. Such programs, she said, are partially responsible for the current national economic slowdown.

Individual states do have the ability to respond to the situation despite the federal government’s reticence to do so, Coakley said. She strongly advocates legislation that will protect the consumer by providing clear and unambiguous information about loan terms up front.

Coakley, who has spent more than 20 years in public service, as a prosecutor and district attorney, also spoke highly of the need for government to attract and retain the best and the brightest, saying that “serving government is important and we need talent to make a difference."

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Photograph of Martha Coakley at Harvard Kennedy School

Martha Coakley, state attorney general

Coakley told an overflow crowd in the School’s Fainsod room that Massachusetts was an easy target for predatory lenders because of its stable and rich equity base. For brokers, she said, it became the “equivalent to California during the gold-rush.”

Image of audience in Fainsod room

Audience in Fainsod Room during Coakley's appearance