MA successfully sues Goldman Sachs over subprime lending

by Leigh Graham · 2009-05-12 13:35:00 UTC
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This is a GREAT win:

In the first settlement of its kind in the country, Massachusetts Attorney General Martha Coakley has reached a $60 million agreement with a Wall Street investment bank that helped facilitate the frenzy of subprime lending that saddled so many homeowners with mortgages they could not afford to pay.

Wall Street giant Goldman Sachs Group agreed to reduce the size of subprime loans for some 700 Massachusetts homeowners by up to 35 percent, Coakley said yesterday. The investment bank played a key role in perpetuating sales of subprime mortgages by packaging the loans into securities that were sold to investors, with the proceeds used to fund new rounds of mortgages.

"This is a landmark case. It is one of the few times we've seen somebody who didn't actually originate the loans being held accountable," said Guy Cecala, the chief executive of Inside Mortgage Finance, a mortgage industry newsletter.

Mass. has been investigating the subprime industry for the last two years, starting with mortgage originators and moving on through the chain.  Says Coakley: ""We've made the determination, and our courts have agreed, that many of these loans were unfair. They were destined to fail".

Housing advocates lauded the settlement for focusing on financial institutions that played a key part in the nation's housing crisis, which prompted wide-scale inflation in the housing market and then a crash that led to a worldwide financial collapse. At the height of the subprime market in 2006, 82.4 percent of subprime loans were packaged with other loans into securities that were sold to investors, according to Inside Mortgage Finance.

And I'm doubly excited to see an alum from my urban planning department at MIT quoted - Andrew Jakabovics points out that by reducing the loan principal for these 700+ homeowners, they're given a chance to get their "head[s] above water again."

Sometimes I just love my activist blue state!

Leigh Graham
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