AG to Review All Legal Options if FHFA Does Not Comply With Massachusetts Law
BOSTON – May 16, 2014 – (RealEstateRama) — Saying in a letter file size 2MB today that the use of buyback programs and principal reductions are “key to helping homeowners recover from this foreclosure crisis,” Attorney General Martha Coakley urged the new director of the Federal Housing Finance Agency (FHFA) to use buybacks or face legal action.
“We believe that buyback programs implemented by credible not-for-profit institutions, and loan modification programs that permit principal reductions for distressed borrowers, are key to helping homeowners recover from this foreclosure crisis and restoring a healthy economy,” AG Coakley said in the letter to Melvin Watt, the new director of FHFA.
AG Coakley states that her office is reviewing all legal options as the mortgage giants Fannie Mae and Freddie Mac, currently under FHFA conservatorship, refuse to comply with the August 2012 Massachusetts law An Act to Prevent Unnecessary and Unreasonable Foreclosures.
The groundbreaking law requires that creditors not prohibit sales to non-profits like Boston Community Capital’s “Stabilizing Urban Neighborhoods” program (SUN). Through this initiative, BCC purchases a home that is typically owned by a lending bank at its current market value and finances its immediate resale to the former homeowner. Fannie Mae and Freddie Mac have continued to block buybacks even though they lose money in the process.
In the case Suero v. Freddie Mac, SUN and the 2012 Massachusetts law were both referenced in the decision by the U.S District Court to issue a preliminary injunction which prevented the foreclosure and sale of the plaintiff’s home in Dorchester. The decision also referenced a February 2013 letter the AG’s office sent to FHFA explaining that Massachusetts law now explicitly forbids banks from refusing to consider offers from legitimate buyback programs merely because the property will be resold to the former homeowner.
Because FHFA has refused to change its policy, AG Coakley sent a new letter to Director Watt, stating that the current FHFA policy of prohibiting such sales, even at fair market value, is in direct conflict with the Massachusetts law and represents an economic loss for taxpayer-owned Fannie and Freddie.
“To date, [Fannie Mae and Freddie Mac] have not complied with this provision, which has unfortunately impeded the ability of buyback programs to maximize the number of borrowers they can assist, which in turn has hindered the broader goals of neighborhood stabilization and revitalization,” AG Coakley said. “Our office is considering all available legal avenues, including litigation, to ensure compliance with Massachusetts law, should FHFA fail to promptly amend its policies to allow Fannie Mae and Freddie Mac to participate in credible buyback programs.”
Buyback programs such as the SUN Initiative adhere to strict and conservative underwriting standards. For example, SUN provides only 30 year fixed-rate mortgages and as a result, financing is only extended to homeowners who can truly afford to stay in their homes, preventing displacement and avoiding neighborhood blight.
The letter also continues the push for principal reductions. Since 2012, AG Coakley has encouraged principal reduction by Fannie and Freddie as a critical foreclosure prevention tool. In an April 2012 letter to then-Acting FHFA Director Edward DeMarco, AG Coakley was joined by 10 other Attorneys General urging Fannie and Freddie to permit principal reduction in loan modifications. Despite a change in leadership, Fannie and Freddie continues to prohibit principal reduction as a means of keeping people in their homes.