Martha Coakley, the attorney general of Massachusetts, filed suit Monday against Fannie Mae and Freddie Mac in an effort to force the federally owned mortgage finance giants to comply with a state anti-foreclosure law passed in 2012.
The law seeks to ease the way for buyback programs, which are aimed at reducing the debt of the homeowner while saving the lender the cost of foreclosure and eviction. Fannie and Freddie have refused to allow homes with mortgages they back to enter buyback programs, the suit contends, even though it costs them money not to.
“For too long, Fannie and Freddie have been roadblocks to progress in addressing this foreclosure crisis, and I urge them to immediately reverse their policy on this common-sense program,” Coakley said in a statement.
The lawsuit is one of numerous aggressive efforts by Coakley to police banks’ treatment of homeowners and their securitization of mortgages. She has won settlements from Goldman Sachs, Morgan Stanley, RBS and several subprime lenders.
The lawsuit comes on the heels of a case by a homeowner, Ramon Suero, who bought an apartment for about $300,000 in 2005 that is now worth a third of that price. He fell behind on his mortgage payments, and the home went into foreclosure.
Boston Community Capital, a nonprofit that runs a buyback program called SUN (Stabilizing Urban Neighborhoods), offered to buy it from the lender for what Freddie Mac said was the fair market price, $115,000. SUN intended to turn around and sell the house back to Suero, giving him a mortgage he could afford.
But Freddie Mac refused to allow the sale, instead asking SUN for a “make whole” price of the full $300,000. Without the buyback allowing Suero to stay in his home, Freddie Mac normally would incur the expense of evicting Suero, maintaining the vacant home and selling it as a distressed property.
A federal court issued a preliminary injunction against the foreclosure and sale of the home. The Federal Housing Finance Agency, which oversees Fannie and Freddie, declined to comment on pending litigation.
Coakley’s office had written a previous letter to Mel Watt, who became the agency’s director in January.
Watt succeeded the acting director, Edward J. DeMarco, who would not allow Fannie and Freddie to go along with such debt-reduction programs.
DeMarco had argued that the agency’s other loan modification programs were just as good, and said he feared that it would cause homeowners to strategically default on their payments.
