Coakley Lays Down the Law to FHFA Director

Massachusetts Attorney General Martha Coakley is not taking any chances. Her office worked with state lawmakers to pass legislation that goes to the core of the foreclosure crisis, and Gov. Deval Patrick signed the bill into law August 3, 2012.

Now she’s taking dead aim at Fannie Mae and Freddie Mac. Coakley’s office issued a statement regarding a letter she sent dated August 23, 2012, to Edward J. DeMarco, Acting Director of their oversight agency — the Federal Housing Finance Agency (FHFA). In that letter she basically warns DeMarco to make sure he understands that compliance to the new state law applies to the nation’s two largest lenders as well.

The new law, entitled “An Act to Prevent Unnecessary and Unreasonable Foreclosures” took effect immediately after Patrick signed it. Coakley says in the letter that, “This new statute is designed to prevent unnecessary foreclosures by mandating loan modifications when they make sense, and demonstrates again the Commonwealth’s commitment to protecting homeowners and stabilizing the housing market.”

The provisions of the new law:

  • Require creditors that hold or control certain types of loans to work towards achieving a commercially reasonable loan modification

  • Codify the recent Massachusetts Supreme Judicial Court decision in Commonwealth v. Henry Ibanez by requiring creditors commencing foreclosure to show they are the current legal mortgage holders of record

  • Prohibit creditors from passing on to third parties the costs of remedying prior improper foreclosures or absence of recorded assignments

  • Prohibit creditors from imposing foreclosure-related “junk fees”

“We expect Fannie Mae and Freddie Mac, like all creditors, to comply with these statutory obligations as they conduct business in Massachusetts. Specifically, we expect that Fannie Mae and Freddie Mac will pursue common-sense loan modifications for borrowers when the economic benefits of a modified loan exceed the significant losses anticipated at foreclosure,” Coakley’s letter continues.

Coakley is also strongly urging the director to reconsider his refusal to use principal reductions as a foreclosure avoidance tool. Recently, DeMarco chose not to implement the Obama administration’s Home Affordable Modification Program Principle Reduction Alternative (HAMP PRA).

Coakley also argues that FHFA’s own analysis aligns with Massachusetts in showing that the re-defaulting of loans is reduced substantially when tied in with principal reduction.

While all of this might make sense, especially to housing advocates, real estate attorneys and distressed homeowners, if DeMarco is convinced that foreclosure is the preferred alternative to loan modification, affording Fannie and Freddie potentially greater returns, then there’s most likely nothing Coakley can do about it — especially if he has hard numbers to back that up.

But she can still keep trying. So long as Fannie and Freddie comply with the new state law, that is at least half the battle. And even that half is questionable at the moment. Only time will tell.

Do you think Coakley is picking a fight she can’t win? We’d like to know your feelings on the subject.

Search pre-foreclosure short sales, scheduled foreclosure auctions and bank-owned  homes nationwide on RealtyTrac.

Here’s some other articles from the RealtyTrac newsroom:
Heat Map: Foreclosures in Obama’s First Term
New Short Sale Guidelines Will Help ‘Underwater’ Borrowers
How Real Mortgage Fraud Causes Foreclosures

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