Several weeks ago, Massachusetts Attorney General Martha Coakley sent a letter to Mel Watt, the director of the Federal Housing Finance Agency, saying that her office was considering legal action against the FHFA over violations of the state’s laws allowing nonprofits to buy foreclosures and return them to the evicted homeowner.
In her letter, 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.”
And now, Coakley hopes actions will speak louder than words.
Coakley followed up on her threat of litigation and filed a lawsuit against the FHFA and the GSEs in Suffolk Superior Court. The complaint alleges that Fannie and Freddie, currently under FHFA conservatorship, are refusing to comply with the Massachusetts law called “An Act to Prevent Unnecessary and Unreasonable Foreclosures.”
One example of a Massachusetts buyback program allowed under the law is Boston Community Capital’s Stabilizing Urban Neighborhoods Initiative. 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.
“Buyback programs like SUN prevent needless displacement of families that through an arrangement with a non-profit can afford to stay in their homes,” the state’s announcement said. “Fannie Mae and Freddie Mac have continued to block buybacks even though they lose money in the process.”
One of the provisions of the law, which was passed in August 2012, prohibits creditors from blocking home sales to non-profits simply because the non-profit intends to resell the property back to the former homeowner. Coakley says these foreclosure buybacks are exactly what the GSEs are preventing.
“It makes no sense for our federal government to stand in the way of this work to help struggling families stay in their homes, and it is illegal for Fannie and Freddie to do this in Massachusetts,” Coakley said. “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.”
In the complaint, Coakley alleges that two of the FHFA’s policies violate state law. The suit alleges that Fannie and Freddie’s “arm’s-length transaction” policy prohibits property sales to non-profits who resell to the original homeowner.
The suit also alleges that the GSEs “make whole” policy has the same effect, as it prevents Fannie and Freddie from accepting anything less than the outstanding loan amount from the former homeowner or anyone seeking to resell or rent to the former homeowner.
“We believe that buyback programs implemented by credible not-for-profit institutions are key to helping homeowners recover from this foreclosure crisis and restoring a healthy economy,” Coakley said in her original letter. “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.”