Massachusetts AG Urges FHFA Action On REO Sale Restrictions And Principal Reduction Options

Freddie Mac Fannie Mae State Attorney General FHFA Mortgage Modification

On May 14, Massachusetts Attorney General (AG) Martha Coakley sent a letter to FHFA Director Mel Watt threatening legal action if the FHFA does not direct Fannie Mae and Freddie Mac, when they sell a foreclosed property, to comply with a state law that prohibits a creditor from conditioning that sale on a requirement that the new owner cannot resell or rent the property back to the former homeowner. The letter explains that the law allows non-profits in the state to purchase REO and sell them back to the same borrower with more favorable financing terms and at a lower value. The AG states that her office is “considering all available legal avenues – including litigation – to ensure compliance” with the state law. The letter also reasserts the AG’s view that Fannie Mae and Freddie Mac should include principal reductions as a loan modification option. Under its former Acting Director Edward DeMarco, the FHFA decided in July 2012 not to direct Fannie Mae or Freddie Mac to offer principal reductions.