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Following a shift in foreclosure policies, Attorney General Martha Coakley is asking the federal regulator that controls Fannie Mae and Freddie Mac to expand options for people hoping to stay in their homes after defaulting on a mortgage.
"They're working with those who have already been foreclosed upon, but we think they should broaden it," Coakley told the News Service on Monday.
Coakley has sparred with Fannie and Freddie and the Federal Housing Finance Agency (FHFA), which placed Fannie and Freddie in conservatorship amid the 2008 market crash.
Arguing in June that Fannie and Freddie's policy buyback programs violated a 2012 state law and caused people to lose their homes, Coakley sued the federally backed mortgage companies.
The lawsuit was tossed, but FHFA gave Coakley a partial policy victory about two weeks ago.
Fannie and Freddie had blocked Boston Community Capital from buying foreclosed homes because the non-profit resells or rents out homes to the foreclosed-on former owners. Under its former policy, Fannie and Freddie would only sell foreclosed homes to their former owner if the former owner paid the full amount owed in principal, interest and penalties - though others were allowed to purchase the foreclosed properties for whatever amount they would fetch on the market.
On Nov. 25, FHFA directed Fannie and Freddie to change its policy, allowing sales of foreclosed homes already in their possession to anyone - including their former owners - at market value. FHFA required that in cases where the homes are sold to benefit former owners, they must be the owner's principal residence.
"Because of this policy change, numerous families in Massachusetts will no longer face eviction at the hands of [Fannie and Freddie], but will instead be able to repurchase their homes at the market rate," Coakley wrote to FHFA Director Melvin Watt on Monday. Coakley said Fannie and Freddie would be able to avoid the costs of lawsuits, property maintenance and the costs associated with finding a home buyer.
A spokeswoman for FHFA told the News Service in a statement the new policy is intended to "reduce vacancies and stabilize the value of homes."
Coakley also encouraged the regulators to also apply the policy to foreclosures that occur after Nov. 25, 2014, and said concerns about people "strategically" defaulting to qualify for a buyback program could be addressed with policies already employed in Massachusetts.
The attorney general also said Fannie and Freddie should be open to making "short sales" to homeowners, which would enable both sides to avoid the costly foreclosure process.
"The policy change is limited to Fannie Mae's and Freddie Mac's existing [foreclosed real estate] inventory as of November 25 to ensure that people do not deliberately attempt to go through the foreclosure process to buy back their home at a lower price," FHFA spokeswoman Stefanie Johnson said in a statement. She said, "We will respond soon to AG Coakley. We are always evaluating loss mitigation and neighborhood stabilization programs at Fannie Mae and Freddie Mac."
Coakley received some flack during her gubernatorial bid because her friend and political ally Elyse Cherry is the CEO of Boston Community Capital, which was blocked by Fannie and Freddie from running its home buyback program with the federally chartered mortgage companies.
At the time, Coakley maintained all the necessary disclosure was made in campaign finance reports that showed Cherry's political contributions, and Coakley continues to hold that position, telling the News Service all the necessary disclosures had already been made.
In her letter to Watt, Coakley said Fannie and Freddie's prior policy led to a "perverse outcome" where a home could be sold at market value to an investor but not the former homeowner even if the former owner had the money.
"There's still a sizable number of people whose mortgages are held by Fannie and Freddie," Coakley told the News Service.
Coakley also said Fannie and Freddie should consider using principal reduction on home loans as a means to avoid foreclosure.
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