Massachusetts AG: GSE's Must Comply with New Mortgage Modification Law

by devteam August 24th, 2012 | Share

Massachusetts Attorney General MartharnCoakley told Freddie Mac and Fannie Mae (the GSEs) on Thursday that they must conform</bto a new state mortgage modification requirement.  In a letter sent to Acting FHFA DirectedrnEdward J. DeMarco on Thursday, Coakley invoked a law signed by Governor DeValrnPatrick earlier this month requiring creditors to take "commercially reasonablernsteps" to avoid foreclosure upon certain mortgage loans.  In the letter Coakley also urged FHFA tornreconsider its decision to forbid the GSEs from reducing principal onrndistressed loans. </p

 “We expect Fannie Mae and FreddiernMac, like all creditors, to comply with these statutory obligations as theyrnconduct business in Massachusetts,” Coakley wrote. “Specifically, we expectrnthat Fannie Mae and Freddie Mac will pursue common-sense loan modifications forrnborrowers when the economic benefits of a modified loan exceed the significantrnlosses anticipated at foreclosure.  These loan modifications are criticalrnto assisting distressed homeowners, avoiding unnecessary foreclosures, andrnrestoring a healthy economy in our Commonwealth.”</p

This is not Coakley’s first exchange with FHFA over loan modifications.  In February she urged the agency to engage inrnloan modifications guided by a net-present value analysis.  She also joined with ten other staternattorneys general in an April letter to DeMarco seeking relief for homeownersrnand argued that the failure to implement principal loan forgiveness harmsrnstruggling homeowners and investors.</p

FHFA recently announced that the GSEs would not be participating in the HomernAffordable Modification Program Principle Reduction Alternative (HAMP PRA)rndespite an offer of incentives from the Department of the Treasury to dornso.  Coakley’s office pointed out that FHFA’srnown study concluded that “principal reduction leads to a 20% reduction inrnre-default probabilities as compared to a modification utilizing forbearance,rnand principal reduction leads to a 24% reduction in re-default probabilities asrncompared to a modification that receives payment reduction, but neitherrnforgiveness nor forbearance. The conclusions drawn by the study are consistentrnwith another analysis, completed by FHFA, in which the HAMP PRA could help uprnto 500,000 homeowners and save Fannie Mae and Freddie Mac up to $3.6 billion.”</p

“This data demonstrates that, in appropriate cases, loan modificationsrnproviding principal forgiveness can help struggling homeowners avoidrnforeclosure, save taxpayers’ money, and work to stabilize the housing market -rnall stated goals of the FHFA,” Coakley said.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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