Federal housing regulators and mortgage giants Fannie Mae and Freddie Mac have the option of helping struggling, deeply underwater homeowners negotiate decreased loan terms that would help them remain in their homes and stay current on a fair-price mortgage. Not only that, it wouldn’t cost them anything.
But they won’t do it, according to the Massachusetts Attorney General’s Office, which has filed suit against Fannie and Freddie, alleging their actions violate the state laws in place to help troubled borrowers.
“There’s no reason” for the agencies to take the tack they have, according to AG Martha Coakley. She says not only do individual borrowers suffer, but so do neighbors, the community and the economy as a whole. Foreclosed properties sit vacant for months or years, blighted and then eventually auctioned off for a fraction of the price.
Miami foreclosure attorneys understand that two years ago, the state of Massachusetts passed an anti-foreclosure law, which sought to ease the restrictions placed on so-called “buyback programs.” These are typically non-profit groups that have started efforts to purchase underwater properties from banks for what is considered the fair market value of the home. The organizations then re-sell the home back to the homeowner, who in turn enjoys a mortgage that not only reflects the home’s true value, but is also far more manageable – leaving them at a reduced risk of default and foreclosure.
It turns out being a wash for lenders. While they don’t get the full “make whole” cost of the home, chances are they won’t get that anyway. First, the lender has to pay fees to foreclose on the property, evict the homeowner, maintain a vacant home and then sell it as a distressed property. In the end, they will generate less from that sale than the fair market value.
However, the government-backed Fannie and Freddie have refused.
While Coakley said the last straw came with the case of Suero v. Fed. Home Loan, filed in the U.S. District Court of Massachusetts. Here, the homeowner purchased an apartment in Boston for $300,000. It’s now worth about $100,000.
The homeowner fell behind on his payments, and Freddie filed a foreclosure claim. Then, a non-profit group that operates a mortgage buyback program stepped in with an offer to purchase the home for what Freddie deemed a fair price, with the intention of turning around and selling it back to the original homeowner. Freddie declined, insisting instead on the full $300,000.
A federal court judge responded by issuing a preliminary injunction against the foreclosure and sale of the property.
While Freddie’s new acting director has said he can’t comment on pending litigation, he indicated that other home loan modification programs offered by his agency can be just as effective as keeping borrowers afloat. He voiced concern that going along with efforts from these non-profits would prompt homeowners to default strategically.
It’s for this reason that many mortgage lenders require that short sales be conducted through “arm’s-length transactions,” wherein the buyer and seller don’t know one another. However, what the new law in Massachusetts did was indicate that banks couldn’t turn down a buyback program offer, so long as the nonprofit buyer was a reputable one.
Executives with the non-profit say because Fannie and Freddie are refusing participation, those in poor and minority neighborhoods are being disproportionately impacted.
Maryland has a similar anti-foreclosure statute, though it’s unclear whether state officials plan to also take legal action against Fannie and Freddie.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.
Massachusetts Sues Fannie and Freddie Over Foreclosure Law, June 2, 2014, By Shaila Dewan, The New York Times
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