BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley announced on Friday that she has sent a letter urging Fannie Mae and Freddie Mac to engage in principal forgiveness and loan modifications for homeowners.
The leaders of Freddie Mac and Fannie Mae have expressed unwillingness to participate in programs for federal loan modifications, including the forgiveness of principal. In Coakley's letter to the acting director of the Federal Housing Finance Agency, Coakley insisted that the agency should permit principal forgiveness, directed by an analysis of net present-value, which would allow more loan modifications and would aid in stabilizing the economy and the housing market.
"More than five million people have lost their homes due to foreclosure in the past five years, and millions more on the brink of foreclosure, struggling to stay in their homes," Coakley said. "Fannie Mae and Freddie Mac should be a leader in the arena of loan modification best practices, not an obstruction. Fannie Mae and Freddie Mac should change course to serve both their own interests and those of the public and the economy."
Coakley's office has brought multiple actions against major financial institutions and banks with the goal of letting people keep their homes and avoiding foreclosures that are unnecessary. These include actions against Royal Bank of Scotland, Goldman Sachs, Morgan Stanley, Countrywide, Option One and Fremont, which all led to loan modifications that were meant to remedy unsustainable and unfair loans in the state. Coakley pointed out in the letter that loan modifications have allowed thousands of people in Massachusetts to stay in their homes.
The FHFA acknowledged that the principal forgiveness may help the long-term interests of taxpayers when compared to foreclosure by combining the goal of foreclosure prevention and asset preservation. According to the FHFA, fewer loan modifications have been put into place in September, October and November than any other month since November 2010, a trend that Coakley said should be reversed.
A comprehensive proposed settlement that would resolve allegations of servicing fraud with five major banks is anticipated to provide loan modifications featuring write-downs of principal valued in the billions. Coakley said that the discussions of the settlement have brought into focus the unwillingness of Freddie Mac and Fannie May to use write-downs or principal as part of their loan modification program programs and that the refusal will affect the ability of homeowners to get the relief they require.