AG Coakley: Fannie Mae and Freddie Mac Should "Change Course" and Allow Principal Loan Forgiveness for Homeowners
Current Position Prevents Many Homeowners from Receiving Relief
BOSTON – Concerned that the refusal by Fannie Mae and Freddie Mac to engage in principal forgiveness and loan modifications for struggling homeowners is slowing the nation’s economic recovery, Attorney General Martha Coakley has sent a letter urging Fannie and Freddie to reverse this stance.
Leaders of Fannie Mae and Freddie Mac have expressed an unwillingness to participate in federal loan modification programs, including principal forgiveness. In a letter to the acting director of the Federal Housing Finance Agency (FHFA), AG Coakley insists that the FHFA should allow for principal forgiveness, guided by a net present-value analysis, which would increase loan modifications and help stabilize the housing market and economy.
“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,” wrote AG Coakley. “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.”
AG Coakley’s office has brought numerous actions against major banks and financial institutions with goal of keeping people in their homes and avoiding unnecessary foreclosures. These include actions against Fremont, Option One, Countrywide, Morgan Stanley, Goldman Sachs and Royal Bank of Scotland which all resulted in loan modifications designed to remedy unfair and unsustainable loans in Massachusetts. In the letter, AG Coakley points out that these modifications have helped thousands of people stay in their homes in Massachusetts.
The FHFA has acknowledged that principal forgiveness can serve the long-term interests of taxpayers when compared to foreclosure by combining the goal of asset preservation and foreclosure prevention. According to the FHFA’s own reports, fewer loan modifications have been implemented in September, October and November 2011, than any other month since November 2010. AG Coakley says in her letter that this trend must be reversed.
In addition, a comprehensive proposed settlement resolving allegations of servicing fraud with five major banks is expected to provide loan modifications featuring principal write-downs valued at billions of dollars. AG Coakley says that those discussions have brought into focus the unwillingness of Fannie Mae and Freddie Mac to use principal write-downs as part of its loan modification programs, and that their refusal will impact the ability of many homeowners to get the relief that they need.