AG Coakley Leads AG Coalition Calling for New Leadership over Fannie Mae and Freddie Mac
Letter from Nine Attorneys General to President Calls Agency an “Obstacle to Progress”; Stresses the Need for Principal Write-Downs to Help Struggling Homeowners
BOSTON – Calling Fannie Mae and Freddie Mac a “direct impediment to our economic recovery” by the continued refusal to give principal relief for struggling homeowners, Attorney General Martha Coakley and New York Attorney General Eric Schneiderman were joined by seven other attorneys general in a letter sent Friday calling for a new permanent leader to replace Edward DeMarco as Director of the Federal Housing Finance Agency (FHFA).
“Our nation’s economy will never fully recover until we address this foreclosure crisis,” AG Coakley said. “Fannie Mae and Freddie Mac have been an obstacle to progress for far too long, and it is time for new leadership and a new direction to ensure that homeowners receive the relief they deserve.”
The attorneys general argue that principal mark-downs are a central component of the national settlement, and continue to bring meaningful relief to distressed borrowers, spurring our nation’s economic recovery. In general, all loan modifications rely on a net-present value (NPV) analysis that serves the dual purposes of helping borrowers remain in their homes and meeting the economic interests of lenders and investors. The positive impact of mortgage modifications which often include principal write-downs continues to be felt on the housing market, economy, and our local communities.
FHFA's continued position that principal forgiveness conflicts with its goal of asset preservation is “not supported by reality,” the attorneys general assert in the letter.
“The agency’s current policy actually reduces the value of its holdings portfolio,” the letter states. “It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that keeps families in their homes than a portfolio of non-performing $250,000 mortgages headed toward default.
“We have worked tirelessly, along with our federal, state, and local partners to develop a multi-pronged approach to dealing with the foreclosure crisis,” the letter concludes. “Fannie Mae and Freddie Mac should be among our partners in this effort, and leaders in the arena of loan modification best practices. Instead, they have been an obstruction.”
This is not the first time AG Coakley has called for either new leadership or the implementation of principle write-downs by Fannie Mae and Freddie Mac.
In February 2012, AG Coakley urged FHFA to engage in loan modifications guided by a net-present value analysis to help stabilize the housing market and economy. Later in April 2012, AG Coakley and 10 other state attorneys general sent a letter to Director DeMarco seeking relief for homeowners and argued that the failure to implement principal loan forgiveness harms struggling homeowners and investors. In August 2012, AG Coakley sent a letter to Director DeMarco stating that Fannie Mae and Freddie Mac are required to offer principal reductions as a commercially reasonable tool under the new Massachusetts loan modification statute. The Massachusetts law, signed by Governor Deval Patrick on August 3, 2012, requires creditors to take commercially reasonable steps to avoid foreclosure upon certain mortgage loans.
Last month, while addressing the Citizens’ Housing and Planning Association (CHAPA), AG Coakley called for a new, permanent director of the FHFA.