AG Coakley Urges Fannie, Freddie to Further Expand Policies on Buyback Programs
Following FHFA Change of Policy, AG Considers Options for Appeal
BOSTON – Encouraged by the Federal Housing Finance Agency’s (FHFA) recent change in policy to partially engage in buyback programs through Fannie Mae and Freddie Mac, Attorney General Martha Coakley today urged the agency to further expand its policy in a letter today to FHFA Director Mel Watt. The reversal of FHFA’s position regarding buyback programs was a major component of the lawsuit brought by AG Coakley in June.
“We are pleased that FHFA now has agreed to reverse in part its position regarding buyback programs that were a major component of our lawsuit,” AG Coakley states in the letter. She further states “As encouraged as we are by this policy change, we believe it does not go far enough.”
FHFA’s new policy permits sales of real-estate owned (REO) properties to the former homeowner, or someone acting on the homeowner’s behalf, at the home’s fair market value as opposed to the “make-whole” amount.
However, AG Coakley believes that the new policy does not go far enough and suggested that the policy should:
Cover a larger inventory of houses
The new policy only works with the agency’s existing inventory of homes as of Nov. 25, the date of the announcement. Therefore, homeowners that are foreclosed on after Nov. 25 are not eligible for the new policy even if they qualify for financing and will not be allowed to repurchase their home at a lower price.
Include short sales
AG Coakley further asserted that the new policy does not cover pre-foreclosure property sales, also known as “short sales,” because the price paid by the purchaser is less than the outstanding mortgage balance. According to AG Coakley’s letter, there is no “principled reason” to limit the new policy because a short sale allows the agency to avoid the cost of foreclosure which is an enormous benefit to the homeowner and the surrounding community.
Consider principal reductions as a valuable and proven anti-foreclosure tool
As she has done several times in the past, AG Coakley also strongly urged the agency to reevaluate its policy on principal reductions, something that FHFA has refused to use as a proven and effective foreclosure prevention tool. According to AG Coakley, a loan that is modified so that the borrower can afford to stay in the home and continue paying the mortgage is generally more financially advantageous for lenders and investors when compared to foreclosure.
“FHFA should take this opportunity to reevaluate the effectiveness of its loss mitigation policies and adopt proven strategies, such as principal reduction and targeted buyback programs,” states AG Coakley. “These and other approaches are fully consistent with FHFA’s Congressional mandate.”