Business

Fannie, Freddie warned to follow Mass. loan law

Under a new state law, Fannie Mae and Freddie Mac must offer reasonable loan modifications to avoid foreclosing on some delinquent borrowers, Massachusetts Attorney General Martha Coakley said in a letter to the Federal Housing Finance Agency, which oversees the two government-sponsored mortgage giants.

The Massachusetts law, signed by Governor Deval Patrick Aug. 3, requires creditors to take “commercially reasonable” steps to avoid foreclosing on certain mortgages if by modifying the loan the lender would realize a greater return­ than it would in a foreclosure.

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The law also requires creditors to prove that they are the current mortgage loan holders, and forbids them from misrepresenting their mortgage holding status.

In the letter, Coakley said that the housing agency has consistently refused to reduce the principal owed by a mortgage holder to avoid foreclosure, and she urged it to reconsider.

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“We expect Fannie Mae and Freddie Mac, like all creditors, to comply with these statutory obligations as they conduct business in Massachusetts. These loan modifications are critical to assisting distressed homeowners, avoiding unnecessary foreclosures, and restoring a healthy economy in our Commonwealth,” Coakley said.

Stefanie Johnson, a spokeswoman for the Federal Housing Finance Agency, said, “We are reviewing the letter and will respond soon.”

Earlier this year, Coakley and 10 other state attorneys general sent a letter to Edward DeMarco, the agency’s acting director, arguing that its failure to use mortgage principal reduction was hurting struggling investors and homeowners.

D.C. Denison can be reached at denison@globe.com.
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