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The Boston Globe

Opinion

PAUL MCMORROW

Can Freddie Mac skirt Mass. consumer law?

Ramon Suero left the Dominican Republic for Boston over a decade ago because he believes in the American Dream. That belief remains intact, even though Suero has spent the past three-and-a-half years in court, fighting government lawyers who are trying to kick Suero’s family out of their Dorchester home. Suero bought his tiny slice of Upham’s Corner a decade ago, but whether he gets to keep it largely hinges on two questions: whether state laws aimed at bringing Wall Street’s worst actors to heel can also protect Massachusetts residents from their own government, and whether government-controlled mortgage businesses are in business to save money, or exact revenge on foreclosed families.

Suero is the kind of borrower that subprime mortgage lenders got paid to exploit during the housing boom. In 2005, the notorious subprime lender Option One gave Suero a no-money down mortgage with an exploding interest rate — the kind of mortgage that brought down the entire economy. The loan allowed Suero, who was working two full-time hotel jobs, to buy a condo in an Upham’s Corner triple-decker. Massachusetts later sued Option One, alleging that the firm illegally steered high-risk loans to non-native English speakers and poor communities of color; the company paid a $10 million settlement.

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Suero refinanced into a vanilla loan that wound up in the hands of Freddie Mac, the nationalized mortgage investor. He fell behind on his loan due to a family illness, and, he and the local hotel workers union say, because he was fired for union organizing. Freddie foreclosed in late 2010. Suero has been fighting to get his home back ever since.

The fight has taken Suero from the Boston Housing Court to the federal courthouse on Fan Pier. An eviction battle has morphed into a tug of war over whether the federal government can exempt itself from Massachusetts’s consumer protection laws.

Boston Community Capital, a local nonprofit, runs a loan fund that works with foreclosed families. It buys foreclosed homes and sells them back to their former owners, stabilizing families and neighborhoods in the process. Boston Community Capital has cleared Suero to borrow the money he needs to buy his Upham’s Corner home back. The problem is, Freddie Mac refuses to sell to Suero and Boston Community Capital, or anyone like them.

Freddie Mac and its larger corporate sibling, Fannie Mae, won’t sell foreclosed homes back to their former owners unless they receive the full value of the foreclosed mortgage — sums that are normally well above what the properties are worth now. Fannie and Freddie will charge market prices to any other buyer of a foreclosed home. But to those properties’ former owners, they charge a foreclosure premium. This premium all but assures that foreclosed homeowners won’t stay in their homes.

Foreclosure is a costly proposition for any bank, but Fannie and Freddie are picking and choosing whom they’re willing to lose money to. This policy is not something any large commercial bank subscribes to.

Fannie and Freddie also refuse to sell to nonprofits like Boston Community Capital that work with foreclosed homeowners. So when Boston Community Capital put in repeated offers to buy Suero’s home out of foreclosure, they went unanswered.

A 2012 Massachusetts law makes it illegal for any lender to put stipulations on a sale to a nonprofit. The law was aimed at lenders who refuse to do business with firms that work with foreclosed homeowners, and Fannie and Freddie are by far the biggest offenders. Suero sued Freddie last fall for violating this law.

Freddie’s lawyers have already made noises about claiming that, since they’ve been federalized, they’re immune from the state law. Last summer, lawyers representing Fannie and Freddie successfully maneuvered out of a Chicago ordinance requiring them to register, and pay fees on, vacant foreclosed properties. So there’s clearly a chance that the Massachusetts law might fall to the same arguments about federal powers that knocked down Chicago’s foreclosure efforts. The bigger question is what Freddie Mac actually gains by sinking untold sums of money into a years-long legal battle to wrest an Upham’s Corner condo from a family that wants nothing more than to see Freddie get paid and walk away.

Paul McMorrow is an associate editor at Commonwealth Magazine. His column appears regularly in the Globe.

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