Coakley targets foreclosures

“The single biggest thing we can do to spur economic recovery is to address the foreclosure crisis,’’ Coakley said.

Attorney General Martha Coakley, calling the foreclosure crisis a key challenge to the state’s economic recovery, yesterday urged Massachusetts lawmakers to approve legislation meant to push more lenders into helping financially stressed homeowners save their homes.

Coakley testified before the Joint Committee on Financial Services in favor of a bill that would require lenders to modify certain mortgage loans when such agreements make more economic sense than property seizures.

“The single biggest thing we can do to spur economic recovery is to address the foreclosure crisis,’’ Coakley said.

“This bill proposes a reasonable means to achieve large-scale loan modifications for homeowners, allowing people to stay in their homes and avoiding the negative impact of increased abandoned properties in our communities.’’

Coakley spoke in support of legislation she filed in January with state Senator Karen Spilka, an Ashland Democrat, and Representative Steven M. Walsh, a Lynn Democrat. The proposed law, which they call An Act to Prevent Unlawful and Unnecessary Foreclosures, focuses on mortgage loans that are considered to be risky, including those with interest-only payment and adjustable rates.

The bill would require lenders to analyze a borrower’s financial information to determine whether modifying the loan to a more affordable payment would be more beneficial financially to the lender than going through the lengthy and costly process of taking the property through foreclosure. Many lenders already undertake such a study before deciding whether to foreclose, but the bill would permit homeowners to file a lawsuit if the process does not occur, according to Coakley’s staff.

The proposed law also would force lenders to prove they are the legal owner of mortgages before foreclosing, incorporating the findings of recent foreclosure-related decisions from the state’s Supreme Judicial Court.

“We need to make sure banks are dealing fairly with homeowners by providing all the proper documentation and taking reasonable efforts to avoid foreclosure,’’ Spilka said.

The legislation comes amid deepening concern that not enough is being done to help distressed homeowners around the country, preventing the housing market’s recovery by prolonging the foreclosure crisis.

In Massachusetts, more than 6,200 homeowners have lost properties to foreclosure this year, according to the Warren Group, a Boston company that tracks real estate.

Lenders worry that Coakley’s proposal would complicate an already lengthy property-seizure process, said Jon Skarin, director of legislative and regulatory policy for the Massachusetts Bankers Association. Since 2008, several new laws have increased the time it takes to foreclose, while also enhancing tenant protections.

“We want to ensure the process is balanced and doesn’t unnecessarily slow the foreclosure process,’’ he said. “In our view, the longer the process, the worse it is for everybody.’’