The attorney general (AG) of Massachusetts, Martha Coakley has sued Fannie Mae ( FNMA ) and Freddie Mac ( FMCC ) for violating state anti-foreclosure law. The case, filed in Suffolk Superior Court, also named the Federal Housing Finance Agency, the U.S. regulator that oversees these two Government-Sponsored Enterprises (GSEs), as a defendant.
Fannie and Freddie are accused of not allowing properties to enter buyback programs even though prevention of such initiatives proves to be expensive for these GSEs. The AG alleged that two of the policies of Fannie and Freddie violate the Massachusetts law called 'An Act to Prevent Unnecessary and Unreasonable Foreclosures'.
One of them, the 'arm's-length transaction' forbids these GSEs from allowing the sale of properties to nonprofit organizations as these residential properties will again be sold to its previous owner. The second 'make whole' policy stops Fannie and Freddie from accepting anything less of the loan amount from the former homeowner or anyone else who is seeking to re-sell the property to the earlier owner.
These policies are preventing Massachusetts from averting foreclosures and save borrowers from distress. Notably, the above-mentioned lawsuit is just one of the numerous that the AG has filed to scrutinize controversial financial operations and see to it that the affected investors are compensated.
The AG has settled several lawsuits against major global banks including Bank of America Corporation ( BAC ), The Goldman Sachs Group, Inc., Morgan Stanley, The Royal Bank of Scotland Group plc, Barclays PLC ( BCS ) and JPMorgan Chase & Co. The settlements primarily pertained to overall mortgage lending practices prevalent in the state preceding the financial crisis.
Whatever be the outcome of the aforesaid case, the distressed homeowners should get some support to prevent foreclosures. This in turn will aid further recovery of the housing market.
Currently, both Fannie and Freddie carry a Zacks Rank #3 (Hold).
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