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Massachusetts AG Urges FHFA to Rethink Stance on Principal Reduction

Massachusetts attorney general ""Martha Coakley"":http://www.mass.gov/ago/ issued a letter Thursday to Fannie Mae, Freddie Mac, and their conservator, ""FHFA"":http://www.fhfa.gov/, reminding the agency and mortgage giants that they are required to offer reasonable loan modifications in the state and urging flexibility on principal reductions.


In a ""letter"":http://www.mass.gov/ago/docs/press/2012/08-23-12-fhfa-letter-re-loan-modifications.pdf addressed to FHFA acting director Edward DeMarco, Coakley outlines a law recently passed in Massachusetts that requires creditors to ""make commercially reasonable efforts to achieve a commercially reasonable loan modification.""

Coakley also urged DeMarco to reconsider his stance against principal reduction on GSE loans as a tool to avoid foreclosure. FHFA ""decided in July"":http://dsnews.comarticles/demarco-reiterates-stance-against-principal-forgiveness-program-for-gses-2012-07-31 not to implement the HAMP Principle Reduction Alternative after the agency concluded that principal reduction would be a poor option for the GSEs and for taxpayers.

""Although the Massachusetts statute does not expressly require creditors to offer principal reductions, it does advance the consensus that asset managers achieve higher recoveries when they employ a broad range of loss mitigation strategies, including the targeted use of principal reductions,"" Coakley wrote.

The attorney general also pointed to a Fannie Mae analysis on the effectiveness of principal reduction, which showed a 24 percent reduction in re-default probabilities compared to a modification with no principal forgiveness.

""This data demonstrates that, in appropriate cases, loan modifications providing principal forgiveness can help struggling homeowners avoid foreclosure, save taxpayers' money, and work to stabilized the housing market-all state goals of the FHFA,"" Coakley wrote.

The letter follows ""two"":http://www.mass.gov/ago/docs/press/2012/2012-02-02-letter-to-edward-demarco-re-fannie-mae-freddie-mac.pdf ""attempts"":http://www.mass.gov/ago/docs/press/2012/fhfa-letter-sent-april-11-2012.pdf earlier in the year by Coakley and other attorneys general to change FHFA's position. In a letter sent in February, Coakley said she was greatly concerned about the GSEs' failures to take more steps to prevent unnecessary foreclosures.

""More than five million people have lost their homes due to foreclosure in the past five years, and millions more are on the brink of foreclosure, struggling to stay in their homes. I believe resolving this foreclosure crisis is crucial to restore a healthy economy.""

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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