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In shift, Fannie Mae agrees to sell foreclosures back to former owners

Yawu Miller
Yawu Miller is the former senior editor of the Bay State Banner. He has written for the Banner since 1988.... VIEW BIO

In a policy change that could have profound implications for struggling homeowners, the nation’s largest mortgage holders, Fannie Mae and Freddie Mac, have agreed to allow homeowners who have lost their homes to foreclosure to buy their properties back at current market value.

The policy change comes after years of lobbying by nonprofits and housing activists fighting foreclosures across the country.

“This will have a huge impact for us,” said Maureen Flynn, Executive Director of the Coalition for Occupied Homes in Foreclosure. “We’ll still be negotiating with them about the principal, but this is a huge game changer.”

When the nation’s real estate market hit the skids in 2008, after mortgage companies and investors drove up prices through speculation and outright fraud, many homeowners in Boston were stuck with mortgages that far exceeded any reasonable valuation of their homes.

As many of those mortgagees went into default and faced foreclosure, many housing activists settled on principal reduction — writing down the value of the loan — as a preferred policy prescription to bail out homeowners and stabilize neighborhoods wracked by foreclosures.

Bankers balked, arguing that agreeing to write-downs would set a bad precedent and persuade more homeowners to default on their mortgages. And the nation’s two largest mortgage holders, the federally-chartered Fannie Mae and Freddie Mac corporations, flatly refused to entertain the notion.

Founded in 1938 as part of the New Deal program, Fannie Mae was chartered by Congress to stimulate the housing market in the United States. The organization buys mortgages from banks and mortgage companies, freeing those entities up to write more mortgages. The Federal Home Loan Mortgage Corporation — known as Freddie Mac — was founded in 1971 to compete with Fannie Mae and further stimulate the home loan market.

Both agencies are considered government-sponsored enterprises — 79 percent of their shares are owned by the government. Together, they own half of all mortgages in the U.S.

When the real estate market crashed in 2008, sending the U.S. economy into a tailspin, blacks and Latinos were hit particularly hard. Median wealth for blacks dropped 53 percent. For Latinos, median wealth dropped by 66 percent.

In Massachusetts, 67,000 homes went into foreclosure between 2005 and 2014. Nearly half of those homes are still bank-owned.

Fannie Mae and Freddie Mac’s move to allow homeowners to re-purchase their homes is a game changer, according to anti-foreclosure activist Grace Ross, but much work remains to be done.

“The question of selling back homes at present-day values is not straightforward,” she said. “In some areas we’re seeing a new, ungrounded ramp-up in property values. We’re seeing speculators buying up properties and renting them.”

As was the case in the early part of the last decade, investors are buying up housing stock, creating what Ross says is a speculative bubble. Homeowners may have a hard time paying the current market value for their homes at a time when triple-deckers in South Boston and Somerville are selling for more than $1 million.

“The market has gotten so distorted,” Ross said. “Those are not the real prices.”