BOSTON — A federal judge has dismissed a lawsuit filed by Attorney General Martha Coakley against the Federal Housing Finance Agency and mortgage giants Fannie Mae and Freddie Mac, saying the court doesn't have oversight of the matter.
Coakley sued the agencies earlier this year for refusing to comply with a state law designed to ease the tide of foreclosures in Massachusetts.
Coakley said Fannie Mae and Freddie Mac violated a 2012 Massachusetts law allowing the sale of homes in foreclosure to nonprofit organizations who intend to restructure the loan and sell the property back to the original homeowner.
U.S. District Court Judge Richard Stearns dismissed the lawsuit, saying federal lawmakers have "expressly removed such conservatorship decisions from the courts' oversight."
"However well intended the stated goals of programs like the SUN Initiative, Congress has removed from the purview (of) the court the power to second-guess the FHFA's business judgment," he wrote, referring to the Stabilizing Urban Neighborhoods initiative, a buyback program by the nonprofit Boston Community Capital.
Brad Puffer, a spokesman for Coakley, said she's weighing her options.
"We brought this case to protect Massachusetts homeowners facing foreclosure, help stabilize communities, and to give all families the protection provided by state law," Puffer said in a statement. "It's a shame that this decision puts Fannie and Freddie out of the reach of our law and that's why we are seriously considering an appeal."
Coakley, a Democratic candidate for Massachusetts governor, had argued that the state law has worked in Massachusetts.
"It just makes sense to take action that will continue to keep people in their homes," Coakley said when she filed the lawsuit in June. "It makes commercial sense. It makes financial sense, and it's frankly the law and not to do it is really unfair."
The 2012 state law explicitly forbids banks and lenders from refusing to consider offers from legitimate buyback programs merely because the property will be resold to the former homeowner.
Critics of the Massachusetts law have argued that allowing homes to be sold back to homeowners who were unable to maintain their original mortgage would create a "moral hazard" by essentially allowing the homeowner to benefit from a bad contract.
But Coakley has said that argument is outdated given that the state is still trying to dig out of the foreclosure crisis.
Charlie Baker, Republican gubernatorial candidate, has criticized Coakley, saying she didn't do enough to disclose that the lawsuit could benefit a nonprofit housing agency run by her campaign finance committee co-chair Elyse Cherry, who also donated to Coakley's campaign and is the CEO Boston Community Capital.
Coakley said those contributions were public. She faulted Baker for refusing to say whether he supported the lawsuit.
In the complaint, Coakley had alleged two of FHFA's policies violate state law. One, intended to keep Fannie and Freddie in an "arm's-length transaction," prohibits property sales to nonprofits who resell to the original homeowner. A second "make whole" policy prevents Fannie and Freddie from accepting anything less than the outstanding loan amount from the former homeowner or anyone seeking to resell or rent to the former homeowner.