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Massachusetts sues Fannie Mae, Freddie Mac

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Massachusetts on Monday filed a lawsuit against mortgage finance giants Fannie Mae and Freddie Mac, accusing them of violating state law by blocking "foreclosure buyback programs" intended to help poor residents keep their homes.

In a foreclosure buyback program, a non-profit organization buys a foreclosed property and then resells it back to the original owner at a more affordable price. Massachusetts passed a law in 2012 prohibiting creditors from blocking such programs.

The lawsuit, filed in Suffolk Superior Court on Monday, alleges Fannie Mae and Freddie Mac have failed to comply with the law because they have policies that prohibit property sales to non-profits that resell to the original homeowner.

The lawsuit also names the Federal Housing Finance Agency, the regulator for Fannie and Freddie.

"It makes no sense for our federal government to stand in the way of this work to help struggling families stay in their homes, and it is illegal for Fannie and Freddie to do this in Massachusetts," the state's attorney general, Martha Coakley, said in a press release announcing the suit.

"For too long, Fannie and Freddie have been roadblocks to progress in addressing this foreclosure crisis, and I urge them to immediately reverse their policy on this common-sense program," she said.

Coakley said she had approached Fannie, Freddie and the FHFA on several occasions before filing the suit, asking they do more to prevent home foreclosures and abide by Massachusetts state law on buyback programs.

Officials at Fannie Mae and Freddie Mac were not immediately available to comment. The FHFA declined comment.

By Reuters

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.