NEW YORK, Oct 22 (Reuters) - A federal judge has dismissed a lawsuit brought by Massachusetts Attorney General Martha Coakley that accused mortgage finance giants Fannie Mae and Freddie Mac of violating a state law meant to prevent financially troubled residents of the state from losing their homes.
Filed in June, the lawsuit said Fannie and Freddie blocked a state program that let Massachusetts nonprofit groups buy foreclosed homes and resell them to the original homeowners.
The lawsuit said Fannie and Freddie stopped such buybacks on homes that the two groups either owned or guaranteed, citing policies that prohibit them from selling a home when the original borrower has the first right to buy it.
Coakley’s lawsuit also named as a defendant the Federal Housing Finance Agency (FHFA), the conservator for Fannie and Freddie. The agency directed the two government-controlled companies to enforce the home-sale restrictions.
In an order on Tuesday dismissing the suit, U.S. District Judge Richard Stearns said the 2008 U.S. Housing and Economic Recovery Act, passed to address the housing crisis, curbs courts’ power to “second-guess” the FHFA’s business judgment.
The act expressly prohibits courts from taking any action to restrain the functions of the FHFA as conservator, Stearns said.
Fannie Mae spokeswoman Callie Dosberg declined comment. A spokeman for Freddie Mac did not immediately respond to requests for comment. An FHFA spokesman declined comment.
In a press release announcing the lawsuit, Coakley said Fannie and Freddie had been “roadblocks to progress” in addressing the foreclosure crisis.
Coakley, a Democrat, is in a close race with Republican businessman Charlie Baker for Massachusetts governor. Brad Puffer, a spokesman for Coakley, said she is considering all options, including appeal.
“We brought this case to protect Massachusetts homeowners facing foreclosure, help stabilize communities, and to give all families the protection provided by state law, even if they happen to have a loan held by Fannie Mae or Freddie Mac,” he said in a statement.
The lawsuit accused Fannie and Freddie of violating a state foreclosure law proposed by Coakley and approved in 2012 that prohibits creditors from blocking home sales to nonprofits solely because the property would be resold to the former homeowner.
Originally filed in Suffolk Superior Court, the lawsuit was removed to U.S. District Court in Massachusetts in July.
The case is Commonwealth of Massachusetts v Federal Housing Finance Agency et al, U.S. District Court, District of Massachusetts, No 14-12878 (Reporting by Dena Aubin; Editing by Kevin Drawbaugh and David Gregorio)