It doesn’t necessarily break any new legal ground, and it comes at what many agree is the tail end of the housing crisis, but the state’s new law requiring mortgage lenders to offer loan modifications does put yet another burden on banks.

The law was signed by Gov. Deval Patrick in early August, and has been pushed by him and Attorney General Martha Coakley in public appearances and letters to government-controlled mortgage finance companies Fannie Mae and Freddie Mac ever since.

The law, in Coakley’s words, “highlights the imperative of preventing unnecessary foreclosures.” It requires mortgage lenders to assess a borrower’s circumstances and determine whether the net value in changing a loan is more than the anticipated recovery from foreclosure. If so, the lender is required to offer a loan modification to the borrower.

In some cases, the state argues, creditors can get better returns from reducing mortgage debt than they can from foreclosure.

The language gets political, too.

In a letter, Coakley argued that the two government-owned mortgage financers are expected “to comply with these statutory obligations as they conduct business in Massachusetts. Specifically, we expect that Fannie Mae and Freddie Mac will pursue common-sense loan modifications for borrowers when the economic benefits of a modified loan exceed the significant losses anticipated at foreclosure. These loan modifications are critical to assisting distressed homeowners, avoiding unnecessary foreclosures, and restoring a healthy economy in our commonwealth.”

And the American Bankers Association isn’t going to be any help.

Last Resort

Few states – only Massachusetts, California and Maryland – have this type of state-level, anti-foreclosure laws on the books. ABA spokesman Ryan Zagone told Banker & Tradesman that “while lending is regulated at the federal level, foreclosure procedures are led by the states.”

The Massachusetts Bankers Association did not return phone calls seeking comment for this story.

“From a community bank’s perspective, it’s a step in the wrong direction,” Matthew Sosik, president and CEO of Webster-based Hometown Bank, told Banker & Tradesman.

Foreclosure is a time-sucking loser for community banks, and they’d rather not do it. But in mid-2012, it may remain the only option for troubled borrowers.

“Foreclosure is always the last resort,” Sosik said. “[But] the profile of the borrower that has reached foreclosure is such that foreclosure is the only option left, whether it’s lack of equity, employment or the ability to pay, and if the bank has a bad asset on the books, we have to convert that into an earning asset again.”

The law isn’t necessarily aimed at banks like Hometown. In public, Coakley has spent more time trying to put the new state rules in front of the likes of Fannie Mae and Freddie Mac.

But that doesn’t mean community banks get a pass.

The law, Sosik said, “is just an additional regulatory layer we have to navigate through. Of course we’re going to work with borrowers. Banks go through foreclosure, and nine times out of 10, the bank loses money. It’s not like we’re jumping at the opportunity to foreclose. A $50,000 loss is a material piece of our income statement.”

Coakley’s office estimates that more than 45,000 mortgage borrowers have lost their homes to foreclosure since 2007.