Massachusetts Attorney General Martha Coakley’s June 2 Suffolk Superior Court civil suit against the Federal Housing Finance Agency, Fannie Mae and Freddie Mac comes right up against questions of who is at more moral hazard – those too big to fail or those too small to succeed.

The suit seeks to compel those agencies to abide by a 2012 Massachusetts law allowing nonprofit entities to buy distressed properties and then sell or rent them, at current market prices, back to the property owner. Fannie and Freddie refuse to accept principal reductions through sale to nonprofit entities trying to help borrowers in economically fragile areas stay in their homes. These borrowers were told that they could always refinance as prices rose – that was their version of equity. They were stopped dead as prices plunged after 2007. The beneficiaries, predatory lenders, took their gains with them and vanished.

Now comes the drive to help vulnerable neighborhoods rebuild equity by bringing financial commitments more in line with today’s lower market values. At the state level, various nonprofit agencies have stepped in, including Boston Community Capital and Coakley’s office’s HomeCorps program, which claims on its website to have reaped more than $63 million in principal reduction for Massachusetts borrowers.

To Fannie and Freddie, programs such as this incentivize borrowers to hit the reset button by deliberately going into default. But no matter: With the June 2 suit, Coakley’s initiative took on the nationals.

So, just for a minute, let’s look at the definition of “reset.” In 1992, Congress adopted legislation imposing affordable-housing quotas on Fannie and Freddie. As the mortgage market grew, so did the quotas. In 2002, when residential-backed mortgage securities were introduced, the RMBS market seemed like a good way to ease the growing liquidity pressure on Fannie and Freddie. So they rubbed the lamp, hit reset, and summoned the genie.

Coakley’s suit begins to take on the mission of getting a reluctant genie back into the lamp. RMBS Investors, given implicit assurances that the government would back the GSEs, want return on their investment (as did homebuyers in the vulnerable neighborhoods, by the way). Cutting the ROI tie is like touching the third rail for Fannie and Freddie, and the intervention of nonprofit entities seeking to reduce principal is clearly not welcome.

This despite the consequences of holding out for a full-market price recoup, which has its own carrying costs, including the cost of eviction, and maintaining the vacant property until it’s sold at auction.

Neighborhoods affected by predatory loans are clearly in need of recovery. The text of Coakley’s complaint cites the case Suero v. Federal Home Loan Mortgage Corp. According to news reports, Suero paid $283,000 for one floor of a three-family home in 2005; market prices for the other two units in the building now stand at $80,000. Seeing that disparity, it’s easy to understand why investors don’t want to cede their original loan amounts, and it’s just as easy to see why neighborhoods do.