Mark Winston Griffith
September 1: Countdown to Fannie/Freddie NY Public Betrayal
September 1, 2008. Mark it. That's the day New York State's monumental new anti-predatory lending law goes into effect.
It's also the day Fannie Mae and Freddie Mac say that they will stop purchasing subprime loans in New York.
Yep, you heard it right, the two GSEs that have been consistently made headlines over the past few months because of accounting scandals, their role in the subprime meltdown, and
A spokesman for the Federal Home Loan Mortgage Corp. (Freddie Mac) said the new statute, billed as a way to protect both borrowers and lenders and to prevent any future wave of foreclosures, takes away important controls the company had over borrowers.
'Our analysis indicated the new law added some 20 requirements that brokers and lenders had to adhere to in making these subprime mortgages,' said Brad German, a Freddie Mac spokesman. 'If they're not followed, that could be used in court to contest a foreclosure.'
The result, German said, is that 'any risk would be in the hands of agents and sellers we were not in a position to oversee.'
A statement issued by New Yorkers for Responsible Lending was more specific, pointing out that Freddie and Fannie were balking at "a a provision in New York’s new law that ensures the accountability of entities like Fannie Mae and Freddie Mac, which buy subprime loans on the secondary market."
As NYRL points out, the "accountability" that the law enacts is simply designed to give borrowers a minimum amount of legal recourse in the event they have been victimized by predatory lending:
Under the new law, liability for the purchaser of a loan – known as 'assignee liability' – is in fact very narrow. The only time a borrower can raise claims against the purchaser of the loan, or “assignee,” is when defending against a foreclosure. Borrowers can claim limited damages only, never to exceed the loan amount. In addition, the new law gives loan purchasers an “out,” enabling Fannie Mae and Freddie Mac to cure any violation of the law prior to foreclosure—at worst, they would have to modify a loan to make it affordable to the borrower.
This latest announcement by Fannie and Freddie is consistent with their record of opposing regulatory efforts to rein in the subprime mortgage industry. Given that there are far fewer subprime mortgages being made in New York State these days, it's unclear what the immediate impact of the Fannie/Freddie action would be. But at the very least, the refusal by Fannie and Freddie to support one of the most progressive responsible lending laws in the country could have a chilling effect on other states that are contemplating reforms of their own.
If Fannie and Freddie are not willing to cooperate with the most basic of consumer protections, then they are in violation of the public trust and should not receive another dime of tax payer money.