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PRESS STATEMENT
For immediate release: For more information:
Monday, August 25, 2008 Josh Zinner or Sarah Ludwig, 212-680-5100 NEDAP DENOUNCES FANNIE MAE AND FREDDIE MAC’S ATTEMPTS
TO GUT NEW PROTECTIONS FOR NEW YORK HOMEOWNERS
NEDAP blasted Fannie Mae and Freddie Mac today for their recent announcements that they will no longer purchase subprime loans in New York State, as a blatant attempt to undermine critical homeowner protections contained in the state’s newly enacted responsible lending law. NEDAP called on the Government Sponsored Enterprises (GSEs) to retract their decision before the law goes into effect on September 1.
Ultimately at stake is a provision in New York’s new law that allows subprime borrowers with illegal and abusive loans to raise defenses in foreclosure, and ensures accountability of subprime loan purchasers.
“Fannie Mae and Freddie Mac are trying to strong-arm New York into gutting this vital protection,” said NEDAP Co-Director Josh Zinner. Zinner called the GSEs’ response “a scare tactic intended to intimidate lawmakers into weakening our responsible lending law. Fannie and Freddie have worked for years to block sound lending regulations at every level.”
Under the New York 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 loan purchaser, or “assignee,” is when defending against a foreclosure. The risk for loan purchasers is further limited by the fact that borrowers can claim limited damages only, never to exceed the loan amount. Moreover, the law affords loan purchasers an “out” that would enable 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.
Freddie and Fannie are really saying that they do not want to be accountable for loans they purchase, despite the fact that the new law contains balanced protections to ensure that loans they buy are sound,” said NEDAP Co-Director Sarah Ludwig. “Without assignee liability, borrowers with illegal and abusive subprime mortgages would have zero recourse in a foreclosure action, and protections in the law would be toothless.”
By lobbying aggressively to gut any substantive regulation of subprime lending, and by purchasing hundreds of billions of dollars of risky mortgages without adequate due diligence, the GSEs bear considerable responsibility for the current mortgage meltdown. The lack of regulation and accountability that resulted from their lobbying efforts spurred the huge increase in abusive lending, which is at the very root of the subprime crisis.
“The truth is that New York’s new subprime lending law is as good for Fannie and Freddie as it is for New York borrowers,” Ludwig said. “The law restores sound, common sense underwriting standards to the marketplace. The secondary market will be purchasing more stable subprime mortgages, which will in turn restore market confidence for investors and the public alike.”
The impending public bailout of the GSEs will put tens of billions in taxpayer dollars at risk. “Fannie and Freddie cannot continue to put the quarterly profits of shareholders above their public mission,” said Zinner. “The authorized public bailout of the GSEs gives them even greater public responsibility, making their baseless attack on New York’s responsible lending law particularly galling.”
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NEDAP, an economic justice resource and advocacy center, has been at the forefront of
combating abusive and discriminatory lending practices in New York City and State.
For more information, please visit www.nedap.org.
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