Freddie won’t buy loans dated on or after Sept. 1 that meet the state’s subprime definition, the McLean, Virginia-based company said today in a lender bulletin on its Web site. New York Governor David Paterson last week signed new foreclosure and lending laws that tighten legal protections for borrowers.
The legislation holds mortgage buyers like Freddie liable in ways that “we have no way of monitoring and preventing,” company spokesman Brad German said in a telephone interview.
One of the big problems with rectifying mortgage fraud perpetrated during the housing boom is that often the only people who could be held accountable, the mortgage companies, brokers and bankers who originated the loans, have closed up shop, disappeared or gone bankrupt. Even if they violated every lending law in the book, the borrowers have no recourse. Even if the loan was made fraudulently, they are still on the hook for the money. The investors, who bought the loans, have no liability for any loans they bought. They have no responsibility to check on the parties that originated the loans.
Now that New York is trying to inject a little responsibility into the mix, we’re seeing push back from the lenders. Freddie Mac has fired the first shot, but I’m sure there will be more coming.
I applaud the Governor for doing this, but he shouldn’t have to. The Federal Government has really dropped the ball here.