Freddie Stops Buying NY Subprimes

The nation's second largest mortgage finance company will stop purchasing loans in NY State that are considered to be “sub-prime�?.

By: John Noble

According to reports, the nation's second largest mortgage finance company will stop purchasing loans in NY State that are considered to be “sub-prime”. This comes on the heels of a law signed by Governor Paterson that holds mortgage lenders accountable for fraudulent actions taken during the loan process.

Beginning September 1st of this year, Freddie will stop purchasing loans that meet NY State's “sub-prime” definition. The company, based in McLean, Virginia, released press documents stating that they will only purchase mainstream, or “conforming” loans. Last week, Governor David Paterson signed legislation that tighten the noose on companies that are accused of “predatory lending”. The new law holds mortgage lenders accountable and liable for damages.

Freddie Mac, a government-sponsored entity, holds, along with Fannie Mae, nearly half of the $12 trillion in mortgage debt in this country. Both companies lowered their rates of loan purchases after posting huge 2nd quarter losses. According to critics of the decision, Freddie's new policies will affect homeowners that are trying to refinance their way out of current subprime loans, assisted by new federal government programs.

The National Community Reinvestment Coalition, is ``very troubled by Freddie Mac's announcement,'' according to David Berenbaum, executive vice president, who is afraid that, “In a market that doesn't have liquidity right now, it compounds the situation because it forces consumers to go to less responsible third parties.'' He and his group believe that homeowners will be hurt by the decision to withdraw sub-prime support.