When Freddie Mac said that it would no longer buy subprime loans from New York because of a new homeowner-protection law there, I put in a call to Richard Neiman, superintendent of the New York State Banking Department. I thought to call him because just the week before we’d been talking about all the good things that new law is supposed to do, like getting rid of prepayment penalties and requiring lenders to make sure borrowers have a reasonable shot of paying back their loans.
One of the things we talked about was how, in this sort of environment, regulators and legislators need to balance consumer protection with preserving liquidity in the secondary mortgage market—that thing that helps more people get loans. Freddie Mac, which with Fannie Mae owns or guarantees 42% of the U.S. home loan market, said it would no longer buy subprimes from New York because the new law “creates the potential for heightened legal and business risk exposures for the purchasers or assignees of these loans.” I thought Housing Wire did good job capturing how this new law was a missed opportunity for reflection on the trade-off: “Apparently, nobody asked Freddie (and likely Fannie) for their opinion on the new law before it was passed.”
Except that they did. Freddie never said explicitly, but New York figured this sort of thing might happen. As more states gear up for legislation, it’s an interesting data point on what sorts of decisions might be made. You can listen to my conversation with Richard Neiman by clicking on this icon:
Barbara!
