Freddie Mac dealt a blow to New York governor David Patterson's plans to ease mortgage stress in the state. Last week Patterson went to Queens, one of the areas in New York hardest hit by foreclosures, and signed legislation creating a category of subprime mortgages that enjoy certain protections from foreclosures and in some cases imposing criminal penalties on fraudulent mortgage lenders. This morning Freddie Mac announced that it simply won't purchase these loans.
Paul Jackson at Housing Wire reports:
Freddie Mac said the state's new definition of subprime, and the pending regulations tied to them, "creates the potential for heightened legal and business risk exposures for the purchasers or assignees of these loans." Spokesperson Brad German told Bloomberg News the legislation in New York holds lenders liable "in ways we have no way of monitoring and preventing."
Of course, this is creating an uproar over those who wish to suspend market processes by expanding homeownership without expanding default and exposure risk. But Housing Wire's sources suggest that numerous states and localities may wind up regulating themselves into a deeper housing mess by forcing lenders to exit rather than face ever-more burdensome risk in exchange for lower returns.
Freddie: Won't Buy New York Subprime Mortgages [Housing Wire]