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No Binding Arbitration Allowed with Freddie Mac Loans
Thursday, 04 December 2003

FREDDIE MAC PROMOTES CONSUMER CHOICE WITH NEW SUBPRIME MORTGAGE ARBITRATION POLICY
Freddie Mac announced today that effective August 1, 2004, it would no longer invest in subprime mortgages originated on or after that date that contain mandatory arbitration clauses. Freddie Mac is the first among secondary mortgage investors to adopt such a stance on subprime mortgages with mandatory arbitration clauses. This policy is aligned with the corporation’s existing prohibition on the use of mandatory arbitration for prime market mortgage investments.

For Immediate Release
December 04, 2003
CONTACT: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
or (703) 903-3933
FREDDIE MAC PROMOTES CONSUMER CHOICE WITH NEW SUBPRIME MORTGAGE ARBITRATION POLICY

McLean, VA – Freddie Mac announced today that effective August 1, 2004, it would no longer invest in subprime mortgages originated on or after that date that contain mandatory arbitration clauses. Freddie Mac is the first among secondary mortgage investors to adopt such a stance on subprime mortgages with mandatory arbitration clauses. This policy is aligned with the corporation’s existing prohibition on the use of mandatory arbitration for prime market mortgage investments.

“Freddie Mac believes that all homeowners should be able to voluntarily choose the mortgage dispute resolution option they believe to be in their best interests,” said Paul Peterson, chief operating officer, Freddie Mac. “We remain committed to helping families build wealth through homeownership.”

While some lenders have improved consumer protections when employing mandatory arbitration clauses, practices in the subprime market are generally uneven. As a result, there exists the greater likelihood that borrowers may be unaware that they are agreeing to be bound by this dispute resolution mechanism. In addition, the Department of Housing and Urban Development, the Department of the Treasury and the Federal Trade Commission have recommended prohibiting mandatory arbitration agreements in the Home Ownership and Equity Protection Act (HOEPA) or for high-cost home loans. Moreover, Congress has recently chosen to prohibit the use of mandatory arbitration clauses in other commercial contexts.

In the past several years Freddie Mac has instituted the secondary mortgage market’s most comprehensive set of policies designed to protect consumers from predatory lending practices. These policies include banning the purchase of mortgages originated with single-premium credit life insurance; requiring the monthly reporting of borrower credit information; banning the purchase of mortgages with terms that exceed either the Annual Percentage Rate (APR) or the points and fees thresholds under HOEPA; and banning the purchase of subprime mortgages with prepayment terms that exceed three years.

Freddie Mac has several products and policies to fight predatory lending practices that are sometimes found in subprime mortgage lending.

For example, Freddie Mac’s Affordable Merit RateSM mortgage is a lower-cost alternative to subprime mortgages, and enables borrowers to more easily lower their mortgage rate as their credit improves.

The corporation’s award-winning anti-predatory lending program Don’t Borrow TroubleSM is active in states across the country. General information about the campaign is available on its website at www.dontborrowtrouble.com.

In addition, to help borrowers understand and better manage their credit so that they can qualify for a prime mortgage, Freddie Mac launched CreditSmart® and CreditSmart® Español. The consumer education curriculum can be found at www.freddiemac.com/creditsmart and in Spanish at www.freddiemac.com/creditsmartespanol.

 

Freddie Mac is a stockholder-owned corporation established by Congress in support of homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage passthrough securities and debt instruments in the capital markets. Over the years, Freddie Mac has opened doors for one in six homebuyers and more than two million renters in America.
http://www.freddiemac.com/news/archives/afford_housing/2003/consumer_120403.html
 

 
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