Freddie Mac Creates Tools to Combat Predatory Lending

Not all lenders who offer home financing to consumers play fair. In fact, some use unscrupulous practices to prey on people striving to achieve the dream of homeownership, or struggling to hold on to their homes. Predatory lenders often target and victimize low-income, immigrant and elderly people.

Freddie Mac's mission is to expand opportunities for homeownership to individuals and families in America. We help people purchase homes they can afford and keep. Predatory lending is in direct opposition to our mission, our goals and our practices. Although we do not work directly with borrowers (because we don't originate loans), we help protect borrowers from predatory lending practices in many ways.

We also offer our Seller/Servicers tools and resources to join in the fight against predatory lending, such as:

Mortgage products for lenders that help borrowers with past credit issues

• Affordable Merit Rate®
• Lease-Purchase Plus

Tools for mortgage servicers to help borrowers avoid foreclosure

• EarlyIndicator®
• Workout Prospector®

We're also protecting borrowers by:

• No longer investing in subprime mortgages originated on or after August 1, 2004, that contain mandatory arbitration clauses. This new policy protects consumers from predatory lending practices and allows homeowners to choose the mortgage dispute resolution option that best suits their interests.
• Refusing to do business with financial institutions that engage in predatory lending practices.
• Requiring our business to provide complete credit information about borrowers to all the credit bureaus and reporting agencies.
• Refusing to invest in mortgages with the following characteristics:
  • Originated in connection with single-premium credit insurance.
  • High-rate or high-fee mortgages covered by the Homeownership and Equity Protection Act of 1994 (HOEPA loans).
  • Subprime mortgages with prepayment penalty terms that exceed three years, for all subprime mortgages originated on or after October 1, 2002.

We're urging our Seller/Servicers to join in the effort by:

• Employing business practices that promote fair lending and servicing practices. Sellers and Servicers must abide by the law and not discriminate in any manner relative to lending and servicing practices due to a borrower's race, religion, sex, special needs, familial status, age, or national origin.
• Analyzing a borrower's stable monthly income, monthly housing expense, reserves and other liquid assets and information on how the borrower has paid obligations in the past.

For Servicers, we're also continually evaluating our servicing guide to make it clear that we want to pursue as many legitimate alternatives to foreclosure as possible. To this end, we're also

• Delivering extensive training to Servicers all over the country on foreclosure alternatives and foreclosure management.
• Continually enhancing our systems to enable our Servicers and ourselves to better manage our delinquent loans.
• Providing incentives to our Servicers for processing alternatives to foreclosure.
• Utilizing Electronic Default Reporting to enable us to more effectively gather, control, and analyze our delinquency data – which helps spot problems and point the way to new solutions for America's borrowers.