Combating Predatory Lending

Freddie Mac's Efforts to Protect America's Consumers

Not all lenders that offer home financing to consumers play fair. In fact, some use unscrupulous practices to prey on people trying to achieve the dream of homeownership, or people struggling to hold on to their homes. These predatory lenders often target low-income, immigrant and elderly people as their potential victims.

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 directly opposes our mission, our goals and our practices. While we do not work directly with borrowers because we don't originate loans, we protect borrowers from predatory lending practices in many ways.

Freddie Mac has instituted the secondary market's most comprehensive set of measures designed to protect consumers from predatory lending practices. We're demonstrating our commitment to take action against abusive and predatory lending and to protect borrowers by:

• No longer investing in subprime mortgages originated on or after August 1, 2004, that contain mandatory arbitration clauses. This new policy allows homeowners to choose the mortgage dispute resolution forum that best suits their interests.
  
• Refusing to do business with financial institutions that engage in predatory lending practices.
  
• Requiring our Servicers to provide complete credit information about borrowers to all the credit bureaus and reporting agencies. This enables borrowers to turn their good payment histories into lower-cost mortgages.
  
• Refusing to invest in mortgages with the following:
  • Mortgages 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 Seller/Servicers to join our efforts by:

• Employing business practices that promote fair lending and servicing practices. Sellers and Servicers should not discriminate in any manner relative to lending and servicing practices due to a borrower's race, religion, sex, special needs, family status, sexual orientation, age, or national origin.
  
• Analyzing a borrower's ability to pay, stable monthly income, monthly housing expense, reserves and other liquid assets and information on how the borrower has paid obligations in the past, not on the value of the financed home.
  
• Using compliance analysis and software that detects high-cost or high-fee loans as defined by HOEPA.

Additionally, we're constantly evaluating as many legitimate alternatives to foreclosure as possible. To make this happen, we are:

• Delivering extensive training to Servicers all over the country on foreclosure alternatives and foreclosure management.
  
• Continually enhancing our tools and procedures to enable our Servicers 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.