JANUARY 2004

No More Mandatory Arbitration for Freddie Mac Loans

In yet another attempt to deter predatory behavior on subprime mortgage loans, Freddie Mac has announced that, beginning August 1, 2004, it will no longer buy subprime mortgage loans that contain mandatory arbitration clauses. Paul Peterson, Freddie Mac’s chief operating officer, told Inside B&C Lending “Freddie Mac believes that all homeowners should be able to voluntarily choose the mortgage resolution option they believe to be in their best interests.” Noting that the U.S. Department of Housing and Urban Development, the Treasury Department and the Federal Trade Commission have all recommended that mandatory arbitration clauses be prohibited on high-cost mortgages, a Freddie Mac press release cited the “uneven” use of such clauses, and the concern that many borrowers may not realize what mandatory arbitration entails. Freddie Mac already prohibits such clauses in prime mortgages that it purchases.