A new mortgage law in New York has prompted Freddie Mac to quit buying some loans in that state.
In a bulletin to sellers and servicers today, the secondary lender said that it will not purchase New York mortgages that are considered subprime under new legislation enacted earlier this month.
New York's Governor David A Paterson signed S.8143-A/A.10817-A on Aug. 2. In addition to requiring a 90-day notice before foreclosure proceedings may be initiated, the new law establishes a mandatory settlement conference for foreclosure proceedings involving some subprime borrowers.
The legislation also mandates a suitability standard requiring verification of income to determine the ability to repay the fully indexed loan, a state assembly statement said.
"The bill establishes an ability to pay standard requiring lenders to make a reasonable and good faith determination of the borrower's ability to repay the loan, including the principal, interest, taxes, insurance, assessments, points and fees," Paterson said in an announcement last week. "The duty of care feature of the bill requires brokers to act in the borrower's interest by presenting loans most appropriate for the borrower."
New York's State Banking Superintendent Richard Neiman called the new law "one of the strongest in the nation."
In today's bulletin, Freddie said it will not purchases New York mortgages that fall within the law's definition of "subprime home loans" on or after Sept. 1.
First mortgage loans are considered subprime if they exceed the average commitment rate by 1.75 percent, the assembly's announcement said. Subordinate liens are considered subprime if they exceed the average commitment rate by 3.75 percent.
Other subprime provisions of the bill include the prohibition of negative amortization, loan flipping and prepayment penalties; the mandatory escrowing of taxes and insurance; and the provisioning for assignee liability as a defense in foreclosure proceedings.