Fannie Mae Challenges Predatory Lending Laws

Fannie Mae (Federal National Mortgage Association) has riled consumer advocates seeking low home mortgage interest rates and fees for low-income borrowers. The issue arose in California, where Fannie Mae has sought exemption from the state's laws designed to curb "predatory lending." According to Patrick Barta's article in the Wall Street Journal, consumer activists accuse Fannie Mae of hurting efforts to crack down on lenders that charge high interest rates and fees to low-income consumers. In response, Fannie Mae argued that it imposes its own standards to discourage predatory lending and it "It doesn't want to be caught in a confusing patchwork of state laws." Recently, Fannie Mae wrote a letter to the governor of Georgia seeking exemption from a restrictive bill designed to curb predatory lending. Since Fannie Mae is the largest mortgage lender in the state, its exception would affect a major portion of the home mortgage business. Political backlash prompted Fannie Mae to withdraw its request and support passage of the original bill.

To some extent Fannie Mae (as well as Freddie Mac) are caught between consumer advocates who want low interest rates and fees and their shareholders, who seek growing profits based on mortgage rates that properly reflect the risk of the borrowers. And, Fannie Mae has taken steps to counter some of the tactics of "predatory" lenders. For example, in 2000, Fannie Mae announced that it would not buy mortgages having fees and points exceeding 5 percent of the loan value. It also banned single-premium life insurance policies, and it set guidelines on prepayment of mortgages.