Fannie, Freddie Accused Of Requiring Financially Strapped Homeowners To Waive Legal Rights As Condition To Getting Loan Modifications

The Washington Independent reports:

• When the government announced in November that it would use mortgage giants Fannie Mae and Freddie Mac to streamline loan modifications for possibly hundreds of thousands of borrowers, officials billed the idea as a fast-track program to fight foreclosures. What no one mentioned is that homeowners would have to sign away their rights to sue, if they wanted to get those loans modified.(1)

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• [I]ncluded in the Fannie agreement is a provision stating that “borrower has no right of set off or counterclaim or any defense to the obligations of the Note or Security Instrument.”

• The waiver is part of the borrower requirements that must be signed for the loan modification. Fannie Mae’s sample version is available on one of its websites; the Freddie Mac agreement, which has similar language, can be accessed only by servicers. The agreements were designed by Fannie and Freddie.

• In plain English, the waivers mean a borrower can’t sue the lender who originated the mortgage if the loan modification goes bad, or for any other lending abuses concerning their loan, [senior policy counsel for the Center for Responsible Lending Julia] Gordon said.(2)

For more, see Freddie, Fannie Force Borrowers to Waive Legal Rights (Housing Advocates, Congressional Leaders Call Practice Abusive).

(1) Requiring borrowers to waive their legal rights in order to get loans modified has become an increasingly popular tactic as the housing crisis has worsened, said Ira Rheingold, executive director of the National Association of Consumer Advocates. He said consumer attorneys regularly advise clients not to sign modification agreements with waivers, or to cross out the waivers first. “It wasn’t invented by Fannie and Freddie,” Rheingold said. “I’m not surprised it’s in there, but I’m disappointed. It’s a real issue. The government shouldn’t be asking people to waive their rights to claims.”

(2) Gordon said that a House Financial Services Committee hearing in July featured a dramatic confrontation, in which Countrywide representatives denied requiring the waivers - until she produced a copy of one from her briefcase. The lenders said they would put the waivers under review. Committee Chairman Barney Frank told them to put the waivers “six feet under” review, and to end the practice.