Fannie Bars Mandatory Arbitration

Fannie Mae will no longer purchase or securitize loans with mandatory arbitration clauses starting Nov. 1, according to a new Fannie seller/servicer guide."While Fannie Mae does not believe arbitration provisions are inherently abusive, we believe that mandatory arbitration can be used in an abusive fashion," guide announcement 04-06 says. Fannie Mae is allowing one exception, however, if the loan contract contains a waiver that states that the arbitration requirements are "null and void" once the loan is sold or transferred to Fannie Mae. "The seller will provide the borrower with written notice of the triggering of the waiver within 60 days of the transfer or sale," Fannie Mae says. On Aug. 1, Freddie Mac stopped purchasing asset-backed securities whose underlying loans contain mandatory arbitration clauses. The Fannie Mae guide also alerts lenders that a Massachusetts predatory-lending law goes into effect Nov. 7 and that the secondary-market agency will not purchase home loans that the state classifies as "high cost."