Magazine article Mortgage Banking

Fannie Mae No Longer Investing in Mortgages Containing Mandatory Arbitration Clauses

Magazine article Mortgage Banking

Fannie Mae No Longer Investing in Mortgages Containing Mandatory Arbitration Clauses

Article excerpt

EFFECTIVE OCT. 31, 2004, FANNIE MAE NO longer invests or accepts delivery of residential mortgage loan products that contain mandatory arbitration clauses.

According to Fannie Mae Announcement 04-06, Fannie Mae issued, among other things, new instructions to lenders outlining the policies for purchasing and accepting residential mortgage loans. Specifically, the instructions included a prohibition against purchasing or accepting delivery of residential mortgage loans containing mandatory arbitration clauses. A limited exception exists, permitting the use of mandatory arbitration provisions in mortgages that contain a waiver provision. The waiver provision shall provide that if the loan is sold or an interest in the mortgage loan is transferred to Fannie Mae, the mandatory arbitration clause becomes null and void.

Fannie Mae stated in its announcement: "[O]ur standard security instruments do not include language that provides for arbitration, and our authorized changes to those documents do not permit the addition of arbitration language. The Selling Guide further states that a mortgage that is subject to arbitration--regardless of whether the arbitration language has been added to the security instrument or is part of a separate agreement--is not acceptable under our standard terms. …

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