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Abstract

Beginning in the 1930s, the federal government adopted programs and policies toward safe and decent housing for all. The initiatives included the creation of the Federal Housing Administration that, among other things, spurred mortgage lending by guaranteeing mortgage loans to low- and moderate-income borrowers. The creation of the secondary mortgage market by Fannie Mae and Freddie Mac (GSEs) helped provide more liquidity for loan originators. However, somewhere along the way, these GSEs lost their way, as they pursued profitability without regard to risk and heedlessly bought mortgages without considering quality.

The overabundance of poor quality mortgages led to the housing market crisis in 2008, and the GSEs faced ruin when the millions of mortgagors who took out loans defaulted. When the federal government intervened to rescue the GSEs, a new mission and attitude emerged—not one of furthering housing, but of self-preservation. This new attitude was revealed in heavy-handed policies calculated to recoup losses, but not to keep borrowers in their homes. Legislation enacted in the wake of the crisis invested a federal conservator with draconian powers, seemingly unchecked by state law constraints on lenders’ remedies or notions of fairness. The mission became reducing portfolios by auction sales of the properties to investors, while the foreclosed owners had to pay the amounts owed on the mortgages to keep their homes. The impacts of these policies were felt disproportionately by minority borrowers who originally had been offered more onerous mortgage terms on the basis of inflated appraisals. Early attempts by state and local authorities to temper the GSEs’ hard march toward solvency were met with successful assertions of federal preemption. This Article explores these rulings and asserts that, rather than base challenges on subordinate state or local laws, a better and more viable course of action is through the assertion of co-equal federal laws.

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