Housing advocates say mortgage financers Fannie Mae and Freddie Mac are overreacting to a New York law the companies say creates new legal liabilities for investors who buy subprime loans.

The mortgage giants say that beginning Sept. 1, they will no longer purchase or securitize loans defined as subprime by a New York law that creates new consumer protections.

Fannie Mae announced on Aug. 21 that it would not purchase or securitize any mortgage loan that meets the definition of a subprime home loan under New York law, "regardless of whether any provision of the law is preempted by federal law with respect to a particular mortgage or for a particular originator." Freddie Mac officials have made similar public statements.

A spokesman for New York Gov. David Paterson told Newsday that the law’s anti-predatory lending provisions should benefit Fannie and Freddie, and officials with New York Acorn and the Manhattan-based Neighborhood Economic Development Advocacy Project were critical of the companies’ reaction to the legislation.

The legislation, which also seeks to help existing borrowers by slowing down the foreclosure process, was signed into law by Paterson on Aug. 5.

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