FREDDIE MAC'S MORTGAGE SHIFT PROTECTS CONSUMERS.

Byline: GREGORY J. WILCOX

Freddie Mac is one of the motors of the residential real estate market. The federally chartered company buys residential mortgages from lenders, bundles them into securities backed by those mortgages and sells them to investors.

So when the McLean, Va., company announced earlier this month that it would no longer invest in subprime mortgages typically issued to borrowers with credit problems that contained mandatory arbitration clauses, it didn't get a lot of attention. It's the first secondary mortgage investor to take this stance.

It's worth noting, though, and a lot of consumer groups did this past week.

Freddie Mac already had a similar rule in place for the prime market.

``A number of predatory practices have been seen from time to time in that market,'' said Freddie Mac spokesman Brad German.

The company notes that some lenders have improved consumer protections when employing mandatory arbitration clauses but practices in the subprime market are generally uneven. That means there is a greater likelihood that borrowers may be unaware that they are agreeing to be bound by this dispute resolution mechanism.

And it's the latest step Freddie Mac has taken to protect consumers from predatory lending practices such as including higher than anticipated fees or interest rates in these kinds of loans.

Consumer groups did not like the arbitration process for a variety of reasons. They include:

--The high cost of filing fees and other expenses associated with arbitration.

--Allowing arbitrators, who can be selected by the lender, to decide complicated financial cases without allowing the borrower a right to appeal.

--Limiting the availability of counsel and therefore eliminating traditional procedural protections.

``This country was founded on the principle that all Americans deserve their day in court. Predatory lenders have slipped in this clause to take away that fundamental right,'' Margot Saunders, spokeswoman of the National Consumer Law Center, said in a statement.

Steve O'Connor, vice president of the Mortgage Bankers Association, said that his group, which represents lenders, has not come out with an official response to the Freddie Mac action.

``Our general position is that it's worth having a variety of alternative dispute mechanisms but the important thing is that it's something that's both fair to the consumer and lender.''

Notes:

--Christmas came early for 75 kids who last Thursday received toys collected by firefighters and Realtors. The ``Sparks of Love'' event at the Southland Regional Association of Realtors' Van Nuys office featured a snow-making machine and Santa arriving on a fire engine.

The association made a $2,000 donation to aid in the purchase of the toys.

--Troop Real Estate Inc. has donated $60,000 raised at the company's first Adopt-A-School golf tournament to East Ventura County educations. The money will be used to advance technology in the classroom.

Gregory J. Wilcox, [phone]

greg.wilcox(at)dailynews.com