Blacklisted By Freddie Mac: How a Short Sale Can Mean a Long Road to Redemption for Real Estate Professionals

Hollywood. Railroads. Mining. You may have thought blacklisting was a forsaken part of America’s past, but if you’re reading this, you may be a victim of this devastating tool. Used by some of the largest and most influential institutions, blacklisting is alive and well, now cloaked in new terms and greater secrecy.

Birth of the Subprime Market.

2008 is an infamous year that still engenders anxiety in many Americans—especially amongst real estate professionals; it, of course, marks the precipitous collapse of the housing market, which threw the economy into turmoil.

The Federal Home Loan Mortgage Corporation (Freddie Mac) and The Federal National Mortgage Association (Fannie Mae), which are government-sponsored enterprises (GSE), operate under a mandate from Congress to provide, in-part, liquidity to mortgage originators through the purchase of their prime mortgages. The institutions subsequently retain the mortgages in their portfolio or bundle them into mortgage backed securities (MBS) to then be sold to investors. This is essentially how they operated—virtually cornering the market—until the early 2000’s, when the secondary mortgage market burgeoned with the increase of private-label companies seeking to capitalize on the subprime mortgage market. The GSEs began to compete with the private institutions for their respective profits and market share, and both sides enacted risky strategies. To satisfy the increasing demand for MBS, mortgage lenders and brokers used immoral tactics to easily place more families into homes, which increased the supply of subprime mortgages for MBS.

The subprime market frenzy often led to excited consumers taking on multiple mortgages, which they could never repay, and brokers overlooking any sense of reality in checking credentials and guidelines. People on all sides of loan transactions made mistakes and some people committed fraud along the way.

These practices would contribute to the sinking of the market, and in 2008, as the crash began to spiral out of control, the government placed the GSEs under a conservatorship to help stabilize the failing economy.

Freddie Mac’s Elusive Exclusionary List.

Every government meltdown requires an easy scapegoat for justice and punishment. After the government brought Freddie Mac back from the verge of imploding, it pressured the institution with a mandate to punish those involved in mortgage fraud. Freddie Mac aggressively implemented an “Exclusionary List,” which has no publicly known rules, regulations, or due process regarding how one gets on the list or how one gets off the list. One of the only transparent facts is that once on the “Exclusionary List,” a real estate professional is essentially blackballed from involvement in any financial aspect of the housing market and limited in business dealings with most banking, lending, and financial institutions.

Some real estate professionals have tried suing Freddie Mac, resulting in no success; Courts have ruled in favor of Freddie Mac, concluding that there is no right to conduct business with the institution.

So, how does a real estate agent get off the “Exclusionary List,” if at all possible? Freddie Mac provides a Post Office box address to send in requests and a real estate professional can apply for an appeal only once a year, posing a significant challenge and threat for many of those wrongly accused. While many professionals in the industry were able to dig themselves out of the depths of the housing market crisis, those on the “Exclusionary List” often are unable to move forward. Even with such an unfair and arbitrary process, Charapp & Weiss, LLP has successfully removed clients from the list and if you’re in this daunting situation, Charapp & Weiss, LLP has a few simple guidelines to help:

1. Demonstrate that you have changed, even if you did not do anything wrong; this means working with a professional to investigate what occurred and showing how you learned from whatever role you played in the alleged fraud.
2. Outline your education and any courses you have taken in real estate and ethics.
3. Show your commitment to the profession and any contributions to charities or the community.
4. Obtain personal and professional reference letters highlighting your character.
5. Provide a sworn personal affidavit, outlining necessary facts to demonstrate your willingness to provide statements under oath. The most important ingredient is to be forthright with the marshalling of the facts and evidence.
6. Provide a resume.
7. Provide your own FICO score to demonstrate your financial responsibility.

Removing your name from the list is hard but possible. Charapp & Weiss, LLP is located proximate to the Freddie Mac headquarters and can provide knowledgeable assistance in removing real estate professionals from the “Exclusionary List.”