Following in the footsteps of Freddie Mac (FRE), Fannie Mae (FNM) said earlier this week that it would no longer purchase subprime loans fitting New York State’s new definition for the credit class. The decision by both GSEs to exit subprime loan purchases in New York comes on the heels of new legislation designed to protect borrowers from predatory lending practices. “Fannie Mae will 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 for a particular mortgage or for a particular originator,” senior vice president Michael Quinn wrote in a seller bulletin dated Aug. 19. Quinn suggested that New York’s new definition of subprime falls under what the GSE sees as “high-cost” or “high-risk” home loans, and said that Fannie has had a long-standing policy of not purchasing such loans for securitization or for its retained portfolio. See the full letter. Fannie’s announcement comes after an Aug. 12 announcement by Freddie Mac which also said the GSE would not purchase subprime mortgages within New York state. Freddie Mac said the state’s new definition of subprime, and the pending regulations tied to them, “creates the potential for heightened legal and business risk exposures for the purchasers or assignees of these loans.” At the time, HW’s sources suggested that the move was part of broader movement by lenders not to provide money under perceived onerous terms; Time magazine’s Barbara Kiviat scored an interview with superintendent of the New York State Banking Department Richard Neiman, however, in which he said the state was prepared for such a move. One of HW’s sources didn’t buy Neiman’s bluster, however. “Fannie and Freddie didn’t purchase a lot of subprime, as he suggests, but it’s also true that the GSEs are the only game in town right now,” said the source, a bank executive. At least one subprime lender is still making loans in New York State, as far as we know: the Federal Housing Administration. Which makes for an interesting twist: a state government passes tight restrictions and new liabilities for lenders making “subprime loans” within the state, and the federal government then becomes the only lender willing to make such a loan. Disclosure: The author was long FRE when this story was published; indirect holdings may exist via mutual fund investments, as well. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.