NEW YORK, NY August 27, 2008 —The nation's two largest secondary mortgage corporations, Fannie Mae and Freddie Mac, say they'll stop buying subprime mortgages in New York State. WNYC's Ilya Marritz has more.

REPORTER: The trigger was Gov. David Paterson's signature on a new law intended to help subprime borrowers about to lose their homes.

The law creates new recourse for borrowers, by extending some liability for predatory loans to the secondary mortgage companies that purchase them.

David Reiss is a professor at Brooklyn Law School.

REISS: If the originating lender had done something improper, the borrower can as a defense say, I was treated inconsistently with the law and that should be taken into account when considering how much money I owe or whether I own my house or not.

REPORTER: Fannie and Freddie say New York's law creates too much legal jeopardy for them, and they're forswearing new subprime loans entirely. It's unclear how many subprime loans they already own in the state. A spokesman for Paterson called their move "surprising."

For WNYC, I'm Ilya Marritz.