Family Home and v. Federal Home Loan

I. BACKGROUND

Park Place operates a mortgage broker business initiating loan applications from prospective borrowers and presenting the applications to lenders for processing and potential fund- ing. National City Mortgage Company (“National City”), who is not a party to this appeal, processed and funded many of Park Place’s loan applications and sold the loans to Freddie Mac. Freddie Mac in turn would sell Participation Certifi- cates, or interests, in pools of loans to capital market inves- tors, or keep the loans for its own investment.

In December 2004, a capital market investor notified Fred- die Mac that some loans included in its mortgage pools were prepaying at a faster than normal rate, thus reducing the investor’s anticipated rate of return. Freddie Mac contacted National City to look into the pools with rapid prepayment rates, and both National City and Freddie Mac investigated the prepayment activity. Park Place had been encouraging its borrowers to apply for initial loans at a high interest rate, and then to engage in early refinancing, which resulted in a rising curve of rapid prepayment. These prepayments violated no law, and may have been in accordance with…