There’s been a lot of discussion over the last year or so about the negotiability of Fannie Mae and Freddie Mac promissory notes. The banking industry has been trying to convince courts that these notes, which total about $7 trillion in commercial paper, are a negotiable instrument.
Why is this so important to the banking industry? The bottom line is that if banks can’t convince the courts that these types of notes are negotiable, then it will be a lot more difficult for them to foreclose on a home and this is what they fear.
The history of negotiability goes back even further into the history books – which trace it to the Florentines and Venetians in the 12th and 13th century.
Like the charlatan weavers who tried to persuade the emperor he was wearing beautiful new clothing in Hans Christian Andersen’s famous tale, banks have spun a wonderful story about the negotiability of these notes. But their argument has begun to wear thin and that has the banking industry very concerned. So concerned that they have started to lobby supreme courts around the country.
Our legal system has been discussing the negotiability of a note since the time the nation was formed.
Ironically, many of the terms and conditions in the standard Fannie Mae and Freddie Mac promissory note have been deemed non-negotiable in other types of instances, whether it’s car loans, consumer loans, solar panel loans, or hot water heater loans. Why should banks be any different?