A national trade group representing the title insurance industry is lauding a proposed Federal Housing Finance Agency rule that would limit Fannie Mae, Freddie Mac and the Federal Home Loan Bank from investing in mortgages encumbered by private transfer fee covenants. "The FHFA took an important step by submitting a rule that limits the spread of this predatory scheme, which adversely impacts the stability of the housing and mortgage market," said Anne Anastasi, president of American Land Title Association. ALTA describes PTFs as "a new, controversial financial scheme" in which, the association contends, "developers, in consultation with Wall Street advisers, are attempting to add language to home purchase contracts requiring that a percentage of the sales price be paid to the original corporate owner of a property every time the property is sold, typically for 99 years." The fees, which include a securitization element, infringe on property rights, and require homeowners to pay a large fee to sell their homes, it said. FHFA's proposed guidance,originally published on Aug. 12, would apply to PTFs created on or after publication of the proposal. The guidance excludes fees paid to homeowner associations, condominiums, cooperatives and certain tax-exempt organizations that use PTF proceeds to benefit the property. The FHFA's guidance would cut off federally related funding or guarantees for the underlying mortgages that support PTFs. On Tuesday, the FHFA sent the proposed rule to the Federal Register to begin formal rulemaking. Comments are being solicited for the next 60 days. In its August guidance, the FHFA said it had concerns that private transfer fee covenants may: • Increase the costs of homeownership and reduce liquidity in both primary and secondary mortgage markets; • Limit property transfers or render them legally uncertain; • Detract from the stability of the secondary mortgage market if such fees will be securitized; • Expose lenders, title companies and secondary market participants to risks from unknown potential liens and title defects; • Reduce transparency for consumers because PTFs often are not disclosed by sellers and are difficult to discover through customary title searches. The most controversial version of a PTF arrangement is being promoted by Freehold Capital Partners of New York, according to The Washington Post. The Freehold program has attracted the participation of "thousands" of development projects worth "hundreds of billions of dollars" across the country, according to the Post. It imposes a 1% fee that must be paid by the home seller out of the settlement proceeds every time the house is resold during the next 99 years. The money flows from the closing to a trustee, who distributes shares of it to investors and in some cases, the developer, the Post said. At the state level, 19 states have bans or restrictions in place on PTFs, according to ALTA. Legislation is pending in at least six other states to ban the fees, the group said. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.