The Federal Housing Finance Agency (FHFA) is proposing guidance that would restrict the government-sponsored enterprise (GSEs) from investing in mortgages with private transfer fee covenants.
The proposed guidance, which is available for public comment, would apply to GSEs Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBs).
The covenants affected by the guidance are often attached to a property by its developer, and require a transfer fee upon each resale of the property. Proponents of the fees say they are beneficial when used to fund projects that enhance community investments, but the FHFA said it is "concerned that the fees fund purely private streams of income for select market participants" with no benefit for mortgage borrowers.
"The private transfer fee covenants appear to run counter to the important mission of the housing GSEs to increase liquidity, affordability and stability in the nation's housing finance system," said FHFA acting director Edward DeMarco. "Encumbering housing transactions with fees that may not be properly disclosed may impede the marketability and the valuation of properties and adversely affect the liquidity of securities backed by mortgages on those properties."
FHFA has raised several concerns about the fees in congressional testimony, including the possibility they may have to increase the cost of homeownership and limit property transfers or render them legally uncertain. The fees are also feared to detract from the stability of the secondary mortgage market, especially if the fees end up securitized.
The FHFA also is concerned the fees may expose lenders, title companies and secondary market participants to risks from unknown potential liens and title defects. Additionally, the fees are feared to possibly contribute to reduced transparency for consumers, since sellers rarely disclose the fees.
The guidance proposed today would extend to mortgages and securities purchased by the FHLBs or acquired as collateral for advances, and to mortgages and securities purchased or guaranteed by the GSEs. A notice of proposed guidance has been sent to the Federal Register for publication.
Write to Diana Golobay.