Washington, D.C. – The Federal Housing Finance Agency is proposing a guidance for public comment that would restrict Fannie Mae, Freddie Mac and the Federal Home Loan Banks from investing in mortgages with private transfer fee covenants. The guidance would extend to mortgages and securities purchased by the Federal Home Loan Banks or acquired as collateral for advances, and to mortgages and securities purchased or guaranteed by the Enterprises.
The covenants, often attached to property by a developer, require a transfer fee upon each resale of the property. FHFA has expressed concerns about the fees in congressional testimony and other statements. A Notice of Proposed Guidance that has been sent to the Federal Register for publication details these concerns and seeks public comment on the proposal.
"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 J. 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."
The Notice of Proposed Guidance describes concerns that private transfer fees may:
increase the costs of homeownership;
limit property transfers or render them legally uncertain;
detract from the stability of the secondary mortgage market, particularly if such fees will be securitized;
expose lenders, title companies and secondary market participants to risks from unknown potential liens and title defects; and
contribute to reduced transparency for consumers because the fees often are not disclosed by sellers and are difficult to discover through customary title searches, particularly by successive purchasers.
Although proponents of the private transfer fees advocate that they are beneficial when used to fund projects that enhance community investments, FHFA is concerned that the fees fund purely private streams of income for select market participants and do not benefit homeowners. Further, even if the fees are dedicated to homeowners associations, they are not proportional or related to the purposes for which the fees were to be collected.
"The risks and uncertainties for the housing market that come with the use of private transfer fee covenants do not appear to be counterbalanced by sufficient positive effects," said DeMarco. "We are seeking public comment before finalizing this guidance in order to identify and respond to any related issues or concerns."
The public comment period on the proposed guidance will remain open for sixty days after the Notice of Propose Guidance is published in the Federal Register.
Corinne Russell (202) 649-3032 / Stefanie Johnson (202) 649-3030