The End of Mortgage Transfer Fees

Earlier this month the Federal Housing Finance Agency announced some proposed “guidance.” Their guidance suggests prohibiting “private transfer fees” on any mortgage funded by Fannie Mae or Freddie Mac. Many programs, including the oft-cited Freehold program, mandate a 1% fee that every home-seller must pay out of the final settlement for a given period of time. For the Freehold program, the fee lasts for 99 years. That fee goes to a trustee who then pays it out to various investors, sometimes including the developer.

The FHFA doesn’t want federal funding to support mortgages that support any private transfer fee programs. This could have widespread effect, as Fannie and Freddie, along with the Federal Housing Administration, are responsible for up to 95% of the national mortgage volume. 18 state legislatures have already restricted or banned the use of private transfer fees in one way or the other.

The catch is that the ban could extend to transfer fees that community associations across the country collect, and that could cause overall assessment rates to rise. The FHFA’s proposal is broad, reading: “even where such fees are payable to a homeowners association,” they are “likely to be unrelated to the value rendered and at times may apply even if the property’s value has significantly diminished since the time the covenant was imposed.” Local governments charge transfer fees whenever properties change hands and the money funds public services. Private transfer fees, on the other hand, are written into contracts by developers or property owners and require a payment to a private party on a resale.

Many homeowners associations or community non-profits have covenanted transfer fees written into resale agreements as well, and forcing those agreements out as well could mean a nationwide rise in any kind of homeowners’ association prices. And then there’s the argument that if these private transfer fees are helping to spur development and home sales in a market like this, why should we do anything to stop that?

What the government will ultimately do remains uncertain- but what the ripple effect will do to the housing market is no mystery.

Source: The Real Deal Online

Photo Credit: Sam Beebe

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