FHFA Expresses Concerns Over Private Transfer Fee Covenants

Posted by Orb Staff on August 13, 2010 No Comments
Categories : Residential Mortgage

The Federal Housing Finance Agency (FHFA) 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 government-sponsored enterprises (GSEs).

The covenants, often attached to property by a developer, require a transfer fee upon each resale of the property. The FHFA is concerned 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.

‘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,’ says Edward J. DeMarco, acting director of the FHFA. ‘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.’

SOURCE: FHFA

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