FHFA Proposes Ban on Wall Street Home Resale Fees

The ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA) has sided with consumer advocacy groups that say private transfer fee covenants, also referred to as Wall Street home resale fees, place a hidden financial burden on homebuyers and home sellers. Critics of such fees argue that they lower home resale values and add another layer of difficulty to selling or buying a home.

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FHFA sent a ""proposed rule"":http://www.fhfa.gov/webfiles/19675/PTFNPRTOFR020311.pdf to the _Federal Register_ on Tuesday, which would limit ""Fannie Mae"":http://www.fanniemae.com, ""Freddie Mac"":http://www.freddiemac.com, and the ""Federal Home Loan Banks"":http://www.fhlbanks.com/ from dealing in mortgages on properties the federal agency describes as ""encumbered"" by certain types of private transfer fee covenants. The rule would also extend to securities that have the controversial home resale fees attached to the underlying mortgages.

These fees are sometimes worked into the language of home purchase contracts and require that a percentage of the sales price be paid to the original owner or developer of the property every time the property is sold, typically for 99 years.

Last August, FHFA issued guidance recommending the GSEs be restricted from purchasing or guaranteeing mortgages or securities with private transfer fees. At that time, the agency said it was concerned that ""the fees fund purely private streams of income for select market participants and do not benefit homeowners.""

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In addition, FHFA warned that the fees expose lenders, title companies, and secondary market participants to risks from unknown potential liens and title defects.

The ""American Land Title Association"":http://www.alta.org (ALTA) issued a statement voicing its support of the proposed rule.

""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 ALTA. ""As an association representing companies that provide homeownership assurance, we applaud the FHFA for recognizing the threat private transfer fees pose to the safe and secure transfer of property.""

FHFA's proposed rule would exclude private transfer fees paid to homeowner associations, condominiums, cooperatives, and certain tax-exempt organizations that use private transfer fee proceeds to benefit the property. Fees that do not directly benefit the property would be barred, the agency said.

The rule would apply only prospectively to private transfer fee covenants created on or after the date of publication of the proposed rule in the _Federal Register_. FHFA is soliciting comments on the proposal over the next 60 days.

Already, private transfer fees have been restricted in 19 states: Arizona, California, Delaware, Florida, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, New Jersey, North Carolina, Ohio, Oregon, Texas, and Utah. Legislation is pending in at least six other states to ban these fees.

The ""Coalition to Stop Wall Street Home Resale Fees"":http://www.stophomeresalefees.com cites claims from ""Freehold Capital Partners"":http://www.freeholdcapitalpartners.com/, a firm whose direct business is private transfer fees, that there is $600 billion in real estate across the country subject to the fees. The coalition has requested the firm to release details to the public about where these properties are located and who receives the fees from them.