Federal Housing Agency Orders Halt to Home Resale Fees

By Mike Colpitts

U.S. mortgage giants Freddie Mac and Fannie Mae will be halted from providing mortgages on homes that hold home resale fees under a new federal mandate. The decision, ordered by the Federal Housing Finance Agency, which oversees both government backed lenders, was ordered late Tuesday.

Contract

It was contained in a proposal made to the Federal Register to begin formal rulemaking, which includes comments received on previously proposed guidelines. Home resale fees, also known as private transfer fees are contained in the legal underwriting of a property as part of the contractual agreements where an owner of a property pays a percentage of the sales price to an entity at the time of sale.

A Manhattan, New York based company, Freehold Capital Partners has been adding the transfer fees to housing developments it worked with real estate developers on as a way to provide financing for projects for a period of 99-years. State legislators have outlawed the fees in 19 states.

The company has tried to get Wall Street bankers to sell the covenants as securities, but none would reportedly entertain the possibility in the current “anti Wall Street” political environment.

Under the new mandate, Freehold will be halted from providing its services if developers intend to sell their projects with government backed mortgage financing through either Fannie Mae or Freddie Mac mortgages. The two government lenders currently provide about 90% of all U.S. mortgage financing. Freehold says there are $600 billion in U.S. real estate projects affected by its fees.

Kurt Pfotenhauer

A coalition of organizations has been lobbying for a halt to the transfer fees, including title companies, the National Association of Realtors and homeowners in an effort to provide consumers protection from the fees.

“FHFA’s decision enhances consumer protection and guards our fragile housing market from unnecessary financial risks,” said Kurt Pfotenhauer, CEO of the American Land Title Association.

Resale Fees are included in the small fine print of covenants that are rarely read by home buyers at the closing table, and can have a devastating impact on home sales. Free property advocates contend the fees defy the long-standing principle in real estate law that any covenant that burdens land must also benefit the land to infringe on homeowners’ property rights.