Beginning July 16, Fannie Mae, Freddie Mac and the Federal Home Loan Banks will no longer be allowed to deal in mortgages on properties encumbered by private transfer fee covenants that do not benefit the property.
Under a final rule that has been sent for publication in the Federal Register, the government-sponsored enterprises can trade loans with such covenants only when the fees are paid to homeowner associations, condominium and cooperative associations and certain tax-exempt organizations that use the proceeds to manage the overall community.
Fees that do not benefit the property are subject to the new rule, which takes effect 120 days after publication, and would disqualify mortgages that contain private transfer fee covenants from being sold to Fannie Mae or Freddie Mac or used as collateral for FHLB advances.
The rule should put an end to controversial private fee covenants, which are contractual arrangements that require the purchaser and all subsequent buyers to pay a fixed percentage of the sales price – typically 1% -- for up to 99 years. At last count, 38 states have already banned the practice, which opponents say artificially and unnecessarily raises the cost of housing.
Sometimes known as “Wall Street home resale fees,” the levy often is included without the original buyer's knowledge. And when future purchasers are made aware of the charge, they often balk at the requirement, which can add $3,000 to the cost of a $300,000 house.
The 12 states which have yet to ban the fees are: Alaska, Connecticut, Georgia, Kentucky, Massachusetts, New Hampshire, New Mexico, Rhode Island, Vermont, West Virginia, Wisconsin and Wyoming.
According to the FHFA, it reviewed thousands of comments on the rule before making its long-awaited decision.
