A coalition of real estate and consumer groups is pressing federal regulators to ban the use of "private transfer fees" that require home sellers to pay a percentage of the sales price to third parties.
Developers can hide transfer fees in covenants or homeowners association documents, according Kurt Pfotenhauer, chief executive of the American Land Title Association.
This transfer fee (usually 1% of the sales price) has to be paid every time the property is sold over a 99-year period.
Sixteen states have restricted resale fees. The Federal Housing Administration has ruled PTFs violate its rules.
"Mortgage lenders are well aware of the risks these fees would pose to their insurance benefits, and therefore, private transfer fees have not had an impact on FHA programs to date," according to a letter FHA officials issued in March.
For several months ATLA and the National Association of Realtors have been urging the Federal Housing Finance Agency to ban these transfer fees on mortgages purchased by Fannie Mae and Freddie Mac.
FHFA acting director Edward DeMarco recently told a congressional panel he is "very troubled" about the fees. But the agency is still investigating the implications of private transfer fees on the GSEs and the housing finance system.
The ALTA CEO said PTFs have been around for several years but it is difficult to estimate their penetration.
These transfer fees have to be paid even in cases where mortgage is underwater and seller is losing money. If Fannie forecloses on a property and sells the REO, Fannie has to pay the fee.
"It will cause problems for Fannie and Freddie and their ability to manage their portfolios," Pfotenhauer said.
