Edward DeMarco, acting director of the Federal Housing Finance Agency, said Fannie Mae and Freddie Mac need to increase the fees they charge to guarantee mortgages in states where it's costlier for them to deal with bad debt.
That doesn't bode well for New York, which is among states that extend added protections for borrowers in danger of losing their homes.
It takes an average of 56.3 months, or almost five years, from a missed payment to the liquidation of a mortgaged property in New York, according to JPMorgan Chase & Co. That's about three years longer than in Arizona, where judicial reviews aren't needed for foreclosures and court-supervised workout negotiations aren't mandated.
The extra costs could be offset with upfront charges of 0.1 percentage point to 0.2 percentage point of loan amounts, the bank's analysts estimate.
"From a private investor standpoint, it makes complete sense to us" to vary fees by region, said Bryan Whalen, co-head of mortgage bonds at Los Angeles-based TCW Group Inc., which oversees about $130 billion.
Florida, New Jersey and Vermont also could face increased loan rates once lenders start passing on the new fees being considered at Fannie Mae and Freddie Mac, which are meant to compensate for state and local policies that increase losses on defaulted loans. Court-supervised foreclosures add legal expenses, and longer timelines bring more property taxes, insurance and potential maintenance costs.
The change would represent "a major shift" in Fannie Mae and Freddie Mac policy, "which for decades aimed to smooth out regional disparities in mortgage credit pricing and availability," said Adam Levitin, a professor at the Georgetown University Law Center.
DeMarco is already facing criticism from lawmakers and homeowner advocates for refusing to allow Fannie Mae and Freddie Mac to reduce principal balances for troubled borrowers. The new policy invites further scrutiny as he tries to reform the companies.
