Loan Modification

It’s been claimed that real estate worth $600 billion is encumbered by such fees. If that’s the case then a number of property owners are going to be very surprised.

With a private transfer fee a seller markets a property with a clause which says that for the next 99 years that 1 percent of an sale will be rebated back to the seller or his or her estate, heirs and descendants.

For Wall Street the exciting prospect here is that private transfer fees can be gathered up and used to create securities which can then be bought and sold, thus generating fees.

Unfortunately, the idea stinks. Why should a buyer 20 years from now pay a fee to a current seller for any reason? Why should an owner 20 years from now have a smaller sale benefit? And why would a buyer have an interest in a property with a private transfer fee when there are tons of properties without them?

The American Land Title Association reports that 19 states have banned the fees. Why 50 states have not banned such charges is an open question.

“New Jersey,” says the Association, “joins Arizona, California, Delaware, Florida, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, North Carolina, Ohio, Oregon, Texas and Utah in restricting the dangerous. On the federal level, the Federal Housing Finance Agency has issued a guidance that would prevent government-sponsored entities from investing in mortgages with these fees and Congresswoman Waters (D-CA) and colleagues have introduced the Homeowner Equity Protection Act of 2010 to ban the fees across the country.”

“As an association representing companies that provide homeownership assurance, we believe private transfer fees hinder the safe and secure transfer of property,? said Kurt Pfotenhauer, chief executive officer of ALTA. “These covenants are like a broken ATM machine, giving investors access to homeowners? hard-earned money.?

Well, okay, what about FHA loans?

The answer is that the FHA is far ahead of the game.

As HUD spokesman Lemar Woodey explained last summer, “Private transfer fees violate HUD?s regulations at 24 CFR 203.41, which prohibit ‘legal restrictions on conveyance,’ defined to include limits on the amount of sales proceeds retainable by the seller.

“HUD also requires lenders to convey clear marketable title in exchange for insurance benefits.”

The federal government is now moving to follow the FHA’s lead. This month it has announced that it had “sent a proposed rule to the Federal Register to begin formal
rulemaking on private transfer fees. This rulemaking, which addresses comments received on a previously proposed guidance, would limit Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from dealing in mortgages on properties encumbered by certain types of private transfer fee covenants and in certain related securities.”

The new rule should be in place during the next 60 days or so — too late for the $600 billion worth of real estate where such fees have already been established.

Full post as published by FHA Mortgage Guide on February 09, 2011 (boomark / email).