FHFA proposes rule to prohibit GSEs from backing mortgages encumbered by private transfer fees

FHFA today 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. Transfer fees are contractual arrangements where an owner pays a fixed amount or a percentage of the sales price at the time of transferring the property.

Your Home Builders Association of South Carolina is carefully monitoring legislation that would restrict the use of private transfer fees in South Carolina.

The proposed Federal rule would allow private transfer fees paid to homeowner associations, condominiums, cooperatives, and certain tax-exempt organizations that use private transfer fee proceeds to benefit the property. However, fees that do not directly benefit the property would be barred.

Private transfer fees set up to benefit the developer, or investors in some instances, have become increasingly common around the country. The fees are controversial and in some cases have become an impediment to real property sales, according to the National Association of Realtors.

With limited exceptions, the proposed Federal rule would apply only prospectively to private transfer fee covenants created on or after the date of publication of the proposed rule. With this formal rulemaking, comments are again being solicited and are due 60 days from publication in the Federal Register. Regulated entities are required to comply with the final rule within 120 days after its publication.

To read the proposed rule, click here.