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FHFA restricts GSEs from purchasing mortgages with private transfer fees

Tuesday, April 3, 2012

The Federal Housing Finance Agency (FHFA) has set a final rule limiting Fannie Mae, Freddie Mac and the Federal Home Loan Banks from dealing with mortgages on properties saddled 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 when transferring the property.

The National Association of REALTORS® has long been vocal in its opposition to private transfer fees. "As the leading advocate for homeownership and housing issues, NAR applauds the Federal Housing Finance Agency for issuing a final rule to restrict Fannie Mae, Freddie Mac and the Federal Home Loan Banks from investing in mortgages encumbered by private transfer fee covenants," NAR president Moe Veissi said in a statement.

Typically, the fees are used to cover expenses related to property improvements that benefit all property owners in a development. In recent years, however, there have been efforts to charge fees solely to generate income for developers without reinvestment of the proceeds into the property. NAR also contends there is virtually no oversight on where or how the fee proceeds can be spent, on how long a private transfer fee may be imposed, and this often places an inappropriate delay on the transfer of property.

"FHFA believes that some private transfer fees have a legitimate place in real estate markets and should therefore be exempted from the rule; however, FHFA must ensure that the fees paid are reasonable and fully disclosed to home buyers well in advance of closing and that there be some direct benefit to the home owner," added Veissi.

The final rule does not apply to 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 are subject to the rule, and would disqualify mortgages on the property from being sold to Fannie Mae or Freddie Mac, or used as collateral for Federal Home Loan Bank advances.

"The Silicon Valley Association of REALTORS® joins NAR in fully supporting the FHFA's decision to ban private transfer fees," said Suzanne Yost, president of the local trade association. "Transfer fees increase the cost of home ownership, provide no benefit to home buyers, and do little more than generate revenue for developers or investors."

The GSEs and the Federal Home Loan Bank have until July 16 to enact the rule, which will apply with limited exceptions to transfer fee covenants created after February 8, 2011, the date the FHFA released its proposed rule. Regulated entities are required to comply with the final rule within 120 days after its publication in the Federal Register, or by July 16, 2012.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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