BluefoxToday blog : Private transfer fees experience the ire of FHFA

Private transfer fees experience the ire of FHFA

Silverstone Ranch, Las Vegas, NVIt looks like the Federal Housing Finance Agency - or FHFA - is getting ready to introduce new regulations later this year that would prevent Fannie Mae, Freddie Mac and the Federal Home Loan Banks - FHLBanks - from investing in mortgage loans tagged with these now notorious private transfer fees. This would then effectively bring major government-controlled home loan players in agreement about them, because FHA already is, according to HUD's regulations, banned from insuring mortgages on homes with private transfer fees. They are considered "legal restrictions on conveyance" in FHA talk.

These private transfer fees are brought to life by covenants attached to a deed that result in a payment to a third party every time a home is sold. The fee generally is 1% of the sales price and paid by the buyer, who may or may not know about it until he's sitting all excited at the closing table. Finding out about it typically elevates his blood pressure even further. Home builders are the ones who usually - but not always - would do this type of thing, giving them an additional, effortless revenue source for 99 years, the standard duration of the arrangement.

FHFA finds several problems with them. They hike home ownership costs up front, make property transfers more complicated and sometimes legally uncertain because regular title searches may not reveal their existence, particularly after multiple ownership changes. They can cause trouble elsewhere, too. Secondary mortgage market investors, lenders and title firms are vulnerable to possible hidden liens and title flaws.

The increased cost factor to home buyers and legal issues for mortgage industry participants are by themselves enough to cause concern. The other big issue is that the home builder who sets up the private fee structure does not provide any service or product to enable him to honestly earn the continuous stream of income. When it's finished with a subdivision, it's gone but would still collect for a long time money for free. Frankly, this seems to take us back to the creative instruments Wall Street not so long ago came up with that ultimately led to the current mortgage and real estate meltdown.

FHFA is on the right track to decisively curtail this from spreading any further. At the moment government entities control over 90% of the mortgage market, so its upcoming regulation will effectively put a stop to private transfer fees, for the good of consumers and the home loan and housing industries.




Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 11 commentsEsko Kiuru • August 23 2010 10:25PM


Esko, I have not encounter that around here, but I agree with the regulation if this is going on.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) about 10 years ago

You sound happy that the government controls your industry.

Did the FHFA find problems or did the NAR and ALTA spend millions of dollars to "help" them find baseless, unproven problems?


Posted by bob about 10 years ago

I always appreciate your great insight to issues related to housing Esko!  Thanks again!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) about 10 years ago

Thanks Esko. An unexpected 1 percent fee at closing can do more than raise blood pressure. Potentially, it could derail a transaction for a seller and buyer and put our economy one step behind.

Bob, if I may speak for Esko, I believe he was stating the facts about who is controlling the mortgage market currently and thus this measure could benefit the public. Not expressing an opinion over the merits of government control.

Posted by Kate Kate about 10 years ago

If one of these types of covenants does exist in the county records, I believe the TITLE agent is responsible for identifying and giving proper notification to the buyer.

This should NEVER be a surprise at the closing table if the TITLE agent does their job. The buyer would be fully aware and would negotiate the contract accordingly.

If not, the title agent is negligent.


Posted by Bob about 10 years ago


This transfer fee isn't widely used and this FHFA action will pretty much spell its total demise.

Posted by Esko Kiuru about 10 years ago


The real estate industry is better off without junk fees like this.

Posted by Esko Kiuru about 10 years ago


Appreciate your continuous encouragement.

Posted by Esko Kiuru about 10 years ago


I agree. This is another attempt to make money without any benefit to anyone, except the developer.

Posted by Esko Kiuru about 10 years ago

<!--StartFragment-->The reality is that Capital Recovery Fees represent a fair and equitable way to spread infrastructure costs over those who benefit.  Capital Recovery Fees typically take the form of a 1% fee, paid by the seller each time title to the property transfers, usually for 99 years. The fees are imposed by large-scale developers as a way to spread the significant costs associated with the installation of roads, utilities and other infrastructure over those who benefit.  These development projects create jobs and add to the tax base. <!--EndFragment-->

Posted by Greg about 10 years ago


I don't know about your argument.

Posted by Esko Kiuru about 10 years ago