January 4th, 2013
Back in September, we mentioned that the feds were going to be buying up loans to lower rates, but that there were going to be new fees with FannieMae and FreddieMac mortgages. To sum up, FHFA wanted to charge higher fees on areas that were taking what they felt was too long to process foreclosures. The fee was expected to roll out between November 1 and December 1. Mortgage bankers expected this fee to be passed along to all new mortgages and refinances that were drawn up.
Yesterday, the Wall Street Journal published an analysis on how much pushback the FHFA is receiving from lawmaker, state attorneys general and consumer advocates over a proposal to raise fees on loans in five states where foreclosures take the longest (New York, New Jersey, Illinois, Connecticut and Florida).
The five states are “judicial” states where lenders must seek court approval before a foreclosure can be completed. This can make the foreclosure process take longer, and the FHFA says the delays cause Fannie Mae and Freddie Mac to lose more money on foreclosures in those states.
As of June, Fannie and Freddie guaranteed 159,000 mortgages in Florida that hadn’t made any mortgage payments in a year, representing more than 8% of all loans the firms back in the state, according to the FHFA. More than 4% of loans they guarantee in New Jersey, or around 40,000, hadn’t made payments in one year. By contrast, fewer than 1% of loans in California, which doesn’t require judicial foreclosures, had been delinquent for more than 12 months.
The industry groups state that the fees aren’t warranted, nor properly explained. In addition, consumer advocate groups state that this fee ignores reasons behind long foreclosures such as banks’ misconduct or failure to process foreclosures in a timely manner.
The agency’s proposal is “profoundly harmful for homeowners and will slow the recovery of the housing market,” said Natalie Bauer, a spokeswoman for Illinois Attorney General Lisa Madigan, a Democrat. The agency’s goal “is to force states like Illinois to roll back legal protections for homeowners going through foreclosure.”
Fannie and Freddie don’t issue mortgages but rather buy them from lenders, charging banks a fee that is designed to cover the cost of any defaults. In September, the FHFA sought public comment on a proposal to increase those fees, which can then be passed on to borrowers, by 0.15 to 0.3 percentage point of the loan amount in the five affected states. On a $200,000 mortgage with a 30-year fixed rate, the agency said, the higher fee could add between $3.50 and $7 to a borrower’s monthly mortgage payment.
The banks disagree that they are the throttle in the process.
Banks say foreclosures have slowed down in judicial states because of the volume of cases. Courts have “erred on the side of protecting borrowers, which up to a certain point makes sense. But when you’ve got a system going close to a three-year time frame, that’s crazy,” said John McWeeney, president of the New Jersey Bankers Association.
Lenders, however, also have been criticized for contributing to the delay.
Before the housing crisis, some lenders had outsourced most foreclosure work to a handful of law firms, a model that proved inadequate during the bust. Lawyers struggled to prove banks’ ownership of mortgages and sometimes cut corners, as evidenced by the robo-signing scandal where employees signed documents without properly verifying their contents.
Do you think the FHFA fees are punishing the wrong people?