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Illinois, New York Oppose FHFA Proposal to Boost Fees

State attorneys general of Illinois, New York and Connecticut criticized a Federal Housing Finance Agency proposal to increase lenders’ guarantee fees for mortgages in those states, asking FHFA Acting Director Edward J. DeMarco to scrap the plan.

The state legal officers today said they oppose allowing the U.S.-owned mortgage finance companies Fannie Mae and Freddie Mac (FMCC) to increase those fees in states with higher foreclosure costs and longer processing times than average. The FHFA in September proposed the higher fees, which compensate for the companies’ risks when they own or guarantee mortgages.

“The fee increase would impose a penalty on borrowers in states that offer greater statutory protections to homeowners in foreclosure,” the attorneys general wrote to DeMarco.

A copy of their letter was provided by the office of Illinois Attorney General Lisa Madigan. Signing with her were New York’s Eric Schneiderman and Connecticut’s George Jepsen.

New York, New Jersey, Connecticut, Florida and Illinois all have defaulted-loan carrying costs “that significantly exceed the national average,” according to the regulatory proposal.

“Mortgages originated in these highest-cost states would have an upfront fee of between 15 and 30 basis points, which would be charged to lenders as a one-time upfront payment on each loan acquired” by Freddie Mac and Fannie Mae (FNMA), under the plan.

2013 Target

After reviewing of public input, the agency will determine a “final state-level guarantee fee pricing method” and expects to direct Fannie Mae and Freddie Mac to impose the new fees next year, it said in its announcement.

Stefanie Johnson, a spokeswoman for the FHFA, didn’t immediately reply to a voice-mail request for comment on the states’ letter opposing the fee increase.

The cost of the fees ultimately will be borne by homeowners, the state officials said.

“The proposal neglects to take into account the potential benefits of rigorous foreclosure requirements, not just for distressed homeowners but for Fannie and Freddie and taxpayers as well,” the AGs wrote. “Statutory safeguards were put in place to prevent unnecessary foreclosures and provide homeowners every opportunity to save their homes.”

“We urge you to withdraw it,” they told DeMarco.

To contact the reporter on this story: Andrew Harris in Chicago at aharris16@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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