Proposed FHFA Regulation Affecting Community Associations
On August 12, 2010, the Federal Housing Finance Agency (FHFA) issued a news release unveiling its proposed guidance to restrict Fannie Mae, Freddie Mac and the Federal Home Loan Banks from investing in mortgages in communities with private transfer fee covenants
A private transfer fee covenant is a fee attached to real property, typically by the developer in the form of a deed or covenant restriction that must be paid each time the title to the property is transferred. The fee is usually a percentage of the sales price an is often used to fund the homeowners' association or project developments. Once private transfer fee covenants are implemented, they are very difficult to remove. Oftentimes, the community must obtain the consent of every property owner before such a covenant can be changed.
If enacted, the proposed regulation could have a huge effect on community associations that implement such fees. If Fannie Mae, Freddie Mac and the Federal Home Loan Banks cannot purchase mortgages for properties encumbered by private transfer fees from banks, then the banks will be reluctant to issue such mortgages to homebuyers. This inevitably leads to a decline in property values and an increased burden on homebuyers and sellers.
As of now, the FHFA has not disclosed if or when this regulation will go into effect. It is, however, soliciting comments and concerns from interested parties. Comments can be submitted by email to regcomments@fhfa.gov. Please include "Guidance on Private Transfer Fee Covenants, (No. 2010-N-11)" in the subject line of the message. Comments must be submitted by October 15, 2010.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Categories: Property Owners Association, Federal Regulations, Homeowners Association, Condominium Association, fees, Fannie Mae
Re: Guidance on Private Transfer Fee Covenants No. 2010-N-11
I recently became aware of the newly proposed FHFA guidelines that will adversely affect so many developers, property owners and homeowners, negatively impacting an already troubled economy.
Please consider the damage such repressive policies will surely cause if implemented.
I have taught economics for years and see these policies as a strong push toward more of a Command Economy with more and more government control of private property, taking away from Free Market elements of competition, variety and consumer choice.
These Capital recovery fees are critical to developers for liquidity and the ability to spread infrastructure costs over time. Capital recovery fees allow these costs to be shared rather than financed in whole by the first home buyer. Sharing these costs over time through capital recovery fees reduces the initial cost of the home. This also gives consumers a variety of choices. Since these fees are recorded, no consumer will buy a home with a Capital recovery fee in place without their knowledge and voluntary consent.
Many developers are struggling in this economy of tight money, capital recovery fees give more liquidity to these developers helping them remain in business where they continue to provide jobs in one of the most important economic sectors of the economy.
A home that sells 10 times in 99 years would have approximately 10% in capital recovery fees, but about 60% in realtor commissions. If there is so much concern about cost, perhaps you should address real estate commissions instead. At least the capital recovery fee benefits the property in some way.
Sincerely,
Smkay
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