A proposal to ban federal lenders from purchasing mortgages in condos with deed-based transfer fees has community association leaders worried the ruling would lead to diminished operating budgets and severe disruption of the condo market. The proposed rule, originating with the Federal Housing Finance Agency (FHFA), would prohibit Fannie Mae, Freddie Mac and Federal Home Loan Banks from buying mortgages in community associations with deed-based, or private transfer fees.
Private transfer fees – typically one percent of the sales price and specified in the original condo documents – are fees paid when a condo or co-op unit is resold. They are paid from the purchaser to one of three groups: the community association, groups associated with the community association (like open-space land trusts), or third-party developers or investors. Transfer fees paid to the first two groups are generally seen as benefiting condominiums, while those paid to third parties are almost universallyscorned as wasteful.
Comment Period Over
A 60-day comment period on the rule ended in mid-October, and the FHFA is currently deciding whether to implement, scrap or revise the ban. FHFA General Counsel Alfred Pollardsays the agency will “move with deliberate” speed to come to a decision on the rule, but notes that a decision will not come anytime soon.
The FHFA argues the proposed rule is necessary because “encumbering housing transactions with fees that may not be properly disclosed may impede the marketability and valuation of properties and adversely affect the liquidity of securities backedby mortgages on these properties.”
Additionally, according to the FHFA, the fees can increase the cost of home ownership and “expose lenders, title companies and secondary market participants to risks from unknown potential liens and title defects.”