In the near future, nearly half of the United States could
experience increased mortgage fees. Ed
DeMarco, acting director of the Federal Housing Finance Agency (FHFA), announced
a proposal to change its standard practice of treating all states equally by
creating a new mortgage fee structure that varies by state. The way it works is that you will be charged
increased mortgage fees when purchasing a home if you live somewhere that uses
the judicial system to process its foreclosures.
DeMarco’s reasoning for the proposal is that foreclosures settled
in court cost the FHFA more time and money than foreclosures that are settled
outside of court. By padding mortgage
costs up front, he claims he’s reducing FHFA’s risk. Unfortunately, this complex fee structure misses
the target. It will not save time or
money or serve as a deterrent to servicers who pass the cost on to homeowners. Rather, it acts as a penalty for states that provide
a judicial outlet for grievances between homeowners and lenders. An analysis by HousingWire found that the judiciary process does not equate to a
drawn-out foreclosure. In fact, the
states with the slowest processing of delinquencies—Washington, Alabama, and Mississippi—do
not use the judicial process for foreclosures, while some of the states with
the fastest foreclosure processing—Iowa, New Mexico, and Minnesota—do use the
judicial process.
This proposed policy ignores the reality that servicers have
monetary incentives to drag out foreclosure proceedings. To truly address the issue of prolonged
foreclosures, the FHFA should focus on the way mortgages are serviced. DeMarco’s proposal will do little to change
the realities of the mortgage servicing sector.
Rather, the proposal will likely increase the cost of credit, leaving
communities of color and low- and middle-income communities with fewer credit options.
A plan to increase fees for states that provide judicial
recourse for delinquent homeowners fails to take into account the complexities
of the foreclosure crisis. If
implemented, it will affect the 21 states that are judicial, meaning that a substantial
number of future homeowners could be affected.
There is no need to punish a state for the protections it has put in
place to safeguard homeowners from wrongful foreclosures.
This pattern of thinking underscores the urgent need to hear from both presidential candidates on the matter of housing. How do they feel
about raising mortgage fees for specific states? Advocates and counselors in the trenches are
speaking out and have initiated a drumbeat for effective and proven approaches to processing foreclosures smoothly and repairing the housing market. They have long recognized that troubled
homeowners do not want to live in limbo, and that delays in the foreclosure
process range widely based on the random inefficiencies of servicers’
bookkeeping. With this recent proposal,
the FHFA has left us stunned yet again. This proposal signals a dismantling of the
judicial process and the protections it affords both homeowners and lenders. Rather than assist a true economic recovery
with a positive and lasting change, this proposal will further erode the
ability of many homeowners to get back on their feet.
One ray of hope is that the FHFA will soon open up this
proposal for comment. We strongly
recommend that homeowners, advocates, and stakeholders follow this comment
period very closely and be sure to submit their thoughts on where the FHFA
should actually devote its energy—that is, toward making aggressive changes in
servicing standards.
