Home buyers who live in judicial states like Florida and Illinois are going to end up paying more for their mortgages because foreclosures in their states take longer to process.
You heard right. That’s the bottom line of new fees recently proposed by the Federal Housing and Finance Administration. In a brilliant analysis, “Easing Distress on the Horizon,” John Burns’ Senior Research Analyst Adam Artunian exposed the twisted logic that only someone working for the Treasury Department could dream up.
“It is clear that the judicial foreclosure process has interfered with the housing recovery. Designed to protect homeowners, it has done the opposite (unless you consider allowing people to live for free a good thing). Now, those who live in judicial foreclosure states are going to pay more for their mortgages than those who do not,” Artunian writes.
Because judicial states’ foreclosure procedures result in higher foreclosure costs and delays than other states, the FHFA, which oversees Fannie Mae and Freddie Mac, announced in September additional fees on loans made in judicial foreclosure states.
- Mortgages would have a new, upfront fee of 15 to 30 bps.
- That fee would be charged to lenders as a one-time fee, paid up front, for every loan Fannie or Freddie acquires.
- It’s estimated that for a borrower with a 30-year FRM of $200,000, the monthly mortgage payment will increase by $3.50 to $7.
The FHFA has selected Connecticut, Florida, Illinois, New Jersey, and New York (all judicial states) for the new fees. The fees would be charged to lenders as a one-time upfront fee for every loan Fannie or Freddie acquires. FHFA said that the wide variations among states in the costs the GSEs incur from mortgage defaults are attributable to three factors:
- The length of time needed to secure marketable title to the property;
- Property taxes that must be paid until marketable title is secured, and
- Legal and operational expenses during that period.
Twenty one states have costs above the national average and several have costs above those in the five targeted states, however it appears to be the time frame that is driving the disparity.
So guess who pays these fees? Not the states that are causing the delay not the politicians that passed the laws. Nor the lenders who collect them. They’ll pass them along to homebuyers who may not have a clue what’s going until they get to the closing table where the joke is on them. Of course, they will be grateful to learn the good news is that the fees can be rolled into their mortgage and cost them only a few bucks each month. They won’t even notice that they are paying the excessive carrying costs for someone else’s foreclosure, costs resulting from ill-conceived laws that have extended the pain of the Foreclosure Era for homeowners in the 23 judicial states. In fact, if they buy within the next three years, they will experience some of that pain themselves as they wonder why their home isn’t appreciating as quickly as their friends and family members in non-judicial states.