The attorney general in Illinois is calling plans to increase guarantee fees on conventional conforming mortgages in her state unfair and wants borrowers in other states to continue footing the bill for Illinois’ higher cost of loan liquidation. She — along with her counterparts in other impacted states — is demanding that the plans be abandoned.
Federal Housing Finance Agency Acting Director Edward J. DeMarco said in September that geographic disparities in the cost of doing business results in Fannie Mae and Freddie Mac eating the higher cost of resolving defaulted mortgages in some states.
The FHFA regulates Fannie Mae and Freddie Mac.
The disparity effectively has borrowers in states where distressed expenses are lower subsidizing borrowers in high-cost states.
Five states — Connecticut, Florida, Illinois, New Jersey and New York — were identified as “clear outliers among states in terms of their default-related costs.”
So DeMarco disclosed plans to charge an up-front one-time fee of between 15 and 30 basis points in the egregious states.
But Illinois Attorney General Lisa Madigan has sent a letter to DeMarco demanding that he abandon the proposal — which she claims will unfairly penalize Illinois borrowers, according to an announcement Tuesday.
The letter, sent jointly with attorneys general in Connecticut and New York, indicated that the regulator’s proposal targets borrowers who live in “states that have enacted critical legal protections to safeguard homeowners in foreclosure.”
Madigan suggested that FHFA’s proposal makes it clear that the higher guarantee fees would be eliminated if the legal protections were to be rolled back by state lawmakers.
The trio of attorneys general claims that the proposal lacks evidence that the statutory consumer protections are the primary factors of higher foreclosure costs for Fannie and Freddie.
Madigan added that a known driver of foreclosure costs, “widespread mortgage servicer misconduct during the foreclosure process,” is ignored in the proposal.
“Ultimately, Madigan said the proposal amounts to a thinly disguised threat to compel the states to accept higher costs for borrowers in their states or dismantle important legal protections altogether,” the announcement stated.
