The Federal Housing Finance Agency is taking aim at homeowner protections in New York, New Jersey, Connecticut, Florida and Illinois, threatening to increase mortgage fees for loans backed by Fannie Mae and Freddie Mac in those five states unless local authorities speed up the foreclosure process. The FHFA claims that strong consumer protection laws increase lenders’ risk of loss. But these laws actually save money for homeowners, communities and lenders alike by encouraging affordable alternatives to foreclosure that keep families in their homes.
The Brennan Center and the National Consumer Law Center have filed joint comments to the FHFA. The Center for American Progress, Americans for Financial Reform, and numerous members of Congress also filed objections.
As the Brennan Center’s comments note, the FHFA’s guarantee fee proposal “creates a number of serious legal and practical concerns. First, this proposal takes authority and independence away from state courts and infringes on due process rights. Second, the proposal is arbitrary and capricious in its calculation of risk of loss. Third, if successful at weakening state consumer protections, the proposal would have a disparate impact on communities of color, which were targeted for unaffordable subprime loans and now have disproportionately high foreclosure rates, in violation of the principles of the Fair Housing Act and Equal Credit Opportunity Act.
“FHFA’s proposal also conflicts with the Agency’s underlying mission. [Fannie Mae and Freddie Mac] exist to serve the important purpose of promoting and preserving home ownership. The public interest, and the interest of taxpayers, is served by promoting measures to help families keep their homes; these measures also benefit lenders and investors by mitigating losses associated with foreclosure. Indeed, the FHFA has identified as one of its ‘three strategic goals for the next phase of the conservatorships,' that it will undertake activities to '[m]aintain foreclosure prevention activities and credit availability for new and refinanced mortgages.’ The [guarantee fee] proposal will accomplish precisely the opposite, by imposing costs on the states that have provided judicial protections to their citizens facing foreclosure.”