Do Foreclosures Cost Too Much?

January 3, 2013 at 7:44 am Leave a comment

imagesIt should surprise no one who has attempted to foreclose on residential property in New York State that the state has arguably the most expensive and time consuming process in the country.  In a proposal floated in September, the FHFA requested comment on an initiative it is considering that would charge higher guarantee fees imposed by Fannie Mae and Freddie Mac on mortgages purchased in New York and the four other states that have “exceptionally high” foreclosure costs.  This morning’s Wall Street Journal is reporting that the agency is facing increased push-back on this idea.

Traditionally, these guarantee fees are set on a national level with regional variations not taken into account.  But statistically, in the 23 states that mandate judicial or court-involvement in the foreclosure process, foreclosures tend to be more expensive.  A look at some of the comments received on the initiative confirms what the Wall Street Journal is reporting.  According to the agency’s methodologies New York has the highest foreclosure costs in the country, followed by Florida, Connecticut, New Jersey and Illinois.  These five states been targeted as the states where the foreclosure process and resulting costs of handling property is so expensive that higher fees need to be charged to cover the costs.  New York lenders would be charged a guarantee fee representing an additional 30 basis points on a residential mortgage.  According to New York’s Department of Financial Services, on a $400,000 30-year fixed-rate mortgage this could result in an additional fee of approximately $5,000 for the life of the loan.  In addition, the Chairmen of both the Assembly Banks and Judiciary Committees wrote a letter criticizing the agency for not taking into account that New York’s foreclosure protections actually decreased the number of foreclosures and, they argue, hold servicers and lenders accountable for their malfeasance.  Finally, CUNA points out that this proposal will have its greatest impact on smaller lending institutions that are going to be more sensitive to the increased cost of providing mortgages.

All of these are valid points, but it’s about time that legislators on both the state and national level recognize that every additional requirement imposed on the foreclosure process increases the cost of providing mortgages in New York State.  It may be that the benefits outweigh the costs, but it is good to see that someone is willing to point out that the costs are real and have to be taken into account when figuring out the best approach to increased delinquencies.

Entry filed under: New York State, Political, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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