If you had any doubt that the ongoing coup by bankers and their allies was proceeding apace, the latest story from Shahien Nasiripour of the Financial Times should settle all doubts.
The pink paper reports that Fannie and Freddie’s regulator, the FHFA, plans to
punish impose surcharges on borrowers in states like New York because foreclosures take longer there. This is the excuse, erm, rationale:
US borrowers in states where home foreclosures are costly and time-consuming will have to pay more for their mortgages, the top housing regulator has proposed.
Lenders originating new loans in New York, New Jersey, Illinois, Florida and Connecticut will be forced to pay US-backed mortgage giants Fannie Mae and Freddie Mac up to 30 basis points extra for their credit guarantee, the Federal Housing Finance Agency said in its proposal.
The fee would probably be passed on to borrowers. The agency said the surcharge would compensate for the increased cost of repossessing homes in the five states, costs ultimately borne by US taxpayers.
And the FHFA was open in that its aim was to put state law on its Procrustean bed:
“If those states were to adjust their laws and requirements sufficiently to move their foreclosure timelines and costs more in line with the national average . . . the fees imposed under the planned approach would be lowered or eliminated,” the FHFA said.
Now the reality, of course, is more complicated. The two mortgage insurers have refused to crack down on foreclosure mills despite overwhelming evidence of their failure to comply with long-established state law requirements. When the robosigning scandal broke, many judges in judicial foreclosure states started taking borrower challenges to servicer standing more seriously. New York’s courts instituted a requirement that lawyers submitting documents in foreclosures certify that they had taken reasonable steps to certify their accuracy. This might sound like a belt-and-suspenders requirement, but from a procedural standpoint, it made it easier for borrower’s counsel to seek sanctions if he though the bank’s attorney was playing fast and loose. And indeed, as we’ve documented, foreclosures ground to a near halt after the certification requirement was instituted.
Conversely, in Florida, the idea that protracted foreclosure times are the product of overly cumbersome court requirements is largely a crock. We’ve been reporting for well over a year that delays in foreclosures in Florida are driven almost entirely by the bank/servicer counsel repeatedly putting off court dates, to the point where judges are annoyed and frustrated. It appears a big driver, if not the big driver, is the depressed state of the housing market. Even with the recent wave of bottom-fishing, servicers seem to want to attenuate the foreclosure process to keep borrowers in homes, which both reduces their maintenance costs and keeps too many foreclosed homes from either being held in inventory a long time (which leads to deterioration in value) or put on the market at once (depressing prices).
What this is really about is a further push to try to achieve national standards, even though real estate or “dirt law” has long been treated by the Supreme Court as a state law matter. So the power of the GSE is being used to pressure state legislatures to join a legal race to the bottom. If state bar associations had instead players their proper role and had disbarred foreclosure mill attorneys, Fannie and Freddie would have been forced to clean up their act on foreclosure processes and the FHFA would not have found it as worthwhile to try to implement this sort of extortion.
I’m not holding my breath, but the GSE haters also tend to be in favor of state’s rights, so it might be possible to craft an alliance between some of the Fannie and Freddie opponents and borrower advocates on the need for the primacy of the rule of law. Congressman Brad Miller minced no words:
It is hard to see this as anything other than bullying states that are protecting homeowners from foreclosure abuses. FHFA has no business holding a state’s new mortgage market hostage to extort weaker homeowner protections for existing mortgages.
This effort to perpetuate bad practices by the GSEs by blaming states needs to be called out and firmly opposed.