Borrowers in five states may get hit with higher mortgage fees. Are consumer protection laws to blame?

House sitting on top of bills

Borrowers in five states — Connecticut, Florida, Illinois, New Jersey and New York — could find themselves paying more for new home loans starting next year.

The Federal Housing Finance Agency, which regulates the two government-owned mortgage giants Fannie Mae and Freddie Mac, says its proposal to raise fees on loans backed by Uncle Sam is necessary to offset the higher costs of foreclosure in those states.

FHFA calculates that a homeowner with a $200,000 mortgage in those five states would pay between $3.50 and $7 a month more for a 30-year, fixed-rate loan.

That means. based on today's interest rates:

Lenders pay the fees up front to Fannie and Freddie and then pass along the cost to consumers via higher interest rates.

The thinking behind the increase is that homeowners should be charged based on how much it costs lenders to foreclose and then sell a home in those states. Foreclosure costs vary by state, because states set rules that influence foreclosure costs.

Those rules might require a lender to go to mediation before foreclosing or prevent a lender from marketing the property for a fixed period of time after foreclosure. The costs lenders foot for the foreclosed homes they own also vary, because things like property tax rates are different from area to area.

Foreclosure cost data show the five states are "clear outliers," FHFA said.

Since Fannie Mae and Freddie Mac charge the same fees for home mortgages from all states, homeowners in states with low foreclosure costs are subsidizing more expensive states, FHFA’s proposal said.

FHFA is looking for comments on the issue, so let me share mine.

The rule is FHFA’s way of highlighting how state rules influence the cost of mortgages and make a little more money for Fannie Mae and Freddie Mac.

FHFA can’t control state legislatures, so changing the guarantee fee is a way to draw attention to what it costs when your state passes laws that slow down the foreclosure process or increase the cost of holding or selling real estate.

That said, I don’t envision many voters stalking into the voting booth to toss out the fellows who passed increased consumer protections.

But, if it makes state (or dare I say local) lawmakers consider costs when they start tinkering with things that impact the market, I’m all for it, because I want to get my home loan as cheaply as possible.

U.S. Rep. Brad Miller, D-N.C., thinks the proposal is unfair.

"It is hard to see this as anything other than bullying states that are protecting homeowners from foreclosure abuses," he said in a statement. "If Fannie and Freddie properly underwrite new mortgages and have decent servicing, the cost of complying with state foreclosure laws cannot credibly justify an increase in the (fee). FHFA has no business holding a state's new mortgage market hostage to extort weaker homeowner protections for existing mortgages."

If you’d like to tell the FHFA what you think about this issue, they’re collecting comments via email (gfeeinput@fhfa.gov) until Nov. 18.