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Home mortgages may become more costly in St. Louis thanks to local law

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In spite of warning  from the Mortgage Bankers Association (MBA), the St. Louis Association of REALTORS (SLAR) and other housing-related groups of the damage the “Mortgage Foreclosure Intervention Code” (Bill #174 introduced by Hazel Erby, District 1) could do to the already struggling St Louis housing market, including increasing the cost of home mortgages, last month the  St. Louis County Council passed the bill, it was signed into law by County Executive Charlie Dooley and will go into effect on September 28, 2012. Then, just last week, Lewis Reed, President of the St. Louis Board of Alderman, introduced what is a basically the same bill in an attempt to get the same law enacted by the City of St. Louis.

Opponents of the law, including SLAR and the MBA, say this law will likely lead to higher cost mortgages in St Louis County (and, assuming they pass it, the city of St Louis) as lenders will increase fees to cover additional costs they will have in complying with this new law and proponents of the law say this is not so.  I think the proponents of the bill are wrong and am confident that this will lead to higher cost mortgages in areas that have enacted the Mortgage Foreclosure Intervention Code or similar laws. So, why am I so sure?  It just so happens that yesterday, the Federal Housing Finance Agency (FHFA), the agency charged with overseeing Fannie Mae and Freddie Mac, issued a notice of a proposal to increase mortgage fee pricing (guarantee fees that Fannie Mae and Freddie Mac charge) on loans in states where, due to laws and the requirements imposed upon lenders (or other investors) to “manage a default, foreclose and obtain marketable title to the property backing a single-family mortgage“, foreclosures take longer.  The FHFA report includes a table which shows the estimated time to obtain marketable title to a property with a default by the borrower, as well as the cost per day, then assigns a “rank” to each state based upon a formula applied to those two factors.  Presently, and without taking into account the new law that will go into effect in St. Louis County in a few days, Missouri is ranked 17th in the country and would not be subject to increased fees.  At this point, there are five states that would be assessed up-front fees by Fannie Mae and Freddie Mac, Illinois (.15 percent), Florida, Connecticut and New Jersey (.20 percent) and New York (.30 percent).  When looking at the criteria used to compute the rank, there is no doubt in my mind that Missouri will come out worse as a result of the Mortgage Foreclosure Intervention Code, possibly changing the rank enough to cause the FHFA to impose up-front fees on mortgages here as well and thus increasing the cost of buying a home.  Granted, at this point, the new rule from FHFA is just proposed and is subject to public comment for 60 days, but, based upon my experience and what I know about the topic, I have no reason to believe they will not put this rule into effect.

If you live in the city of St. Louis and don’t want to see the cost of a mortgage possibly increase as a result of this type of regulation, I would suggest you contact your alderman immediately (see contact info below) and share your concerns.  If you live in St. Louis county, even though it’s already passed, I would suggest you contact your council person (see contact info below) with your concerns.  In either case, when your elected official assures you this won’t result in more expensive mortgages, ask them about the FHFA notice I’ve discussed here and see what they have to say.

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