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Financial Services Law Insights and Observations

FHFA Issues Final Rule on Private Transfer Fees

Freddie Mac Fannie Mae

Lending

On March 15, the Federal Housing Finance Agency (FHFA) issued a final rule to limit the ability of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to deal in mortgages on properties encumbered by certain types of private transfer fee covenants and in certain types of related securities. The rule generally applies, with some exceptions, only prospectively to private transfer fee covenants created on or after the date of publication of the proposed rule, Feb. 8, 2011, and regulated entities must comply with the rule by July 16, 2012. The final rule largely mirrors the proposed rule, though the FHFA did make some changes in response to comments. For example, as described more fully in Section IV of the final rule, (i) certain changes ensure that the rule clearly restricts any activity dealing in mortgages on property encumbered by private transfer fee covenant, (ii) the exception for fees imposed by a court judgment, order or decree was removed, and (iii) the rule now will not apply to private transfer fee covenants imposed pursuant to a litigation settlement agreement or an agreement approved by a government body before February 8, 2011.