The Federal Housing Finance Agency has decided to raise guarantee fees from Fannie Mae or Freddie Mac on mortgages in states that respect the rule of law.

Really, that’s about the size of it.

As Shahien Nasiripour points out today, the g-fees will go up in five states that have slowed the foreclosure process by either mandating mediation before eviction, or created laws that seek to ensure proper documentation in the foreclosure process.

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 [...]

“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.

So the federal conservator of Fannie and Freddie wants to put its thumbs on the scale in favor of faster foreclosures and diminished due process. That’s the only thing you have to extrapolate here. FHFA wants to be able to foreclose on lenders in Illinois, New York, New Jersey, Connecticut and Florida without concern for whether the documents are legitimate, without concern for whether the bank and the borrower can come to a resolution on a modification.

As Yves Smith explains, Fannie and Freddie have refused to crack down on the corrupt foreclosure mill law firms they use to foreclose on their borrowers, who helped to create the problem that caused the backlash from judiciaries in New York and New Jersey. THAT has slowed down foreclosures, and Fannie and Freddie can seek an easy remedy there by following the law. Furthermore, with respect to Florida, the foreclosure delay is largely servicer-driven. They don’t want those foreclosed properties back on the market or in their hands at all as shadow inventory, because they would have to take control of maintenance and upkeep. “The power of the GSEs is being used to pressure state legislatures to join a legal race to the bottom,” Smith says.

She’s right. Rep. Brad Miller correctly identifies this as bullying. And one lawmaker determined to fight this is Sen. Richard Blumenthal, from one of the affected states, Connecticut. His state has a mandatory mediation system in place that puts off foreclosures until the homeowner sits down with the borrower to try and reach a resolution. It’s been very successful. And FHFA wants to punish Connecticut for it. Blumenthal was pissed on the Senate floor last night.

“I will fight to stop Fannie and Freddie from punishing Connecticut for protecting its citizens from unfair and abusive foreclosure practices. I am seeking immediate action to reverse this misguided, unacceptable decision.

Connecticut’s commonsense judicial safeguards protect homeowners from robosigners, fraudulent affidavits, and other big bank tactics that have violated the rights of too many families across the country. FHFA’s proposed fee will significantly increase costs for all Connecticut consumers trying to achieve the American dream of homeownership. It will also threaten our state’s effort to repair the housing market while preventing unnecessary and illegal foreclosures, with all the costs they impose on Connecticut homeowners, taxpayers, and communities.

“I am proud that Connecticut provides protections to help families keep their homes, and to ensure that no Connecticut homeowner is the victim of an illegal foreclosure. And I am determined to protect my state’s right to safeguard homeowner interests.”

There’s a new Senate Consumer Caucus, and Blumenthal brought this up at their inaugural meeting. I don’t know what he has in mind as far as fighting this, but he ought to have support from his colleagues in the affected states, at least.

Either way, FHFA has revealed their true colors here. They’re trying to intimidate states into changing their laws to facilitate foreclosures. Your government at work.