The Federal Housing Finance Agency’s proposal to increase guarantee fees in states that the agency views as having excessively high foreclosure costs has angered attorneys general who urged the agency not to penalize their states for protecting borrowers, TheStreet reported Nov. 28.

The FHFA, which serves as both regulator and conservator of Fannie Mae and Freddie Mac, proposed a plan to raise g-fees by 15 to 30 basis points for guaranteeing debt in Connecticut, Florida, Illinois, New Jersey and New York, TheStreet reported.

All five states follow extensive judicial foreclosure processes that require a bank to prove in court that the mortgagor is in default in order to foreclose. This process of completing a foreclosure has averaged 858 days in Florida and a whopping 1,072 days in New York.

The FHFA said it believed that carrying costs that investors incurred during the time a defaulted loan is non-performing rose considerably in these states and, therefore, Fannie and Freddie should be compensated accordingly.

Critics of the g-fee increase pointed out those higher fees in select states could lead to higher borrowing costs, which would unfairly punish borrowers for what actually is the failure of servicers to follow required laws and procedures, TheStreet reported.

Attorneys general from Connecticut, Illinois and New York wrote a letter to FHFA Acting Director Edward DeMarco referring to the proposal as “profoundly anti-homeowner,” TheStreet reported.

“The proposal amounts to a thinly disguised threat, placing the affected states in the untenable position of choosing between higher borrowing costs for their residents or dismantling homeowners' legal protections,” the attorneys general noted, TheStreet reported.

If the g-fee increase is implemented, borrowers in New York, for example, would be charged an upfront fee of 30 basis points, which amounts to $2,250 on a $200,000 mortgage.

However, the FHFA said it would reverse the fee should states choose to “adjust their laws and requirements” to move foreclosure timelines more toward the national average, TheStreet reported.