“Forget Tax the Rich, Let’s Tax Everyone Buying or Refinancing”
I guess the answer is not cutting our Federal deficit, the real answer is that the current administration will continue to figure out ways to add taxes. Like the housing market really needs additional reasons to hurt some more.
OK, so the average person buying a home or refinancing won’t even know these extra fees are in the payments, but it means that they will have less to spend on other things. The crazy part of this decision, the payroll tax is very visible, but fees added to a mortgage payment is not.
Loan officers will have some unpleasant news for their customers in 2012: the cost to obtain a new government-backed mortgage will be rising.
In late December Congress passed a short-term extension of the payroll tax cut, financing it with a 10 basis point hike in Fannie Mae and Freddie Mac guarantee fees.
Those fees will be charged to mortgage firms, which in turn are expected to pass the cost onto homebuyers and mortgagors seeking to refinance.
The payroll tax bill (H.R. 3630) signed by President Obama is expected to generate $35 billion over 10 years. The money collected will go to the U.S. Treasury Department and will not repay the government for bailing out the two GSEs.
Mortgage industry officials are dismayed by Congress' decision to use Fannie and Freddie as a piggybank to fund tax breaks and other government programs.
“We have nothing against increasing fees to offset credit risk,” said David Stevens, president and chief executive of the Mortgage Bankers Association.
But it becomes “problematic,” he said, when legislators are setting premiums and diverting the funds for other purposes.
“Fees should be used to explicitly offset the risks of these portfolios, especially since have we have spent $170 billion so far just to keep Freddie and Fannie operating,” Stevens told NMN.
The extension bill (H.R. 3630) crafted by the Senate also requires a corresponding 10 bp hike in Federal Housing Administration annual premiums for 10 years.
“This change does not affect the upfront premium charged by FHA for insuring loans,” according to a summary of the bill. (FHA already charges a 115 bp annual premium.)
Thanks to lobbyists working for the private mortgage insurers, the Senate drafters made sure that FHA would not derive a competitive advantage and capture more business due to the hike in GSE g-fees.
FHA supporters were relieved to find their premium hike would benefit the FHA insurance fund and not be used to pay for H.R. 3630, which also extends unemployment benefits and maintains current Medicare reimbursement rates for doctors.
The FHA premium increase will be phased in over two years. The additional revenue will go toward bolstering the FHA capital reserve fund, which has a mere 0.24% capital ratio and a 50% chance of tipping into the red.
“Since the higher premiums go to the reserve fund and help offset credit risk, we have no opposition to it,” Stevens said. The former FHA commissioner also noted that the FHA hike helps to balance out the hike in GSE g-fees.
He noted that the 10 bp hike in premiums should not have much effect on mortgage demand since interest rates are at historic lows.
A recent report by Amherst Securities Group shows that the “costs of FHA and GSE execution are roughly comparable” for loans with high loan-to-value ratios and high credit scores.
The GSE g-fee hikes in the bill were originally proposed by Senate Democrats. House GOP lenders included it in their bill calling for a full-year extension of the payroll tax cut.
The Senate took the House-passed bill (H.R. 3630), stripped it down to a two-month extension, retained the Fannie and Freddie g-fee increase, and added a hike in FHA premiums.
After a contentious standoff over the length of the extension, House GOP leaders finally caved in and agreed to the Senate version of bill. But raising mortgage fees had bipartisan acceptance and attempts by MBA, the Realtors and homebuilders to lobby against it proved futile.
Joe Petrowsky, NMLS #6869
Right Trac Financial Group, Inc. NMLS #2709
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