Should Additional Mortgage Fees Offset the Payroll Tax Reduction?

by ritasimpson on December 13, 2011

in Latest News

To pay for the proposed extension of the payroll-tax cut, a proposal has emmerged that would boost fees that Fannie and Freddie collect from lenders. Here is how it would work:

Fannie and Freddie don’t issue mortgages, but instead buy them from lenders. They bundle those loans into securities that are sold to investors, and promise to make investors whole if the loans default. To cover any defaults, Fannie and Freddie charge “guarantee” fees to lenders when they buy the loans.

Lenders pass the loan-guarantee fees on to borrowers in the form of higher rates. Last year, those fees averaged around one-quarter of one percent of the loan amount. The Senate proposal directs Fannie and Freddie’s regulator to raise those fees by at least one-eighth of one percent over the next two years. The House proposal calls for an increase of one-tenth of one percent over the same period.

The proposal also would change who receives the fees. Instead of allowing those additional funds to flow to Fannie and Freddie, the plan would send them straight to the Treasury Department, which effectively owns the companies.

The provision wouldn’t have a significant effect on mortgage demand because rates are at their lowest levels in decades,but it is putting another tax on the homeowner.


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