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Your Kids May Fund Payroll Tax Cut Extension

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You’ve got to love how lawmakers wheel and deal during the holidays while the rest of us are trying to enjoy them. Lost in the 11th-hour payroll tax cut extension is how it will be funded. It will be paid by Fannie Mae and Freddie Mac which, last time I checked, are in conservatorship and were bailed out with $153 billion in taxpayer money. Now, instead of unwinding the two behemoths, which was the chatter this time last year, we’re all back in the mortgage business.

As ordered by Congress who is trying to find $36 billion, beginning April 1, Fannie Mae and Freddie Mac will begin a 10-year-long premium-charge increase of 10 basis points on lenders to guarantee principal and interest on home loans. These fees, known as guarantee fees or “g fees,” will no doubt be passed along to borrowers in the form of higher interest rates.

With the stroke of a pen, lawmakers have increased real estate financing costs for the middle class. It is a blatant backdoor tax on the middle class, the main customer for the conventional loans purchased by Fannie Mae and Freddie Mac. President Obama is not only breaking a promise not to increase taxes on the middle class, but is issuing a penalty on savers and those trying to be responsible with their money by investing in a home. This is rotten to the core.

Ten years of “g fees” charged by Fannie Mae and Freddie Mac will be used to fund the government’s payroll tax cut for two months. Now that a precedent is set, what’s to stop the government from coming back again with hat in hand a year or two from now? And now, if an effort is made to wind down Fannie Mae and Freddie Mac, there will be a general revenues shortfall to deal with. It’s unconscionable that Republicans in the House and Senate went along with this boondoggle.

With interest rates for a 30-year mortgage at around 4%, a 10-basis-point increase is a significant extra cost. If lenders pass the cost along as a higher rate of 4.10%, that’s a 2.5% increase. My point: How much government do you want in your house? It’s really a matter of principle.

This is especially hurtful to states that are losing population and jobs faster than the rest of the country. And it’s a direct hit on the saving class and those being responsible with their money, no matter where they live.

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.
E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.