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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