This is excerpted from a newsletter I receive from The Summit Association of Realtors...
Mortgage Fees Would Rise Under Congressional Deal to Pay For Payroll Tax Cut
While Congress played child-like antics during Christmas week over the payroll tax credit set to expire on December 31, 2012 and finally reached a deal on a two month extension, most of us missed how Congress intends to pay for the tax credit. According to Washington insiders, the current plan will increase mortgage fees on Fannie Mae and Freddie Mac loans by one-tenth of one percent to pay down the $37.5 billion payroll tax credit. The National Association of REALTORS, along with the Homebuilders and Morgage Bankers Associations, lobbied hard against the proposal, stating that the credit risk guarantee fees should stay with the housing industry and be used to pay down Fannie Mae and Freddie Mac's debt to taxpayers. In a December 28th editorial in the San Francisco Chronicle, the reasons why using guarantee fees are a bad idea were outlined:
-- Borrowers will be paying the surcharge for the next 10 years to cover the
tax break for the next two months. It's the essence of bad financial
planning: long-term debt for short-term gratification.
-- Even a minor extra barrier to home ownership is the last thing the
federal government should be approving right now. Talk about working at
cross purposes. This "tax holiday" is supposed to be about stimulating the
economy. Yet what is a major cause of the economy's malaise right now? The
housing market.
-- The federal government should be moving to extricate itself from the
mortgage business after the Fannie and Freddie debacle required a bailout of
about $150 billion three years ago. This financing scheme deepens the
government's attachment to those mortgage giants. Worse yet, most of the
$37.5 billion would be generated in the latter part of the decade.
Then there is the more fundamental question: Is the government really doing
working Americans a favor by reducing a tax that is supposed to be going for
Social Security? A reduction in payroll tax revenues is only going to make
it more difficult to maintain future benefits as more and more Baby Boomers
reach retirement age. But long-term thinking has never been a congressional
strong suit.
If they are going to cut the payroll tax, lawmakers ought to at least do it
in a forthright fashion, with an honest way to pay for it. But therein lies
the gridlock.
Democrats have pushed for tax surcharge on incomes above $1 million, which
Republicans reflexively oppose. The House GOP alternative is a freeze on
federal workers' pay through September 2013.
The bottom line is that someone is going to pay for the continuation of that
tax holiday. In the short term, it will be the home buyers who will be
paying an extra $4,000 over the life of a 30- year, $200,000 loan just to
give their fellow Americans a two-month tax break. It's neither fair nor
sustainable.
Stupid thinking by a stupid congress...
