December 19, 2011 by Leave a comment

Late last week, a piece of legislation passed the House of Representatives that could cause some mortgage fees to increase.  The bill is H.R. 3630, The Middle Class Tax Relief and Job Creation Act.  In essence, it is an extension of the payroll tax cut, and the continued cuts would be paid for by raising guarantee fees (g-fees) on Fannie Mae, Freddie Mac, and FHA loans.

If the new legislation becomes law, Fannie, Freddie, and the FHA would have to increase g-fees by at least 10 basis points over the next two years.  This would translate to around $300 per year on a $300,000 mortgage.  Not a crippling increase, but significant nonetheless.

Predictably, housing and mortgage lobbying groups oppose the increase in fees, while others claim that this will help encourage more private-sector lending. I thought the best take on this legislation was from Georgetown Law Professor Adam Levitin, who says that the whole deal is foolish because any stimulating effect from the payroll tax cut is negated by the increase in g-fees.

In a normal economy, this proposal might make sense.  Of course we are not in a normal economy, and anything that hampers the housing market, even marginally, is probably not a good idea since the housing sector is dragging down the economy as a whole.

In any case, the bill has yet to be finalized and will likely be revised before the Senate votes on it. It does seem that the increase in g-fees garnered some bipartisan support, and will likely be in the final law.


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