Payroll Tax Cut Will Hurt Homeowners: Update
President Obama signed into law the two-month Payroll Tax Cut extension December 23rd, but as we said, the problem is homeowners will foot the bill.
Starting April 1, 2012, the fees Fannie Mae and Freddie Mac charge to insure home mortgages will increase by one tenth of one percentage point. These fees will also apply to mortgages that are refinanced. The fee was about 0.3 percent, and now it will increase to 0.4 percent. Basically homeowners will pay Fannie Mae and Freddie Mac to pay to Treasury for the tax credit.
For a homeowner with a $200,000 mortgage, that means their monthly mortgage payment would be about $17 higher or an additional $6,000 over the course of a 30-year loan. Homeowners with bigger mortgages will pay more.
|Current Mortgage||Fee Increase Per Year|
Proponents of the tax cut extension believe it will divert more business to the private sector, since loans backed by Fannie Mae and Freddie Mac are the cheapest on the market.
But as we stated before this law was passed, we don’t believe homeowners should carry the burden of these tax cuts.
Original Post December 19, 2011:
The Senate approved a two-month extension of a payroll tax cut Saturday which would also extend jobless benefits through February 2012 and a two-month freeze of scheduled cuts to Medicare payments to doctors.
The problem is that new homeowners will pay for the bill.
The Senate version of this bill would be paid for by increasing home loan guarantee fees charged to Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac as well as the Federal Housing Administration (FHA) by one-tenth of 1 percentage point.
The increase would amount to about $15 a month more for a $200,000 mortgage.
The fee is passed on to home buyers and will apply to many new purchases and home refinancing agreements starting January 1st 2012. The money raised would go to the Treasury Department, however, not to Fannie and Freddie.
The Mortgage Bankers Association, National Association of Home Builders and National Association of Realtors sent a letter Thursday to Sen. Bob Casey (D., PA.), the author of the tax package, saying the fees “should not be diverted for purposes unrelated to the safety and soundness of the housing finance system. “
“Fannie and Freddie are already floundering under the weight of the ongoing housing crisis and I fear this could only further worsen their ability to help struggling homeowners.” says Rep. Dennis Cardoza, D-Calif.
We at Lamacchia Realty are against passing the cost of this bill onto homeowners and don’t believe homeowners should carry the burden of these tax cuts.
Speaker of the House, John Boehner (R., OH.) appeared on Meet the Press yesterday to announce he opposes the Senate bill.
The House is expected to vote on the bill later today.