Fannie and Freddie could fund payroll tax cut

Congress and the Obama administration are considering having mortgage-finance giants Fannie Mae and Freddie Mac foot the bill for the proposed extension of the payroll tax cut

December 15, 2011
mortgages, refinancing, housing market, tax, tax cut, homeowner, home owner

Congress and the Obama administration are considering having mortgage-finance giants Fannie Mae and Freddie Mac foot the bill for the proposed extension of the payroll tax cut, the Wall Street Journal reported on its blog.

Having Fannie and Freddie provide revenue would boost the fees that the companies collect from lenders. But builders, realtors and lenders say this would translate into a tax that would be passed on to mortgage borrowers and homeowners.

After Fannie and Freddie buy mortgages from lenders, they bundle those loans into securities that are sold to investors, and promise to make investors whole if the loans default. To cover any defaults, Fannie and Freddie charge "guarantee" fees to lenders when they buy the loans.

Lenders pass the loan-guarantee fees on to borrowers in the form of higher rates. Last year, those fees averaged around one-quarter of one percent of the loan amount. The Senate proposal directs Fannie and Freddie's regulator to raise those fees by at least one-eighth of one percent over the next two years. The House proposal calls for an increase of one-tenth of one percent over the same period.

The proposal also would change who receives the fees. Instead of allowing those additional funds to go first to Fannie and Freddie, the plan would send them straight to the Treasury Department, which effectively owns the companies.

The provision wouldn't have a significant effect on mortgage demand because rates are at their lowest levels in decades, said Guy Cecala, publisher of Inside Mortgage Finance. Still, he added, "All you're doing is putting another tax on the homeowner."

To read the blog post, click here.

Comments on: "Fannie and Freddie could fund payroll tax cut "

Email Subscriptions