Thursday, July 23, 2015 - Article by: Chris Neuswanger - Macro Financial Group -
It is the duty of Congress to try and make the country function, and to levy taxes and fees to fund the Government. In general, they are a desperate crowd who try desperate measures and seldom accomplish much more than mucking up what was not already broken. Politically to call a new tax a tax is something few politicians have the nerve to do. They also seldom have the nerve to say no to building bridges to nowhere or subsidizing otherwise profitable companies to make them even more profitable.
As such, Congress is forever on the prowl to find new ways to generate revenue, and the last few years a popular target is what are called G-fees. The term comes from levying a fee on certain activities of what are called Government Sponsored Entities, or GSE's. The two best known GSE's are Fannie Mae and Freddie Mac, which supply most of the nations hone mortgage money.
The GSE's have always charged certain G-fees for guaranteeing investor's money and servicing loans. But the original intent of those fees was to cover costs incurred and keep the process humming. That was for decades a reasonable business model.
In 2011 Congress came up the idea to impose additional G-fees (which should be called a tax) on each mortgage loan guaranteed by Fannie or Freddie to fund an extension of unemployment benefits. This means each homeowner who takes out a mortgage loan is getting hit with an invisible increase in the cost of that loan because the fee is "baked in" the base pricing of the loan over and above what it costs the GSE's to provide the money and the money flows directly to the Federal treasury. These fees have generated tens of billions and no Congressman has ever had to face the folks at home over voting for a "tax" increase. At that time, Congress promised in writing that the fee would expire in 2021.
As Congress knows a sweet deal when they see it there is yet another proposal on the table to use G-Fees to fund increases in transportation projects. This will mean homeowners who take out a mortgage will be paying a higher rate to finance their homes and few will ever realize it. Hidden on page 948 of the 1,030 page bill is a single line that, oh by the way, extends the 2011 fee from 2021 to 2025. On top of that, the fee would double.
Needless to say, the mortgage industry is strongly opposing this. Industry opposition caused a vote to introduce the legislation to fail this week, but no doubt there will be plenty of arm twisting and deal making going on to try again. There is great concern in the mortgage industry that this legislation may get through, because it is an easy way for Congress to raise funds without being on the evening news as raising taxes.
The other aspect of this type of taxation is that it will diversely impact the wealthy vs. the middle class. Many wealthy people don't have a mortgage loan, or if they do the loan may not be from a GSE because in most of the US the loan limit for a Fannie or Freddie loan is $417,000. While that limit in some areas are as high as $625,500 most of the nation is capped at $417,000. Loans over that amount come from privately funded programs that are exempt from the GSE fees.
This is also diametrically opposed to the goal most every Congressman had stated at some time or another and that is to increase the level of home ownership (in their district anyway).
Increasing the cost of a mortgage is not going to accomplish that. Also most members of Congress have at one time or another expressed the desire for the Government to minimize its role in the mortgage industry.
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