Opinion: Mortgage Fee Increase to Finance New Payroll Tax Cut

The recent extension of the payroll tax cut contains a little hidden secret, an increase in mortgage fees. Real estate buyers will in turn be paying for the payroll tax extension and will result in a 0.5 percent higher loan fee that will last the entire lifespan of the loan.

In December of 2011, the Senate approved an increase in fees attached to mortgages backed by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). Of these financial powerhouses, Fannie Mae and Freddie Mac represent 60 percent of all mortgages in the United States. 

The official release stated:

"On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities. This requirement is effective immediately, meaning that the average guarantee fees charged in 2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011."

Since Fannie Mae and Freddie Mac are government-owned, the Obama administration believes if Fannie and Freddie raised their fees it would make it simpler for private-owned companies to enter the market and compete with them.

David Stevens, president of the Mortgage Bankers Association, said he understands the desire by Congress to extend the payroll tax cut because so many Americans are hurting right now. But the cost of that is going to be directly paid for by a whole other set of Americans who use Fannie Mae and Freddie Mac for their mortgages. These institutions, which have been so costly to Americans and are so crucial to the recovery of the housing market, should not provide the piggy bank for future arbitrary tax policy, he said.

This new fee brings on a whole new burden for current home buyers to re-enter the market, once again further preventing the recovery of the housing market.