Day Trender - News, Business, Real Estate News, Financial, Tech, World

Homebuyers to Pay for Payroll Tax Cut Extension?

As Congress mulls over a decision on whether to extend the payroll tax cut scheduled to expire in January, they are also mulling over possible ways to pay for the tax cut.  One idea gaining momentum in both houses involves raising the fees that Fannie Mae and Freddie Mac charge banks when they guarantee home loans.  These guarantee fees are intended to cover mortgage defaults in a normally functioning housing market, though they fell far short of covering the flood of foreclosures during the crisis, which is why taxpayers had to pump a combined $150 billion plus into the two companies to keep them afloat.

The plan to pay for the payroll tax cut with higher guarantee fees is earning support by Senate Democrats and House Republicans alike, a rare occurrence in today's environment of staunch differences of opinion across party lines.  There are versions of the proposal running through both houses of Congress, with the Senate version estimated to raise just over $38 billion.  The two versions differ on the actual increase in guarantee fees, though both would raise the fees less than 1 percent of the value of loans.

Republicans are in favor of raising mortgage guarantee fees because it raises the costs associated with using Fannie Mae and Freddie Mac, which could lead to an increase of private sector involvement in the mortgage market.  Democrats, meanwhile, are in favor because the proposal increases the likelihood of extending the payroll tax cut.  But housing insiders warn that in the end, it will be American homeowners that will actually pick up the tab for the payroll tax cut extension, as banks will almost certainly pass on their higher guarantee fees to borrowers.

The Real Estate sector is almost unilaterally opposed to raising guarantee fees, and the Mortgage Bankers Association, the National Association of Home Builders, and The National Association of Realtors have all written letters to John Boehner, the Republican Speaker of the House, expressing their opposition.  The groups view the move as a surtax on housing purchases and are concerned that it could set a new precedent in which housing purchases are taxed to provide funding for purposes not at all related to housing finance.