December 20, 2011

Homeowners Pay For Payroll Tax Cut

December 20, 2011

Homeowners Pay For Payroll Tax Cut

Who is expected to be paying for the two-month extension of the payroll tax cut working its way through Congress?

How about, “most people who buy homes or refinance beginning next year”?

Over the weekend the Senate added a guarantee fee increase for Ginnie Mae mortgage-backed securities to the payroll tax bill, after experiencing heavy lobbying from the MI industry which feared that a 10 basis point g-fee hike for Fannie Mae and Freddie Mac MBS would tilt the market toward FHA loans. The final bill now includes g-fee hikes for all three: Fannie, Freddie and Ginnie.

Things change by the day, but the extension of a payroll tax cut and long-term unemployment benefits, estimated to cost $33 billion, will in part be paid for by an increase in the guarantee/guarantor fee charged by the FHA, Fannie, and Freddie.

But things aren’t quite that simple in Congress, as we’ve all learned.

Rep. Scott Garrett, R-N.J., has legislation that is tied into things somehow that would require the FHFA to establish rules for a privately funded mortgage finance system, repeal the risk-retention rule under the Dodd-Frank Act, move mortgage servicing standards to the FHFA, and prohibits any regulator from requiring servicers to commit principal reductions.

Five proposals have been introduced in both the House and Senate that would assemble a future housing finance system and replace the GSEs at the same time. But as I’ve been telling folks for quite some time, don’t look for any substantive changes for another year, or more.

But can we really afford to have government always frozen until the next election? A while back one reader answered:

Continuing sitting on the sidelines is not spurring activity beyond REO’s, short sales and those that have to move. The economy cannot recover without housing, unemployment cannot recover without hiring, and consumers will not spend until the economy improves. It is a vicious circle. Someone has to make a bold step and that involves banks taking a haircut to their asset value. (How many would shed crocodile tears for institutions that have failed their customer base?) Our politicians and civil servants lack the business acumen to successfully steer us out of this and too many bad decisions were made according to political expediency. Constantly aiming recovery efforts at those under water or likely to foreclose will only be a band aid. We need to boldly go where no politician has gone before and do a blanket refinance of all borrowers who are current. Yes, all those people who WOULD spend the $200 or so dollars they would now have over each month. Yes, it will have consequences but what is the alternative … more wasted billions thrown at situation from the bottom up instead of the top down?