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Plan to have housing industry pay for payroll tax cut passes Senate
Two-month extension would be funded by tacking extra fees onto Fannie and Freddie mortgages
Potential homebuyers that use a mortgage backed by Fannie Mae or Freddie Mac would pay thousands more over the course of their loan in order to fund the payroll tax cut extension, under a bill passed by the Senate this weekend.
UPDATE 12/20: The House has voted down the two-month extension.
Democratic and Republican leaders in the Senate negotiated the deal, which passed by an 89-10 vote. It extends the 2 percentage point cut in Social Security taxes paid by employees for two months. The extension is paid for by charging an addition 0.1 percent in fees for banks that issue mortgages backed by Fannie or Freddie.
The issue may still be in doubt, though, as Republican House leaders said yesterday that they will not support the bill. Unfortunately, their opposition is with the length of the extension, not the way it is paid for. Last week, House leaders expressed support for the idea of paying for the tax cut with the Fannie and Freddie fees.
Those fees would almost certainly be passed on to borrowers, creating an additional cost for homeownership. On a $200,000 house, the new fees would cost the average homeowner $17 a month, or more than $6,000 over the course of a 30-year loan, according to Congressional estimates. The higher the mortgage value, the higher the fee will be. It will also apply to refinanced mortgages.
The tax cut will save a taxpayer making $50,000 a year $165, according to the Associated Press.
Here's what NAHB Chairman Bob Nielsen had to say about the proposal:
“Congress is essentially proposing to raise taxes on millions of potential home buyers in order to pay for a payroll tax cut and other non-housing legislative initiatives. With the housing market struggling to regain its footing, such a short-sighted move would be extremely counterproductive and threaten the fragile economic recovery.
“The guarantee fees (g-fees) that Fannie Mae and Freddie Mac charge lenders to protect against credit-related losses should not be used for purposes unrelated to the safety and soundness of the housing finance system.
“Just as we are beginning to see modest signs of improvement in scattered housing markets across the nation where employment is gaining and consumer confidence is rising, Congress is tampering with g-fees and needlessly raising the cost of buying a home. This will jeopardize the tenuous rebound and is the last thing this economy needs.”