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Higher rates vs. tax increase?

By Judy Martel · Bankrate.com
Monday, December 12, 2011
Posted: 4 pm ET

A bid to boost fees that Fannie Mae and Freddie Mac charge lenders in order to pay for the proposed payroll tax cut extension for another year is drawing fire from some in the real estate industry who fear that lenders will pass the fees on to borrowers in the form of higher mortgage interest rates. The proposal would raise up to $38 billion over 10 years.

The fees charged to lenders cover the defaults of loans that Fannie Mae and Freddie Mac buy from other lenders, securitize and sell to investors. Housing Wire reported that last year, the fees averaged 0.25 percent of the loan amount and the Senate proposes increasing them by at least 0.125 percent over the next two years. The House proposes raising them by 0.1 percent over the same time period.

Three organizations -- the National Association of Realtors, the National Association of Homebuilders and the Mortgage Bankers Association -- say they oppose redirecting revenue from Fannie Mae and Freddie Mac into anything unrelated to improving the housing market.

If the payroll tax cut extension expires Dec. 31, the payroll tax would revert to 6.2 percent on the first $110,100 in wages, up from 4.2 percent in 2011. Previous proposals to pay for an extension have included imposing a higher tax on the wealthy. Members of Congress have been divided about whether to extend the tax cut and how to pay for it.

What do you think of the proposal to pay for the payroll tax cut extension by increasing fees charged to mortgage lenders?

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2 Comments
MrPaul
December 21, 2011 at 5:42 pm

Oh, I am sure most taxpayer would be happier if the government took money out of their left pocket instead of their right pocket. This is just a shell game. Do they think we are idiots?