Higher Rates for Consumers: FHFA (via Fannie and Freddie) Increasing Guarantee Fees on Home Mortgages
Get ready for higher interest rates. The government just passed the Temporary Payroll Tax Cut Continuation Act of 2011, which throws a guarantee fee (essentially a tax) on the government-sponsored enterprises (GSE’s), Fannie and Freddie for the next 10 years. How does this work?
Effective April 1, the Federal Housing Finance Agency, which oversees Fannie and Freddie, is increasing guarantee fees by 10 basis points on single-family residential mortgages. Instead of this money going to the GSE’s to help cover loan losses, this goes directly to the U.S. Treasury to fund the Payroll Tax Cut of 2% for people receiving W2 income. This means if you make $50,000/year, you are saving about $165…which sounds great for the politicians looking to trumpet lower taxes right before elections.
If you’re a homeowner refinancing or are buying a home soon, this is NOT good. This is translating to an increase of about .125% for mortgage rates, which means you are going to be paying $20-30 more per month for your mortgage. This translates to thousands of dollars extra over the life of the loan. Even worse, the fee increase is good for 10 years (!) to fund the paltry two month payroll tax cut extension.
This goes into effect April 1. However, because loans need to be delivered to Fannie and Freddie by then from the lender originating the loan, it means any loans started in mid-January 2012 are likely going to see the rate increase. If your lender has a sudden spike in their rates versus others that you’re comparing them to, this is the reason! Soon, every bank will pass this through to their consumers and make it a moot point for comparison purposes. Not so much if you’re paying the extra money per month on your mortgage…
