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1/13/2012 - Congress Funds Payroll Tax Credit by Adding
GSE Fees to Mortgage Rates.
In late December, Congress and President Obama passed a "no less than"
10 Basis Point
increase in GSE Fees for all mortgage loan products offered by
Fannie Mae and
Freddie Mac to fund a two month extension of a payroll tax cut.
FHA and
VA Loans are also
included in this bill.
This shift in the tax burden to homeowners and home buyers will
remain in effect until October 2021.
This is for all new mortgages that are written to Fannie Mae, Freddie Mac,
FHA or VA guidelines, either
for a new home purchase or a refinance. Currently Fannie
and Freddie, FHA and VA loans are a vast majority of all new home loans.
Note: For your existing home mortgage - nothing will change in terms of
this fee or additional payment, as this is for new loans only.
The impact of this bill will be
to increase the cost to homeowners by about $15 per month or $330
per year for each $200,000 borrowed. Ironically, this
is approximately the
same $330 savings a family making $100,000 a year will receive with
two months of a reduced payroll tax. However, the tax savings
is a one time event, while the increased mortgage costs are for an
estimated 5 years, as that is about the traditional length of time
someone will keep a mortgage before moving or refinancing.
How Increased GSE Fees Will Raise Rates
• When
you get a loan, it's generally put into a
Mortgage
Backed Security. The bondholder receives a portion of your
payment, and the servicer and Government Sponsored Entity (Fannie
Mae is a GSE) also have some fees.
• For example, if you obtain a mortgage at 4%, the mortgage will be
put into a 3.5% Mortgage Backed Security. The remaining .5%
(or 50 Basis Points) will be split as follows - Fannie Mae or
another GSE would
receive 20 Basis Points and the servicer would receive 30 Basis
Points. This is how the servicer funds the
servicing of your loan (which includes coupon books, tracking late
payments, distributing escrow funds for taxes and insurance,
payments to bond holders, customer service, and foreclosure if you don't pay).
• The
20 Basis Points that Fannie Mae received above will be going up to 30
Basis Points.
• This 10 Basis Point addition means your
rate will be 10 Basis Points higher - which is about 1/8th of a
point. On a $200,000 mortgage, that's about $15 a month.
What is Happening Now
• This increase is for mortgage loans put
into Mortgage Backed Securities as of April 1, 2012. However,
that means loans closing after about February 10th, 2012 are put into these
Securities as it takes about 45 days for your closed loan to be
routed into one of these Mortgage Backed Security packages.
Keep in mind even the largest banks put loans into Mortgage Backed
Securities, though they make keep the servicing of the loan.
• If your rate is currently locked,
make sure you close on time, or you will have larger than normal
extension cost. These lock extension costs could be up to 50
Basis Points (1/2 point) which is about the amount it takes to buy
down a rate by 1/8th of a point.
• If you are considering refinancing, you may see a slight jump in
rates as you go to lock in. All lenders are on a level playing
field, so it won't make a difference which mortgage lender you use
for your new mortgage loan, as the largest banks to the smaller
mortgage lenders will pass along this fee.
• Rates could go up more in the future as new fees are added per the
legislation.
The statement
from the Federal Housing Finance Agency (FHFA) also includes the
following language: "In early
2012, FHFA will further analyze whether additional guarantee fee
increases are appropriate to ensure the new requirements are being
met. FHFA will announce plans for further guarantee fee increases or
other fee adjustments that will then be implemented gradually over
the two-year implementation window, taking into consideration risk
levels and conditions in financial markets. FHFA will monitor
closely the increased guarantee fees imposed as a result of the new
law throughout its effective period, which ends Oct. 1, 2021.”
•
As part of this bill, the tax deduction for Mortgage Insurance was
also removed (you pay mortgage insurance if you put down less than 20% when
you bought your home). This tax break has been around since 2006.
It had been renewed each year since, but was allowed to expire this
year.
For the full statement - see
http://www.fhfa.gov/webfiles/22982/GFEESTMT122911F.pdf and
read more at Freddie Mac's Website -
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1126.pdf |
