Payroll Tax Cut Passes at Expense of Homeowners

payroll tax cut mortgage costs increaseFirst the good news: the payroll tax cut has been extended by two months. This extends the 2 percentage point Social Security tax cut paid by employees for two months (from 6.2 percent to 4.2 percent). Now the bad news: The extension will be paid for by charging an additional 0.1 percent in fees to banks that issue mortgages backed by Fannie Mae or Freddie Mac for the next 10 years. And, of course, this fee will be passed on Chicagoland homebuyers. So in effect, Congress has just penalized millions of potential middle-class home buyers by raising the cost of buying a home.
For a $200,000 house, the new fees will add about $17 a month to the cost of the home. This equals an additional $6,000 over the course of a 30-year loan. Obviously, homebuyers with bigger mortgages will pay more.  The fees will also apply to mortgages that are refinanced. By comparison, the tax cut is estimated to save a taxpayer making $50,000 a year $165, according to the Associated Press.
Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev., states, “Congress is paying for a temporary payroll tax extension through an increase in guaranty fees (g-fees) charged to mortgage lenders by Fannie Mae and Freddie Mac. In other words, Congress is seeking to enact a short-term economic stimulus by taking money out of the pockets of people who need a mortgage and ultimately raising the price of homeownership for all Americans seeking loans backed by Fannie Mae and Freddie Mac.”
“Using g-fees to fund budget gaps sets a terrible policy precedent. These fees should only be used for their intended purpose – to protect against mortgage defaults and ensure the safety and soundness of the housing finance system.”
“The housing market is struggling to emerge from its worst downturn in decades. Placing additional burdens on home buyers will do more harm to the economy than good.”
Let us know your thoughts. Will you think twice before buying a new Chicago home because of this increase?