New Stealth Tax on Mortgages

by Merrill Moss on January 12, 2012

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New Stealth Tax on Mortgages

In a move that has received almost zero attention by the media, the federal government has quietly levied a tax on mortgage rates for all new conventional loans for the next ten years.

Effective April 1, both Fannie Mae’s and Freddie Mac’s “guarantee fee” (known as the g-fee) will increase and remain in place for the next ten years.

What is the purpose of this increase? Is it to strengthen Fannie or Freddie, or help manage their risk? No, that might make sense. Instead it’s being done to fund the recent two-month extension of the U.S. payroll tax cut.

This stealth g-fee increase will begin by raising mortgage rates on conventional loans by roughly .125% (one-eighth of one percent). The CEO of the Mortgage Bankers Association, David Stevens, figured the increase would mean an extra $4,000 in interest charges over the life of the average $200,000 mortgage.

I don’t know what assumptions Mr. Stevens used to make that statement, but my own calculations show that it would add $14 and change, per month, to a $200,000 mortgage. Or from another perspective, the maximum loan the average home buyer will be able to qualify for after April 1 (such an appropriate day to begin this folly) will be approximately $3,000 less than they could qualify for today.

Thus making it harder for homes to sell.

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