The U.S. House and Senate have been at odds recently on whether a payroll tax cut and unemployment benefits should be extended and how to best pay for the associated costs. So how does this impact housing and property ownership? The Senate has devised a bill that extends the payroll tax cut and some unemployment benefits, while paying for these programs by increasing the fees on some mortgages and refinancings.

Fannie Mae and Freddie Mac are government-backed entities that (among other activities) insure lenders against the risk of making home loans to consumers. Because private insurers have been reluctant to insure mortgages in recent years, Fannie and Freddie now insure roughly 9 in 10 new mortgages in the U.S. The Senate bill increases the fees that Fannie and Freddie charge to insure mortgages, meaning that a homeowner who purchases a $200,000 home would pay approximately $17 more in fees. However, at the same time a worker earning $50,000 per year could expect a decrease of $165 in payroll taxes over the 2 month extension of the payroll tax cut.

While this is a small increase, the total revenue expected from these fees is calculated at $33 billion over the life of the programs (a 2-month extension of payroll tax cuts and longer extension of unemployment and Medicare programs). It is somewhat puzzling that legislators would target housing as an industry to pay for other tax relief, given the recent industry struggles with foreclosures. However, some commentators speculate that this action was intended to raise Fannie and Freddie’s fees in an attempt to lure private insurers back into the market.

Read more here: http://www.washingtonpost.com/politics/congress/to-pay-for-payroll-tax-cut-senate-bill-increases-cost-of-new-mortgages-refinancing/2011/12/17/gIQAUk2h0O_story.html

Source: Washington Post

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