Jul 292015
 

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By G. Steven Bray

This really gets my knickers in a knot. The Senate is again considering using fees on Fannie Mae and Freddie Mac mortgages, which represent the majority of market, to fund its spending plans. The Guarantee Fee or “g-fee” is charged by Fannie and Freddie to compensate it for the risk associated with guaranteeing a mortgage. In 2011, Congress raised the fee by 10 basis points to pay for a payroll tax break. This time, the Senate wants to extend the fee hike for 4 more years to help pay for transportation funding.

This is an easy move by the Senate because homebuyers generally are unaware of this special tax. There isn’t a “g-fee” line on the closing statement. Instead, the fee is reflected in the interest rate. What the homebuyer sees is a slightly higher rate or slightly higher closing costs. Either way, it acts as a tax for as long as the homebuyer owns the home.

So far, the House is pushing for a temporary extension of existing transportation funding and hasn’t agreed to the Senate’s fee increase. However, given the invisibility of the tax, it wouldn’t surprise me to see the House go along.

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