Using GSE funds to cover tax cuts a problematic notion

Housing industry stakeholders were recently concerned over proposals to pay for a long-term payroll tax cut by increasing guarantee fees charged by Fannie Mae and Freddie Mac, which would increase the cost to mortgage lenders each time one of the entities bought a loan.

Housing industry stakeholders were recently concerned over proposals to pay for a long-term payroll tax cut by increasing guarantee fees charged by Fannie Mae and Freddie Mac, which would increase the cost to mortgage lenders each time one of the entities bought a loan.

While lawmakers have passed a two-month extension to the tax cut, the fact that a longer-term measure is planned means the option remains a possibility. Realtors, lenders, builders and other housing industry experts and stakeholder have voiced concerns about the idea, largely due to the belief that it would be, in effect, a tax on mortgage borrowers since loans would be adjusted to compensate. One expert from Inside Mortgage Finance said the real estate data indicate the effect would likely be higher costs for homeowners, without any serious impact on mortgage demand.

The Mortgage Bankers Association (MBA), National Association of Home Builders (NAHB) and National Association of Realtors (NAR) all agreed the measure would be detrimental to the housing and mortgage finance industries. The three organizations wrote a joint letter addressed to lawmakers to that effect, strongly recommending they not pursue such proposals.

"With no appetite for private investment in mortgages, this action will simply drive more business to FHA, at a time when everyone agrees that the FHA should be shrinking its market share, not increasing it," wrote MBA president and CEO David Stevens.

NAHB chairman Bob Nielsen said the guarantee fee proceeds should not be used for purposes not directly linked to the housing market, suggesting their proper application is to support the mortgage finance system. He also warned the measure could interfere with the national housing recovery, which has already been slowed by other factors.

Other opponents of the measure have said using GSE guarantee fee funds that way could set a problematic precedent, extending the government conservatorship of Fannie Mae and Freddie Mac when many government officials, legislators and housing industry stakeholders would prefer to see it end as soon as possible. Echoing Nielsen's position, they indicate that using the funds for purposes not connected to housing could tie them even more firmly to the government.

Proponents of the measure have said that increasing the cost of dealing with GSEs would boost private capital involvement and commercial activity over government involvement in the mortgage market.



blog comments powered by Disqus