In a classic example of a “slippery slope,” Congress once again is looking for easy pickings by increasing guarantee fees (g-fees) that Fannie Mae and Freddie Mac charge lenders to guarantee their mortgage lending. Last December, Congress raised the GSE’s g-fee by 10 basis points for 10 years. The goal was to raise almost $36 billion to pay for the extension of the payroll tax cut. Although this was supposed to be a one-time revenue plug, some lawmakers called for extending the new fees (at a slightly decreased rate) for an eleventh year to pay for restoration and clean up of the Gulf coast.
We understand it’s difficult for Congress to find “pay fors” for important initiatives at a time when Republicans have dug in their heels against tax increases for any purpose, even debt reduction. But treating g-fees as a piggy bank is ill-advised. Here’s why: Raising g-fees will compound the weakness of an already anemic lending environment, discourage home refinancing and lower housing demand.
In addition to dampening credit by making it more expensive– David Stevens, CEO of Mortgage Bankers, notes that the 10-basis-point increase would add $4,000 in fees to a $200,000 loan– raising fees to pay for other programs constitutes a kind of backdoor tax on America’s already beleaguered homeowners.
As the economy finally starts to show signs of life, Congress should avoid any actions that threaten to snatch recession from the jaws of recovery. Nothing is weighing down economic recovery more than America’s weak housing markets, which are still beset by falling prices.
In recognition of this fact, President Obama recently has launched a flurry of new housing initiatives. Congress also needs to appreciate the vital link between stemming the decline of housing values and speeding the return of prosperity. It also needs to get serious about fixing Fannie Mae and Freddie Mac, rather than raiding these politically toxic GSEs for revenues to patch holes in other programs.
Photo Credit: M. River
