This week, Congress is voting on trying to extend long-term unemployment benefits to many who had run out of time on finding work. I certainly empathize that there are a lot of good people out there who are struggling with unemployment through no fault of their own.
But what was not clear is exactly how this expenditure is going to be paid for, and there is considerable speculation that Congress will next increase a little known, and nearly invisible tax on homeowners who have a mortgage.
Back in September 2012, there was great debate about extending the payroll tax cut, but it finally passed. The way Congress funded the difference was to impose a little understood tax on the creation of mortgage capital. Commonly known as a g-fee (which is short for a government fee), it is a tax on every dollar of capital raised by Fannie Mae and Freddie Mac that is used to fund residential mortgages. Initially the fee was about $1 on every thousand dollars raised, or about $400 on a $400,000 loan.
But the cost to the consumer is actually considerably more than that. Fannie and Freddie (like any business) mark up the cost of the goods they sell (or really, rent in this case) in relationship to what the cost is. Down the line, the cost gets marked up again each time the loan changes hands. This raises the rate a consumer pays and impacts their payments for up to 30 years. That $400 ends up costing the consumer thousands of dollars during the years.
Knowing a good thing when they find it, Congress has continually pushed to increase g-fees on mortgages. Recently, the head of the agency that oversees Fannie and Freddie refused to implement the latest round, but the pressure is to do something.
It is widely believed that Congress will likely look to a g-fee increase to make up the cost of extending unemployment benefits.
To anyone outside the beltway, it’s as if Congress is drilling a hole in the bottom of the boat and wondering why the boat is suddenly sinking. It is well documented that for the economy to recover the housing sector needs to recover rapidly. In fact, the Federal Reserve has invested about $2 trillion in pushing mortgage rates lower, just as Congress (many of whom fret about the cost of the stimulus) put ridiculous taxes such as the g-fee in place which push rates higher.
And what is chilling about this line of thinking is that it justifies taxation of the creation of capital. Imagine if businesses were suddenly required to pay a tax on capital they raised to build a new factory or open a new store. While such a scenario may seem unlikely, never underestimate (or perhaps overestimate would be a better word) the mentality of Congress to see an iceberg and decide it looks like a nice place to beach the boat for a picnic.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at www.mtnmortgageguy.com.