January 16, 2012
At the conclusion of 2011, Congress passed and forwarded to the President for his signature the “Temporary Payroll Tax Cut Continuation Act of 2011”. The primary purpose of this legislation was to extend temporarily: (1) payroll tax relief, (2) unemployment compensation provisions, and (3) healthcare provisions. The estimated costs of the temporary extensions is $192.5 billion.
On Dec. 23, 2011, President Obama signed the legislation extending the payroll tax reduction and requiring the Federal Housing Finance Agency (FHFA) to raise guarantee fees (g-fees) for Fannie Mae and Freddie Mac loans in order to off-set $35.7 billion of the extensions' cost. FHFA, the conservator of Fannie Mae and Freddie Mac, is now directed to raise g-fees by at least 10 basis points. The new law also requires the Department of Housing and Urban Development (HUD) to establish and collect annual premiums, in addition to existing premiums, of 10 basis points of the unpaid principal balance on all FHA loans.
Despite NAR's strong opposition to the diversion of housing resources to pay for non-housing uses, the increase in g-fees is being used to pay for the extensions. HUD is required to phase in the increase over two years, as it determines appropriate, and will use the premium increase to shore up the FHA insurance fund. FHFA has directed Fannie Mae and Freddie Mac to increase their guarantee fees effective April 1, 2012. The increases will remain in effect through September 30, 2021. Lenders who choose to pass this increase on to borrowers will likely increase the rate offered to a borrower by at least .1% sometime before April 1, 2012. Several sources have placed the increase in cost at approximately $4000 - $5400 over 30 years on a $200,000 loan. On a monthly basis, the approximate increase will be $11-15.